501(c)(6) coworking spaces

[David Evans]

We are starting a rural southern Vermont coworking space in a town called Brattleboro with 12,000 people and six colleges in the area. 

Our lawyer has recommended that we become a 501(c)(6) organization.

Much of the relevant information I've seen here is from 2010- 2012. We're looking for more recent feedback.

We feel like a non-profit makes the most business and social sense and is the best solution because:

The founding group isn't doing this for immediate profit. We all have startup consulting gigs or Economic development-related jobs.
Our core team will be replaced after a year.
Expenses similar to profit projections.
Corporate sponsors will help with rent and other things like printer stations.
Individual donors can donate via local college to realize donation write-off benefits.
We have access to some grant money as well (local nuke plant closed, area receives $2M/year for five years to ease burden of so many people and so much money leaving town).

We're open to other options of course but before we spend $1,000 to become official and start taking pre-memberships, I want to make sure we're on the right track. Thanks for your feedback.

[James S. Carlson]

Why a C6? Not a C3? 

We're a group that provides fiscal sponsorship for non-profit spaces, so you can 'become' whatever you want, whenever you want later.

James Carlson
414-215-0215

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[David Evans]

James, you sell/offer some sort of fiscal sponsorship solution, please
tell me why a c3 is more appropriate than a c6? You didn't identify
your group so I can't go see what you offer.

We don't need "to become whatever we want, whenever we want". Rather
get it right the first time and move on. We have several companies
that want to be our fiscal sponsor and are in no rush to have to deal
with more moving parts and more friction. We're not concerned about
spreadsheets or documentation, accountability is not a problem as we
do this sort of financial reporting often in other spheres of
business.

It appears that c6 makes more sense give the typical coworking space
mission statement. Do you offer this type of fiscal sponsorship? If
not, why not? Is c3 the perfect solution for coworking and no need for
c6 or any of the other 25+ non-profit designations?

Surprised there isn't more conversation around different types of
non-profit coworking spaces. Everyone assumes a c3 is the way to go
and that clearly isn't the case any longer. Especially when you
realize that a lot of c3's pay taxes. depending on circumstance of
course. And then we have L3C's as well.



Dave Evans
Coworking is coming to Brattleboro - coworkingplus.net
Digicraft.com
617-939-7916
https://www.linkedin.com/in/davidevans

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[Jeannine van der Linden]

There is a fable going around that it is easy to get (c)(3) status and that it is easy to maintain.  This was true for a long time, and with the streamlined procedure it is in some sense stiill true.  The trouble with all this is, when the IRS gets a new set of madates regarding enforcement then there will be audits.  And in case of an audit all those (c)(3)s are likely to have a problem.  The problem is, in what sense are you a charity?

This section of the IRS code was intended for businesses founded for charitable, religious, educational, scientific, or literary purposes, or for purposes of testing for public safety, fostering amateur sports competition, or preventing cruelty to children or animals.

Very few coworking related businesses are doing those things as their purpose.  Fostering community is not charitable in nature unless your community is a charitable community.

So in case of audit the chace is large of losing that status and all the headaches that follow.

I think the chance of audit is small.  But why start by trying to shoehorn your space intoa category that it does not easily fit?  A (c)(6) is more appropriate and more suitable for a lot of spaces.  The co-op is also in the rise and I expect to see more state level legislation in future in this area. Als LLC's are often a good choice.

It is the case that changing business form is not difficult,  But it is distracting and expensive.

I am interested in the L3C, because I think the notion of "low profit" companies is an interesting development in terms of how we think about doing business.  But I am I confess a little wary about it in general, possibly it is my nature to be careful abotu Legislatures bearing gifts.

B Corps are also interesting I think for coworking spaces.  Also new, but a little clearer in terms of the qualifications and governance.

[James S. Carlson]

Sorry my introduction wasn't terribly complete!

I'm with the School Factory -- schoolfactory.org 

Since 2010, we've been providing spaces with fiscal sponsorship and program hosting for 501(c)3 status, so we take care of all donations, grants, and compliance issues (as well as filing federal returns!) We're doing this for 48 spaces now, in addition to mentorship and guidance on how to run a good space, based on our own experience from starting what amounts to the first co-work / maker / artist space in the U.S. back in 2002.

Through that process, we've been in and out of every aspect of IRS law on the issue and have created a robust system for dealing with questions and issues, as well as handling the money quickly and accurately to avoid even being on the radar screen of the IRS. 

Many spaces fail to comply by being too private-- in other words, the IRS looks at them and says, "You're really just about a private club, offering benefit to members only." If a space offers any kind of open classes, programming, or outreach then it's much easier to comply. 

Also, many spaces confound the governance model they use with the type of organization they are--non-profit doesn't mean 'don't make money' and doesn't have to mean anything regarding a collective management structure. In the last several years working with more than 120 spaces, we've seen every kind of governance model coupled with L3C, B corp, and non-stock corps.

The C6 designation can be appropriate, depending on the situation. The difference seems to be in terms of the ability to advocate politically, among other things.

James Carlson
414-215-0215

[David Evans]

Thanks James. Yes the c6 designation maps much more closely to the coworking model than c3, but most people don't know the differences between the 25+ different non-profit models.

Spaces that don't offer suitable education components often have their c3 designation revoked. How often do you hear about that happening? We're heavy on education, but still, in the end, c6 takes weeks to get at most, c3 takes a year. So there's the timing aspect as well.

I'd like to see is a chart showing differently-sized coworking spaces and the corporate status of each and if they had to change designation after the IRS review. 

We're a town of 12,000 people, coworking is a break-even enterprise. If we were in Boston, we'd be something different.

Thanks again for your input, I don't see enough critical discussion over such an important foundation to a coworking space.

Dave

[Randall Arnold]

FYI, there's a new fast track process for certain nonprofits.  A friend had his makerspace c3 approved in 6 weeks; I've heard of others taking no more than 3 months.

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[Alex Hillman]

David -

What DISADVANTAGES have you considered of becoming a nonprofit?

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[James S. Carlson]

Also-- the "fast track" process applies if you're planning to remain small in terms of budget, and it's still not going to cover the probationary period during which it's harder to get grants or other major contributions. The C3 becomes "real" even more after the IRS makes the final determination on charitable activities which can take a couple more years after that.

--
James Carlson
414-215-0215

[Randall Arnold]

Right James, it just seems that many aren't aware that the new process even exists, and I've found that it can help many small organizations get booted up faster.

Charitable activities such as raffles were belayed anyway (lot of con activities with raffles, hence the probation), but there are still fundraising activities that can be performed from day 1.  Amazon Smile for instance is one of the easiest ways to get (small) amounts of money trickling in... another program I find that many are unaware exists.

Randy