notes from 11/18 meeting with CUNY students
Jan Bindas-Tenney
Movement Space Meeting
11/18/12
Lara, Lucas, Sharon and Jan
Kunal and Bedel from CUNY law
We spent most of our meeting with CUNY students Kunal and Bedel discussing their research on MSP incorporation structures (see notes below). It was exciting to spend time talking about concrete organizational structures for this project.
In terms of next steps we need to (somewhat urgently) shore up the core team (create cohesion, confirm existing members, invite new people to get up to 8) and reconvene on Sunday December 9 for a longer 10 a.m. to 5 p.m. retreat-like gathering to get moving again, create a plan, launch the working groups, etc.
Lucas, Sharon, Lara and I all are all committed to move forward. We need to reconfirm with you: Denisse and Michael that you want to and are available to continue on the core-team. Michael please call Lucas to discuss. Denisse please call me.
Conclusions coming out of the CUNY presentation:
It seems that a worker-run-cooperative might be the best structure for us (Sub Chapter T). However, we do not have the ability to accept tax-deductible donations or solicit money from foundations as a worker-run-cooperative. We can always accept donations or investments, but need to be careful about keeping monetary investments/donations separate from the decision-making structure.
Any singular structure might not suit us. We want the students to do additional research about our capacity to have a worker-run cooperative with a 501c3 subsidiary or the reverse (501c3 umbrella with for-profit subsidiary), so that we could potentially accept donations and give a tax deduction, etc.
We also want them to look into if there is a way to create a tax incentive for a landlord to rent to us.
I took the notes as we were talking and it was a lot of information so if anything is unclear, just let me know and I can re-work it.
Presentation from Kunal and Bedel CUNY law students
Purpose:
Provide information to the core MSP group about incorporation
Why incorporate at all?
To cover and protect ourselves.
Key concepts:
Liability: held to account for. Extent to which a personal stakeholder assets are exposed to contractual obligations and/or tort claims.
Unlimited liability: both personal assets and business assets are exposed to third party claims
Limited liability: only business assets are exposed to third party claims
Business Structure: Legal organization within which a person or persons may conduct income-producing activities.
Stakeholders: People holding an equity interest in a business structure are its owners
Equity Interest: an at risk investment in a business structure that is tied to the success or failure of the business structure.
Profit: earned income
501c3
Not-for-profit corporation. Two main principles: point can’t be to make money. Net earnings cannot benefit a private individual. Service can’t benefit private interests.
501c3 has to provide charitable, educational, etc. purpose. That doesn’t mean that the organization can’t earn income: just that income needs to be incidental to achieving charitable purpose.
Problem is that earned income has to work towards charitable purpose. Otherwise, earned income is subject to Unrelated Business Income Tax (UBIT). Unrelated business income tax is put in place to make sure that non-profits aren’t interfering in the capitalist market and competing with for-profit businesses. (i.e. that our cafe isn’t taking business away from other cafes in the neighborhood)
Any kind of unrelated business activity that you’ve done and made more than $1,000 has to be taxed. Exception: work is all done by volunteers. Service provided for a convenience to members (i.e. café at the Met Museum, etc).
Passive income restrictions: (space rental, equipment rental). If more than 50% of total income is coming from personal property rentals (movable property, anything you can pick up and move), all income will be taxable. Only 10% can be movable property rental.
Childcare can be charitable. Childcare would be considered “educational.” But will be difficult to have childcare and a bar in the same place.
Events: have to be suggested donation entry. Fundraising events: can charge for drinks, entry, etc. But fundraising events can’t be “frequent.” What qualifies as “frequent?”
Non-profits are supposed to be doing what the government is failing to do.
Organization structures to look at (Kunal is going to spend some time researching):
Brecht Forum
The Point
AJ Muste: rental issues.
Housing Works: cafe. sell books.
Bluestockings: what structure?
Audre Lorde Project: non profit but run like a worker co-op
Look at Goodwill’s mission. They make 34 million per year from sales, but maintain non-profit status.
IRS uses 3 part test to determine whether or not the income producing activity is tax exempt:
1. Is it a trader business? (i.e. we are really a cobbler)
2. Regularly carried on profit bearing activity - enough to take out of non-profit and move into for-profit market?
3. Is it NOT substantially related to charitable purpose?
Employees have to be “reasonably” compensated.
Structure:
Board of Directors who hire or elect the “officers:” President, VP, Treasurer. Then officers hire staff.
Fiscal Sponsorship:
501c3’s in the process of forming seek out fiscal sponsors. Have to find a 501c3 that has a similar mission. If we have a fiscal sponsor in mind, should see if it would match up. They are accountable for whatever we do. We are responsible to them.
Sole Proprietor or Unincorporated Partnerships
If we don’t incorporate. We can just start doing movement space without incorporating each of us are individually liable, responsible, etc.
Corporations
Basic premise is that stakeholders come together to form an entity to make money.
C-Corporations= big corporations,
Double taxation myth: corporate tax 35% on earnings. Then when profit is taken out, shareholders are taxed again. However many corporations create holding companies to avoid taxation. Can get “terribly creative” about taxes.
S-Corporations= small businesses.
For S-Cor and C-Cor: the way the corporation raises money is by selling shares: securities market. Fundraising potential is limited. Financing is a little tricky. Because of federal and state securities regulations, have to comply with regulations to make securities available to the public. Limited capacity for individuals to invest unless you are big time because you have to follow a very strict securities regulations procedure.
Investment: expectation of return
Donation: no expectation of return
Sub Chapter T Corporations:
Worker owned co-ops. One share one vote. Members (worker owners) elect the board of directors, board of directors elect the management group. Member buy-in instead of share holder buy-in. Member in a worker co-op can’t sell share for a profit. Only get initial fee back if you sell out. Internal financing mechanisms: retained earnings are kept separate in a collective reserve account. Can be used to fund future investments. We can accept investments: but distance decision making from investors. Investors can’t make decisions. Can’t provide tax deduction for donations, but obviously can always accept donations. Can’t access private foundation moneys.
LLC: Limited Liability Company:
Hybrid between partnership and corporation. Putting us in a shell of liability protection. We figure out percentages of ownership. Earnings or losses show up on personal tax filings. LLC can’t access private foundation moneys.
Subsidiaries: Can have multiple structures under one.
L3C: Low Profit Limited Liability Company:
Can register in another state (like Vermont) and operate in NYC. But hasn’t been tested in the courts. Subset of the LLC. Only difference is that private foundations can invest money into L3C. L3C has to have a social mission first before for-profit mission. Program Related Investment: high risk investment for the foundation. L3C has to pay it back to the foundation eventually. L3C can’t accept tax deductible donations.
Benefit Corporations
Social mission and for profit motives.
denisse andrade
Lucas Shapiro
From: kunal....@live.law.cuny.edu <kunal....@live.law.cuny.edu>
Date: Sun, Jan 13, 2013 at 3:38 PM
Subject: RE: [MSP-Core] notes from 11/18 meeting with CUNY students
To: "lucas....@gmail.com" <lucas....@gmail.com>
Hey Lucas,
I am very sorry for the delay in responding to you. Before I get into it, you should know that I will not be representing you and your organization next semester. I will not be part of the clinic anymore. John may assign another student to represent your organization by next semester, but you will have to speak to him about that. I do not know what will happen.
Also, thank you for letting me represent you. I am happy you were my first client. Your organization is wonderful and I enjoyed meeting and working with all of you. Please forgive the gaps in my research and knowledge. I am just becoming familiar with this area of law, but I did my best to answer your questions. I have attached a Word document that includes links to online articles, forms and publications that I think can be helpful to you. I hope that the next student-attorney can easily pick up where we have left off. Thanks again.
Sincerely,
Kunal
609-915-2974
AJ Muste: rental issues.
I did some research about AJ Muste and rental issues. I looked at their form 990 from 2009. That year, AJ Muste’s gross revenue from rentals was $120,794. Their expenses related to providing property for rental was $192,129, so their rental income was -$71,335. They never rented out personal/ movable property – only real property.
They had $1.2 million in contributions and grants that year. I think you asked me to look at AJ Muste for how they can afford their Manhattan space. If I am reading this form correctly, they spent $34,000 for their space that year. They gave $890,000 to other organizations within the US and $242,000 to organizations abroad.
Housing Works: café. Sell books.
Housing Works, Inc. is the parent not-for-profit company for 14 different organizations. All of these subsidiaries are not-for-profits except one – the café. Even though the café merchandise is donated and the staff is comprised mostly of volunteers, the café is not tax exempt. The reason I believe is because the space is made available for rent. Remember, a café would tax exempt if it were for the convenience of people enjoying the charitable public benefit the organization provides. The example I gave was the little café in the MET. A strong argument could be made that this café is doing just that – providing people with small beverages and a place to sit while they consider what books to purchase. Also, just to backtrack for one moment, the reason we have to make excuses is because of the UBIT, which says that if the business activity is not substantially related to achieving the charitable purpose of the organization, and if the activity brings in more than $1,000, that revenue be taxed like any other business. The reason I bring it up is there are certain exceptions. Volunteer staff, donated merchandise and general convenience are a sort of exception, but I believe they are not sufficient in this case because the café rents both personal/ movable property and real property. That is, they’re making a lot of electronic equipment, sound engineers and different kinds of tables available to renters.
Here is the clearest articulation of this sub-rule that I could find: Rents from real property are excluded in computing unrelated business taxable income. Rents from personal property are not excluded. However, special rules apply to “mixed leases” of both real and personal property. In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. That is the IRS statement of the rule. I have provided the whole document. It’s a wonderful document with clear rule statements and good examples.
Another note: It is interesting that on the website the café, despite not qualifying for tax exempt status, nevertheless presents itself as meeting the definition of a not-for-profit. It seems that these not-for-profit elements (donated merchandise and volunteer staff) actually keep this for-profit afloat. Look at the description: Housing Works Bookstore Café has established itself as a New York downtown institution and tourist destination for the last decade. Special events and a fully stocked café make this a great place to meet friends, relax, and shop the book, movie, and music selection in New York City. Our one-of-a-kind space is available for rental and all of our merchandise is donated. We are staffed almost entirely by volunteers and 100% of our profits go to Housing Works.
Bluestockings: what structure?
Bluestockings does not seem to be a tax exempt organization. I cannot find any Form 990. But it does seem to be a worker owned cooperative or at least involve some kind of collective decision making. I have heard that the space has nevertheless been supported by donations. These donations would not be tax deductible, but this seems to be working for Bluestockings.
Audre Lorde Project: non profit but run like a worker co-op
Look at Goodwill’s mission. They make 34 million per year from sales, but maintain non-profit status.
________________________________________
From: Lucas Shapiro [lucas....@gmail.com]
Sent: Sunday, January 13, 2013 12:47 PM
To: Bedel Tiscareno; kunal....@live.law.cuny.edu
Subject: Re: [MSP-Core] notes from 11/18 meeting with CUNY students
Hey guys. Happy new year.
I never heard back from you, but I really hope we can still discuss the follow up from the meeting we had at my house. We're reconvening again and would love to explore the questions you guys said you'd look into back in November.
If for some reason that is no longer possible, please do let me know so I can figure out from John Whitlow if there's a way for a new crop of students to pick up from where we left off.
Thanks.
xx
Lucas
Hey guys,
I hope you're both doing well. I realize the semester is coming to a close, but we'd still very much like to discuss what yall have discovered from the follow-up research to our meeting in November.
Hope to hear from you.
xx
Lucas
Hey Lucas,
Sorry for the late reply, but these days neither my time nor my mind are my own. On behalf of Kunal and myself I want to thank you for hosting the meeting. It was a pleasure to meet the other members of the core group. Also, thank you for forwarding Jan's notes, they're very helpful.
Kunal and I have a meeting with John early next week at which time we'll discuss the work plan for the remaining semester. After that meeting I will send you an updated work plan and address the remaining issues discussed in Jan's notes.
Best,
Bedel
Hey Bedel and Kunal,
Thanks again for your thoughtful presentation last week helping navigate us through this exciting and complicated process.
Below are the notes that Jan graciously typed up. I wanted to make sure you all have an opportunity to scan through them and let us know if there's any critical missing pieces, items that need additional clarification, or updates you have on your end.
Could the two of you also send us a draft updated work plan so we know how best we can collaborate with eachother on incorporation and hopefully a few of the other legal matters we are hoping to have a better grasp on? Please let us know if you need anything from us as well.
onward!
xx
Lucas
---------- Forwarded message ----------
Date: Sat, Nov 24, 2012 at 12:46 PM
Subject: [MSP-Core] notes from 11/18 meeting with CUNY students
Movement Space Meeting
11/18/12
Lara, Lucas, Sharon and Jan
Kunal and Bedel from CUNY law
We spent most of our meeting with CUNY students Kunal and Bedel discussing their research on MSP incorporation structures (see notes below). It was exciting to spend time talking about concrete organizational structures for this project.
In terms of next steps we need to (somewhat urgently) shore up the core team (create cohesion, confirm existing members, invite new people to get up to 8) and reconvene on Sunday December 9 for a longer 10 a.m. to 5 p.m. retreat-like gathering to get moving again, create a plan, launch the working groups, etc.
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--
Lucas Shapiro
address: 70 south elliot pl., brooklyn, ny 11217
work: 718.852.2960<tel:718.852.2960>
--
Lucas Shapiro
address: 70 south elliot pl., brooklyn, ny 11217
work: 718.852.2960<tel:718.852.2960>
--
Lucas Shapiro
address: 70 south elliot pl., brooklyn, ny 11217
cell: 917.385.1254
work: 718.852.2960
Lucas Shapiro
address: 70 south elliot pl., brooklyn, ny 11217
cell: 917.385.1254
work: 718.852.2960