discuss: Thread: EIN advantages (was" LDP can't get non-profit status ...)

> Quoting David Lawyer ####@####.####
> 
> > There are still a couple of options: 1. Incorporate or 2. Get an EIN
> > no. to open an investment account and to perhaps: get members exempted
> > from liability??
> 
On Tue, Apr 17, 2007 at 05:23:38PM -0700, Rick Moen wrote:
> To the best of my current understanding, the latter simply doesn't work.
> (You keep saying it's possible.  If you can find some citations, I'd be
> glad to discuss particulars.)

You must mean an investment account.  Awhile back I Googled and found
2 credit unions which advertise that they are welcoming accounts from
unincorporated organizations.  You need an EIN number however.  I've
got the application for an account with the low-cost mutual fund Co.,
Vanguard.  On their application for organizations there are
categories: corporation, partnership, sole proprietorship,
unincorporated enterprise, etc.  I believer that we fit into the
"unincorporated enterprise" category and could open an account with an
EIN number plus they want a copy of a document evidencing that we
exist (the Manifesto and the web site url).

But my local credit union said no when I inquired, so some (perhaps a
majority) of the financial institutions would not open an account
for us.  

As for exemption from liability, *if* the venue was California, then
the members are exempt to about the same extent that they would be if
LDP were a corporation.  See California Corporation Code section
18605: no liability based solely on status as member, director, or
agent of nonprofit association.  Some other states have similar laws
(there's a suggested uniform code on this) so Rick probably needs to
mention this stuff in his HOWTO.  Here's from the California
Corporations Code:

18020.  (a) "Nonprofit association" means an unincorporated
association with a primary common purpose other than to operate a
business for profit.  DL: That's LDP
   (b) A nonprofit association may carry on a business for profit and
apply any profit that results from the business activity to any
activity in which it may lawfully engage.  DL: LDP can sell t-shirts,
etc.

18605.  A member, director, or agent of a nonprofit association is
not liable for a debt, obligation, or liability of the association
solely by reason of being a member, director, officer, or agent.

DL: I'm possibly covered by this since one theory of venue is that its
the residence where the member lives and I live in California (near
Los Angeles).  Now if the EIN gave LDP's address as my home
address, then there is an even stronger argument that the venue is
California :-).  Note that my quoted statement at the start of this
email reads: "perhaps".

The protection of members from liability would likely be better if
LDP were incorporated, since if it's not incorporated, the state laws
like California's 18605 vary from state to state and the venue might
be a state without such laws.  In the future, more states are likely
to adopt such laws so then incorporation to limit liability will not
be important.  Since LDP is an "international virtual unincorporated
nonprofit association", what are the laws like in other countries to
provide limitations on liability?

			David Lawyer

David Lawyer wrote:
>> Quoting David Lawyer ####@####.####
>>
>>> There are still a couple of options: 1. Incorporate or 2. Get an EIN
>>> no. to open an investment account and to perhaps: get members exempted
>>> from liability??
> On Tue, Apr 17, 2007 at 05:23:38PM -0700, Rick Moen wrote:
>> To the best of my current understanding, the latter simply doesn't work.
>> (You keep saying it's possible.  If you can find some citations, I'd be
>> glad to discuss particulars.)
> 
> You must mean an investment account.  Awhile back I Googled and found
> 2 credit unions which advertise that they are welcoming accounts from
> unincorporated organizations.  You need an EIN number however.  I've
> got the application for an account with the low-cost mutual fund Co.,
> Vanguard.  On their application for organizations there are
> categories: corporation, partnership, sole proprietorship,
> unincorporated enterprise, etc.  I believer that we fit into the
> "unincorporated enterprise" category and could open an account with an
> EIN number plus they want a copy of a document evidencing that we
> exist (the Manifesto and the web site url).

If you are talking about what I think you are, then they are more 
commonly called "investment clubs." My father has participated in more 
than one, and I do not think it would be appropriate for TLDP. For a 
little more info on investment clubs, here's a website: 
http://www.sec.gov/investor/pubs/invclub.htm

> The protection of members from liability would likely be better if
> LDP were incorporated, since if it's not incorporated, the state laws
> like California's 18605 vary from state to state and the venue might
> be a state without such laws.  In the future, more states are likely
> to adopt such laws so then incorporation to limit liability will not
> be important.  Since LDP is an "international virtual unincorporated
> nonprofit association", what are the laws like in other countries to
> provide limitations on liability?

Just what kind of liabilities are you concerned about? The only 
liability that I see in TLDP's future right now would be tax fraud, and 
a corporation isn't going to protect you much from those charges.

On the EIN issue, I don't see why this is so complicated. On your form 
SS-4, check "Other nonprofit organization (specify)" as item 8a and fill 
in "Literary organization." This application would qualify as "Started 
new business (specify type)" in section 9, and then fill in "production 
and dissemination of literary works." The rest of the fields are fairly 
self-explanatory and are well documented at 
http://www.irs.gov/instructions/iss4/ch02.html

Also, note that many organizations will not readily donate to, or 
perform other charitable functions for, non-profits that are not 
specifically 501(c)(3). I have personally had to deal with this, as I 
work at an organization that is tax-exempt and eligible to receive 
tax-deductible contributions, but does not qualify under 501(c)(3). 
However, after fighting with the IRS to get a letter of determination, 
we have received grants and charitable contributions by carefully 
explaining our situation and showing-off our pretty letter (actually, 
it's a rather grainy facsimile).

~Bradley

> >>Quoting David Lawyer ####@####.####
> >>
> >>>There are still a couple of options: 1. Incorporate or 2. Get an EIN
> >>>no. to open an investment account and to perhaps: get members exempted
> >>>from liability??
> >On Tue, Apr 17, 2007 at 05:23:38PM -0700, Rick Moen wrote:
> >>To the best of my current understanding, the latter simply doesn't work.
> >>(You keep saying it's possible.  If you can find some citations, I'd be
> >>glad to discuss particulars.)
> >
> David Lawyer wrote:
> >You must mean an investment account.  Awhile back I Googled and found
> >2 credit unions which advertise that they are welcoming accounts from
> >unincorporated organizations.  You need an EIN number however.  I've
> >got the application for an account with the low-cost mutual fund Co.,
> >Vanguard.  On their application for organizations there are
> >categories: corporation, partnership, sole proprietorship,
> >unincorporated enterprise, etc.  I believer that we fit into the
> >"unincorporated enterprise" category and could open an account with an
> >EIN number plus they want a copy of a document evidencing that we
> >exist (the Manifesto and the web site url).
> 
On Wed, Apr 18, 2007 at 09:21:30PM -0500, Bradley Hook wrote:
> If you are talking about what I think you are, then they are more 
> commonly called "investment clubs." My father has participated in more 
> than one, and I do not think it would be appropriate for TLDP. For a 
> little more info on investment clubs, here's a website: 
> http://www.sec.gov/investor/pubs/invclub.htm

No, I'm not talking about investment clubs.  I'm talking about LDP
opening an account where it can earn a return on its money.  It could
be a bank account, brokerage account to buy stocks and bonds, credit
union account, or a mutual fund account like Vanguard where one can
also buy stocks and bonds.  It might even be an internet bank or
brokerage.  Just what to invest in is another long topic which I'd
rather not discuss right now.

> >The protection of members from liability would likely be better if
> >LDP were incorporated, since if it's not incorporated, the state
> laws >like California's 18605 vary from state to state and the venue
> might >be a state without such laws.  In the future, more states are
> likely >to adopt such laws so then incorporation to limit liability
> will not >be important.  Since LDP is an "international virtual
> unincorporated >nonprofit association", what are the laws like in
> other countries to >provide limitations on liability?
> 
> Just what kind of liabilities are you concerned about? The only
> liability that I see in TLDP's future right now would be tax fraud,
> and a corporation isn't going to protect you much from those charges

Suppose that someone gets a copy of SCO documentation, claims it's a
HOWTO and gets it on our websites.  Then SCO sues LDP for billions of
dollars like they did IBM.  They might try to claim that everyone on
our mailing list is a defendant.  The guilty party is really the one
who got it from SCO and claimed it to be a HOWTO but SCO could claim
that LDP is to blame.

> On the EIN issue, I don't see why this is so complicated. On your
> form SS-4, check "Other nonprofit organization (specify)" as item 8a
> and fill in "Literary organization." This application would qualify
> as "Started new business (specify type)" in section 9, and then fill
> in "production and dissemination of literary works." The rest of the
> fields are fairly self-explanatory and are well documented at
> http://www.irs.gov/instructions/iss4/ch02.html

I know this.  I could do it in say 1/2 hour.  It's not exactly a
literary organization but more of a publishing (distribution)
organization.

> Also, note that many organizations will not readily donate to, or
> perform other charitable functions for, non-profits that are not
> specifically 501(c)(3). I have personally had to deal with this, as
> I work at an organization that is tax-exempt and eligible to receive
> tax-deductible contributions, but does not qualify under 501(c)(3).
> However, after fighting with the IRS to get a letter of
> determination, we have received grants and charitable contributions
> by carefully explaining our situation and showing-off our pretty
> letter (actually, it's a rather grainy facsimile).

I don't think we need much money if we can find volunteers.  But one
advantage of incorporating is that then we could then utilize
VolunteerMatch to search for volunteers.  I think that LDP should
incorporate if we can do so without much cost and keep basically the
same organizational structure.  The first step is this process will be
to find a good president, treasurer, and secretary. 

			David Lawyer

Quoting David Lawyer ####@####.####

> You must mean an investment account. 

Actually, no, by "the latter", I was referring to your phrase "get
members exempted from liability".

(Sure, it makes sense that they'd want an EIN to open a bank or
equivalent account for a group, as that functions as the TIN = Taxpayer
Identification Number for the group, for which role US individuals
provide their Social Security numbers.)

> As for exemption from liability, *if* the venue was California, then
> the members are exempt to about the same extent that they would be if
> LDP were a corporation.  See California Corporation Code section
> 18605: no liability based solely on status as member, director, or
> agent of nonprofit association. 

OK, that clears up our misunderstanding.  That statute _doesn't_ exempt
members from legal liability; it just prevents them from assigned
liability for deeds (of others in a non-profit association) in which
they had _no personal involvement_, over which they had not personal
control, and from which they received no contractual benefit.

Note carefully the broad areas cited (in my foregoing summary) that
still leave the member potentially on the hook, and also these catch-all
phrases in sections 18620(a)(3) and 18620(b):  

  18620. 
  (a) A member, director, officer, or agent of a nonprofit
  association shall be liable for injury, damage, or harm caused by an
  act or omission of the association or an act or omission of a
  director, officer, or agent of the association, if [...]
    (3) The member, director, officer, or agent is otherwise liable
    under any other statute.
  (b) This section provides a nonexclusive list of existing grounds
  for liability, and does not foreclose any common law grounds for
  liability.

"Nonprofit association" is defined in section 18020.  It means what you
think it means.  ;->  (Oh, I see you found that.)

When I said that the only state liability provisions I found were not
worth a damn, I _was_ in fact including the cited California statute.  
Why?  Because of the large number of exclusions, and because the
liability it purports to ban is not realistic in the first place.  I'll
explain:

Imagine you're a member of an unincorporation nonprofit association....
Wait, I've already gone through this exercise once in private mail for
the President and VP of the Silicon Valley Linux User Group, so let me
just quote that mail in its entirety:


  From: Rick Moen ####@####.####
  To: Paul Reiber ####@####.####
  Cc: Mark Weisler ####@####.####
  Subject: Re: Can't Make It Saturday

  Quoting Paul Reiber ####@####.####

  > Hi, Mark!  I've been chatting on the phone and via IRC with Rick about
  > his understanding of 501c3 et al.  His understanding is that SVLUG
  > wouldn't even need to file unless we're receiving in excess of
  > 25K/year in donations.
  >
  > We need to verify that to be the case, as Rick has said to me a few
  > times that he's not 100% positive.

  See in particular the IRS instructions for form 990.

  > Also we might want to learn what are the pros/cons of keeping the
  > organization at it's current state - unincorporated, no insurance,
  > etc. - my guess is that this gives us freedoms which we could very
  > well lose if we take certain steps, but I'd like to be sure.

  Incorporation gets you something called a liability shield, which is
  frequently badly misunderstood by computerists.  In _no_ way does it
  shield the officers or volunteers from being sued.  All it does is
  prevent any plaintiffs from suing individual shareholders for tort
  damages merely because they own the corporation, when the corporation is
  alleged to have wronged the plaintiff.  Plaintiff's maximum haul in
  damages from suing the corporation is limited to the corporate net
  assets.

  Plaintiff can _also_ sue as co-defendents any officers or volunteers
  whom he can credibly claimed were involved in the wrongful act.  If
  successful in his lawsuit, he can go after those individuals' assets
  without mercy.

  It is traditional (and might be required by their employment contracts)
  for corporations to reimburse the legal expenses of corporate officers
  who get roped into lawsuits against the company as co-defendents -- but
  nothing requires this.  That obligation also assumes that the
  corporation has assets. ;->

  Here's a hypothetical.

  With incorporation:

  We incorporate.  SVLUG Corporation accepts donations
  and soon has $800 in the bank.  However, you go crazy and post to
  ####@####.#### that Fred User is a child molester (and you're
  posting as "SVLUG President").  I'm similarly deranged, and I print up
  posters quoting your message, w/a header proclaiming the poster an
  official SVLUG publication, and nail it up around town.

  Fred sues for libel, naming SVLUG Corp., Paul, me and Mark Weisler.
  He claims his reason for including Mark is that he's one of SVLUG's
  owners (a shareholder).  Fred wins his case, but the judge strikes
  Mark from the defendent list on grounds that the corporate liability
  shield statute guarantees that Mark can't be held responsible for what
  the corporation does without any better justification than his being a
  shareholder.  (If he'd been _involved_ in the deed, that would have been 
  different.)
                                                                                
  Paul and I get ordered to pay immense damages to Fred.  SVLUG
  Corporation is morally obliged to reimburse us, but unfortunately the
  lawsuit burned up its $800 in about the first ten minutes.  The shield
  means that Fred can't dig deeper via member assets; all he can get from
  the corporation is what the corpooration itself owns.

  Without incorporation:
                                                                                
  Fred sues for libel Paul, me, and (if he's really pissed off) all of the  
  names of anyone he's able to identify as an SVLUG member.  The judge
  looks at the long list of names and says "Er, what did all of these
  people have to do with the posting and flyer?"  Fred's lawyer tries to
  explain why, and everyone else's lawyers give their respective versions
  of "My client had nothing to do with it."  Everyone but Paul and me 
  gets dismissed quickly.  We (Paul and I) lose, and pay damages to Fred.

  Not a lot of difference, really.  The people who really benefit from 
  incorporation are the shareholders, as they don't even have to fight to
  get excluded from lawsuits like Fred's:  They're immune automatically.
  In a non-corporate context, you're not immune _automatically_, but
  just file a motion saying "Your Honour, I simply wasn't one of the guys 
  who did this bad thing", and thus get dismissed from the suit.

  To clarify, even non-profit corporations have shareholders:  In that
  case, they're the membership.  Legally, they're shareholders even if
  they'll never see any dividends or annual reports.


SVLUG VP Mark Weisler, who (like me) works closely with attorneys in
business, replied to Preident Paul Reiber that "Rick's analysis matches
what I consistently hear from expensive attorneys."  FWIW.  ;->

> The protection of members from liability would likely be better if
> LDP were incorporated, since if it's not incorporated, the state laws
> like California's 18605 vary from state to state and the venue might
> be a state without such laws.

Just to be clear about this, the only liability shield incorporation
affords is against being found liable for actions of the group with
_no better reason_ for being included than merely being a shareholder
(who, in the case of non-profit corporations are its members).  

And if you're hauled into court as a co-defendant on a deed you had
no personal involvement with, your lack of a "liability shield" means 
merely that you have to file a motion to dismiss you from the suit
because, hey, you had no personal involvement.  (See Fred User example,
above.)

Quoting David Lawyer ####@####.####

[What's the liability concern?]

> Suppose that someone gets a copy of SCO documentation, claims it's a
> HOWTO and gets it on our websites.  Then SCO sues LDP for billions of
> dollars like they did IBM.  They might try to claim that everyone on
> our mailing list is a defendant.  The guilty party is really the one
> who got it from SCO and claimed it to be a HOWTO but SCO could claim
> that LDP is to blame.

1.  You immediately file with the court a "motion to drop" LDP personnel
as [co-]defendants, pointing out their lack of involvement in the
alleged copyright infringement, and given LDP's good-faith reliance on
the submitter's implied claim of title.  

2.  SCO (what remains of it) would actually have vanishingly little
motive to attempt such a lawsuit.  Lawsuits cost money; they therefore
tend to be brought in matters where significant dollars are at stake.

3.  In your hypothetical, SCO would be far, far more likely to, instead, 
simply send a 17 USC §512(c)(3) takedown notice (that's DMCA) -- with
which LDP would then comply by removing the offending materials.  Done.
(Why bring civil litigation when you can just send an e-mail?)

4.  If LDP immediately removed the allegedly infringing materials upon
request, in order to then prevail in copyright litigation against LDP and 
win monetary damages, SCO would have to show:

(a) that it had registered the copyright on that documentation with the  
    Library of Congress in a timely fashion.  (This is vanishingly unlikely.)
(b) that it had suffered actual monetary damanges from the infringement.

Absent those two conditions[1], a copyright lawsuit can accomplish only
forcing the alleged infringement to cease -- which would be stupid and
pointless because LDP would have already done so.

[1] Please also see:  http://www.catb.org/~esr/Licensing-HOWTO.html

On Thu, Apr 19, 2007 at 08:45:20AM -0500, Bradley Hook wrote:
> David Lawyer wrote:
> 
> >Mostly true but the point is that if LDP were incorporated, SCO could
> >only sue and hold responsible those people guilty of misconduct and
> >not sue every member.  Absent laws to the contrary, it's sometimes
> >alleged that every member of an unincorporated organization is
> >responsible for acts of the organization, even if they were not
> >participants in such acts.  Fortunately, many states (California and
> >Texas definitely do) have such laws protecting members of
> >unincorporated nonprofit associations from such vicarious liability.
> 
> Isn't copyright a federal law applicable in a federal (not state) court?
Yes, but I think that federal courts go by applicable state law.
The case for this would be stronger if the unincorporated association
were registered the that state.

In California, one can register an "Unincorporated Nonprofit
Association" with the State Government.  A number of people registered
their gay marriage that way, but it's pretty meaningless.  There is
no checking to determine if you really are non-profit.  The law for
registration is under the heading "Insignia"; and one also describes
the organization's insignia and registers that too.  It seems that
it's mainly for use by fraternal clubs, although LDP could use it too.
Laws prohibit wearing the insignia if you are not a member.

> >LDP just doesn't have the resources to try to determine if a
> document >is plagiarism.  But I did find some plagiarism in a howto
> by Al Dev >and for this and other reasons we removed all his HOWTOs
> for review >I don't think we've every found time to review them.
> They were >all pretty bad.  So if someone points out plagiarism to
> us, it's our >legal responsibility to remove it.
> 
> This I can mostly understand. However, if LDP is concerned about
> future litigation, then it is my opinion that a solution should be
> sought that prevents liability rather than redirects it. For
> example, the Linux kernel now has a method of tracking who
> contributes what, and what chain of people it goes through to make
> it into the kernel. While this doesn't effectively eliminate the
> possibility of illegally copied code, it does show a good faith
> effort of trying to ensure only legitimate code is incorporated into
> the kernel.

Well, since authors put their name on their work, there isn't much
need for such a tracking system.

			David Lawyer

I did not receive a copy of Bradley's post, to which David replies
below.  (Nor did LDP's Web archive store a copy, to the best of my
ability to tell.)

Quoting David Lawyer ####@####.####

> On Thu, Apr 19, 2007 at 08:45:20AM -0500, Bradley Hook wrote:
> > David Lawyer wrote:
> > 
> > >Mostly true but the point is that if LDP were incorporated, SCO could
> > >only sue and hold responsible those people guilty of misconduct and
> > >not sue every member.  Absent laws to the contrary, it's sometimes
> > >alleged that every member of an unincorporated organization is
> > >responsible for acts of the organization, even if they were not
> > >participants in such acts.

It is also sometimes alleged that the sun revolves around the earth.

(The cited belief presupposes that judges are stupid.  That may be true
locally in some situations, but is not generally so.)


> > >Fortunately, many states (California and
> > >Texas definitely do) have such laws protecting members of
> > >unincorporated nonprofit associations from such vicarious liability.

Even more fortunately, judges are not stupid.

> > Isn't copyright a federal law applicable in a federal (not state) court?
> Yes, but I think that federal courts go by applicable state law.

Copyright in the USA (like patents) is a Federal matter by Article I,
Section 8 of the Constitution.  Any state statutes would be pre-empted by
Federal legislation.