Subject:
Re: [discuss] LDP can't get non-profit status without incorporating
From:
Rick Moen ####@####.####
Date:
18 Apr 2007 06:24:29 -0000
Message-Id: <20070418062426.GK21603@linuxmafia.com>
Quoting Stephanie Erin Daugherty ####@####.####
> A corporation is a legal entity. The actions of it's officers and
> employees on it's behalf are actions of the corporation, and not of the
> people acting for the corporation, with a few important exceptions for
> gross negligence and criminal conduct.
This is a common misconception, and in fact I did address it in the "Common
Misconceptions Debunked" section in the User Group HOWTO's Legal and
political issue, Organisational legal issues coverage.
The "liability shield" one can get from incorporating
_doesn't protect volunteers from legal liability_. All
it does is prevent any plaintiffs from suing individual
shareholders (LUG members, in this case) for tort damages
merely because they _own the corporation_, if the corporation
itself is alleged to have wronged the plaintiff. Plaintiff's
maximum haul in damages from suing the corporation is
limited to the corporate net assets, in that one case.
However, volunteers are still fully liable for any personal
involvement they're alleged to have had.
If you'll think back about past decades' examples of corporate
malfeasance, you'll find many instances of corporate officers or
directors being named as defendants or co-defendants, because of actions
in which plaintiff claims they participated, and which plaintiff alleged
were tortious (wrongful). This is also why corporate officers and
directors often carry umbrella insurance policies against tort
liability.
The corporation has a moral obligation to underwrite the officer's legal
expenses if he/she was acting within the scope of his/her job (and, of
course, in some cases a contractual obligation), but that's the limit of
the corporation's "shielding" of such people. If they can be proved to
have done the deed, then they run the risk of being sued for it, even if
they did it for the Dear Old Firm.
> In order to go after an agent of the corporation as an individual, one
> must first bear the burden of showing to the courts why the individual
> and not the corporation is at fault - which is difficult to show for
> actions made in good faith.
Er, that's exactly the same burden of proof required for _any_ tort
litigation, against anyone, anywhere, at any time: You (as plaintiff)
must show that the defendant, rather than someone else, was proximately
responsible for the act that you claim was a tort. Joint and several
liability is often sought, with the degree of responsibility of each
party decided by the judge or jury.
In such a case, in case you were thinking otherwise, the corporate
officer cannot get off by saying "I'm not responsible for ramming that
station-wagon full of nuns with the company van, and should be dropped
from this lawsuit, because the company CEO sitting next to me ordered me
to hammer down on the accelerator." Sorry, doesn't work.
> As for other benefits, the LDP once incorporated would be free to
> pursue 501(c)3 status, allowing it to take tax deductible donations
> and exempting it from income tax.
1, As a practical matter, LDP is miles away from having to worry about
having (USA) income taxes assessed against it -- which should be
apparent from the fact that IRS doesn't even want to get reports from
groups bringing in less than $25,000/year in gross revenues.
2. Many of the individuals and groups who might consider making
monetary (and similar) contributions to LDP don't need it to be
501(c)(3), for those contributions to be tax-deductible, because they
are claimable as some other type of expense, e.g., marketing expenses or
some other business category.
> A corporation also provides one other benefit - continuity of
> operations.
It's a misconception that it even helps. Groups that don't have their
acts together aren't necessarily rendered any stronger by incorporation,
and in fact it adds an extra layer of burdens on the staff, in the form
of the annual mandatory IRS filings.
> If god forbid something happen to one or more of the leaders, the
> corporation itself is not crippled, and can continue to act and
> operate normally without having to wait months for assets to be
> released, estates to be settled, etc.
1. Corporations by definition can act _only_ through their agents.
2. Believe me (as I've seen it happen), a corporation whose primary
agents walk away will generally tend to be pretty much screwed, just as
that same group would be without incorporation, and for the same
reasons.
> A corporation also provides clear oversight and control of assets,
> including intellectual property.
Gosh, I really wish that _weren't_ basically a non sequitur.
> In the case of organizations like the Apache Software Foundation and
> Mozilla Foundation, this has allowed copyrights to be held by the
> corporation itself, without the fear that said copyrights would be
> misused - this greatly simplifies the license situation, allowing the
> corporation to adopt different licensing terms as needs change -
> avoiding the logistical nightmare of obtaining permission from every
> contributor to change versions of the license.
1. Er, this doesn't prevent the assets from being misused. It just
means they can for all practical purposes be misused only by the parties
who control the corporation.
2. Begs the question of whether similar group ownerships of assets are
not possible without incorporation. For the most part, they are. The
most desirable form of asset ownership, just like the most desirable
form of organisation, depends, of course, on what you are trying to do.
> I guess to proceed you need to look at a few factors:
How about them deciding _what they're trying to accomplish_ in the first
place? All of this preceding discussion was dictated by some
misconceptions about VolunteerMatch.com's procedural requirements. A
more rational discussion would start with articulating what LDP's goals
are.
And I continue to be dismayed at computerists' frequent tendency to leap
towards incredibly baroque organisational forms, based pretty much
entirely on bad guesses about business realities, law, taxation,
insurance, and so on. (I say that as someone whose former occupation,
before he became a computer network consultant, was being a staff
accountant and auditor at CPA firms.)
