What does it mean to join the Software Freedom Conservancy?

First of all, the Software Freedom Conservancy is fairly new, founded in March of this year. It is a specialized legal project spun out of the Software Freedom Law Center, which provides pro bono legal representation and other law-related services to protect and advance Free and Open Source Software. The distinctive purpose of the Conservancy, which exists as an entity distinct from the Software Freedom Law Center, is to provide administrative and financial services to its members so they can take advantage of the benefits of being a corporate entity, without having to take on the filing, record-keeping and legal work necessary for nonprofits, by coming under the Conservancy's corporate umbrella. Wine, Samba, InkScape, BusyBox, uCLibc, SurveyOS, and Libbraille are also member projects of the Conservancy.

I asked Karen M. Sandler, Counsel at the Software Freedom Law Center, first about the Software Freedom Law Center. Who gets accepted as a client by the Software Freedom Law Center and what does it mean for a project? Her explanation:

In Mercurial's case, for example, in addition to joining the Conservancy, it has also retained SFLC as its legal counsel.

But what about the Conservancy? What are the advantages of becoming a member? There are certain benefits that flow from the corporate form, such as limiting ones personal liability. The Conservancy is in the process of applying for federal tax-exempt status, which would then allow the Conservancy's member projects to also receive tax deductible donations. The Conservancy files a single tax return that covers all the member projects, and it handles other corporate and tax related issues on behalf of its members.

The question which may come into your mind at this point is: couldn't a project do all that itself? Yes, it could. But let me give you an idea of what is involved. The paperwork in setting up a state nonprofit corporation, applying for federal tax-exempt status, then actually running the corporation is quite daunting in the US. There is corporate record-keeping ongoing, not to mention a panoply of laws one must abide by or risk losing the corporate structure. Just as one small example, here's the page of forms to set up as a nonprofit in New York State. There are even regulations on how the filings must be presented. See § 150.1 on this page, which lists all the i's to dot and t's to cross if you are a New York corporation. And of course you need to be familiar not only with the state's Not-for-Profit Corporation Law (NPC), but also the Business Corporation Law (BCL) and the General Business Law (GBL), all of which you can find on the New York State Legislature page, by clicking on the bottom link, Laws of New York. Why government agencies make it so hard to link to information is one of life's little mysteries, but many of them do, so I can't link to the laws themselves. You'll have to find them for yourself.

Then, if you want people who send you donations to be able to get a tax deduction, you have to apply on the federal level under Internal Revenue Code Section 501(c)(3) and you need to satisfy certain requirements. You can find the booklet on how to apply for federal nonprofit status on this IRS page. Look on the list for Form 1023 and Inst 1023, the instruction booklet. That's just to apply. You can't mingle your personal funds with the corporate funds, for one thing, so you'll need to set up a separate corporate account. The language in your corporate charter and bylaws must satisfy certain regulations on the federal level, and of course laws and regulations are forever changing, so you have to keep up to date.

Here's a sample of bylaws. See how much fun it is to read them. You'll notice that you need a board of directors and officers, and that the secretary, for example, has multiple record keeping duties to fulfill. Want the position? No? Do you have a really good buddy willing to spend the rest of his life doing such tasks? Most programmers would rather have root canal surgery. But even if you are willing, it's time taken away from coding, and the odds of getting it wrong without legal direction are, in my view, in the fairly-likely-to-certain range. Then there's taxes, and of course there are special forms and regulations for nonprofits.

The Conservancy does all of that paperwork for its members, so developers working on member projects can devote their time to coding instead of having to master all the legal aspects to becoming and acting as a corporation.

Another service it can provide is fund management. It can advise and help set up a project to accept donations. The assets are held by the Conservancy on behalf of its members, each in its own account, and it disburses them as the project wishes, in accordance with IRS regulations, of course. Copyrights and trademarks can also be held by the Conservancy, again on behalf of the project. If your project has several members, the Conservancy provides a vehicle through which copyright ownership in the project can be unified, which makes enforcement easier. This is an optional service, however. And any member can leave the Conservancy at any time, if it wishes to form their own independent tax exempt nonprofit. The Conservancy provides its services free.

If you want to find out if your project qualifies for membership, you can contact the Conservancy. There are, of course, certain requirements -- your project must be developing free and open source software, for example, and it must be consistent with the Conservancy's tax-exempt purposes and financial requirements imposed by the IRS.

What if you can't get your project accepted and you have a legal issue? Perhaps there is a licensing question but you don't know any lawyers, or the ones you know have no clue about FOSS licenses, and your question requires that type of specialized knowledge? I asked Sandler what a project or developer in such a circumstance can do to find a competent lawyer, and here's her answer:

The Software Freedom Conservancy might not be a useful option for all projects, but, in many cases, it has some valuable services to offer. And the price is right.