Invitation to join the Software Freedom Conservancy

A little over a month ago, Gentoo was formally invited to join the
Software Freedom Conservancy. In their own words:

The Software Freedom Conservancy is an organization composed of Free and
Open Source Software (FOSS) projects. As a fiscal sponsor for FOSS
projects, the Conservancy provides member projects with free financial and
administrative services, but does not involve itself with technological and
artistic decisions.

By joining the Conservancy, member FOSS projects obtain the benefits of a
formal legal structure while keeping themselves focused on software
development. These benefits include, most notably, protection from personal
liability for project developers. Another benefit of joining the
Conservancy is that projects can use it to hold assets, which are managed
by the Conservancy on behalf of and at the direction of the project. The
Conservancy is a tax-exempt 501(c)(3) organization, so member projects can
receive tax-deductible donations to the extent allowed by law.

Since that time, the Trustees have been discussing what this would mean for
Gentoo, whether or not it's a good idea, and collecting additional information
about what would actually happen if we were to take them up on their offer. No
decisions or commitments have been made yet, of course, since this sort of
decision isn't one that could be made without community acceptance. I think we
have enough information, though, that we can put out the information we have
and start a real discussion with the Gentoo community.

So, what would it mean for Gentoo to join the Conservancy? First, the Gentoo
Foundation, Inc, Gentoo's not-for-profit corporation, would cease to exist,
with the Foundation's assets being transferred to the Conservancy.

Deep breath

Yeah, at least on the surface that seems like a terrible idea. What makes
it not terrible at all, at least in my opinion, is the fact that at any
time Gentoo may walk away from the Conservancy, taking all of our assets
with us. Moreover, if Gentoo were a member project of the Conservancy it
would be the conservancy who handled all of the financial management,
tax filings, and legal protections (for no fee), which are all things that
the current, previous, and original Trustees have all been really bad
at doing.

So, here are the details. Gentoo would have to sign some variation of the
agreement that is at http://dev.gentoo.org/~g2boojum/GentooSponsorshipAgreement.pdf.
To put that agreement in context, the Conservancy folks provided us with a
legal-to-normal-human-being translation:

Subject: Gentoo: invitation to join the Conservancy
Date: Wed, 06 Jun 2007 19:44:40 -0400
From: Karen Sandler <conservancy_softwarefreedom.org>
To: Michael Cummings <mcummings_gentoo.org>

Hi Michael,

We're really excited that you are considering joining the Conservancy and
are pleased to extend an invitation to Gentoo. Attached is a draft of the
fiscal sponsorship agreement that representatives of Gentoo will need to
sign in order to join the Conservancy.  Please read this agreement and
share and discuss it with all of the key people involved in Gentoo.  Some
of the denser provisions of the agreement reflect the special
considerations necessary to support the Conservancy's tax exempt status.
However, on the whole, we believe that this agreement fairly and clearly
sets out an advantageous relationship for the Conservancy's member
projects.

As some of the paragraphs specifically indicate, the agreement can be
tailored to reflect Gentoo's particular needs.  To help you in your review,
below is a section-by-section walk through, giving an explanation of the
significance of each provision.  If there are any sections that seem
confusing or that you feel should be changed to reflect Gentoo's needs,
please don't hesitate to discuss them with us.


Introductory Paragraph

This paragraph identifies the parties to the contract.  It's more
thoroughly explained in paragraph 6, but the point of this paragraph is to
name the people who sign the agreement.

Recitals (the "WHEREAS" section)

These paragraphs set forth the basic understandings of the parties.
Similar to the "preamble" found in the GPL and other Free Software
licenses, these are not operative provisions of the document.  Instead,
they give the context of the agreement.

In this specific case, the key points of understanding are that the purpose
of Gentoo is to forward FOSS and that both the Conservancy and Gentoo want
Gentoo to join the Conservancy.  The Conservancy's mission (and charitable
purpose) is to advance only FOSS development, so it is important that this
context be stated clearly.

Paragraph 1 - Term of Agreement

This paragraph says that Gentoo is part of the Conservancy as of the
signing date of the agreement.  It cross references the terminations
provisions in paragraph 7 (which is explained in greater detail below).
Note, though, that Gentoo  can choose to leave the Conservancy at any time.

Paragraph 2 - Project Management and Activities

a) Both parties agree that Gentoo will be FOSS.  As noted above, this is
   the fundamental goal and charitable purpose of the Conservancy.  The
   Conservancy will not sponsor proprietary projects.

b) This clearly sets out the limits of the Conservancy's management over
   Gentoo.  Due to requirements connected to the tax exempt status that the
   Conservancy is seeking to achieve, the ultimate legal control of the
   projects must be in the hands of the Conservancy.  From the IRS's
   perspective, the projects compose the Conservancy, and the purpose of
   its tax exemption is to forward the FOSS mission of those projects.

   However, the Conservancy does not want to interfere with the successful
   software development work already underway in member projects; such
   activity should continue after the agreement without interruption or
   interference.  This paragraph delegates part of the Conservancy's legal
   authority back to the developers, so that Gentoo can run itself in
   day-to-day matters.

   The only limitations that we must place are to prevent Gentoo from
   producing non-free software (as per the Conservancy's charitable
   purpose) and from spending money or conducting activities that would
   jeopardize the Conservancy's tax exempt status.  All the ordinary
   activities of FOSS projects come well within these limitations.  Some
   specific activities that are restricted include lobbying activities and
   spending money in ways other than consistent with the charitable
   purposes of the Conservancy (i.e., forwarding FOSS).

   Note that developers of Gentoo, in their capacity as individuals (when
   not representing Gentoo), still may engage in for-profit service
   businesses related to their Free Software work.  The work of Gentoo
   itself must fit the guidelines, but individuals are free to act in their
   own capacity in other endeavors.

   If you are ever concerned that a particular activity -- be it one
   carried out for Gentoo or one that an individual developer engaged in
   independently -- might be a problem, you can always ask the
   Conservancy's lawyers for clarification.

c) As discussed above in (b), this section describes the corporate
   relationship of the project and the Conservancy.  For clarity, it refers
   to section (b), which delegates the actual management of Gentoo to the
   relevant developers.  The Conservancy, when acting as a fiscal sponsor,
   must have the legal authority to manage Gentoo, even though section (b)
   delegates the day-to-day operations to the developers.

d) This section clarifies that Gentoo can't represent the Conservancy
   without getting written authorization first.  If you'd like to represent
   the Conservancy at a conference or other such event, you can always talk
   to us about it.

Paragraph 3 - No Fees

It's just as it sounds.  The Conservancy provides services to projects to
benefit the Free Software community and does not ask member projects to
bear the overhead costs. Of course, projects are welcome to make donations
to the Conservancy if they desire.

Paragraph 4 - Project Fund/Variance Power

This sets out the financial structure in connection with the relationship
described above in paragraph 2. The Conservancy will maintain a separate
bank account for Gentoo and, for tax purposes, the Conservancy will report
all of the income to Gentoo in its IRS filings.  Gentoo therefore will not
need to file any separate tax returns with the IRS.  The Conservancy will
keep the financial books for Gentoo.  The developers will direct the
Conservancy to spend the money on behalf of Gentoo, within the limitations
imposed by the tax laws.  The Conservancy will receive any checks on behalf
of Gentoo, and it will also write checks on behalf of Gentoo.

Paragraph 5 - Project Fund Management/Performance of Charitable Purposes

This paragraph clarifies that all assets will be devoted to the project's
purposes, as those purposes are a subset of the Conservancy's purposes.
Assets cannot be used in connection with activities that would jeopardize
the Conservancy's tax exempt status.  As discussed above, in practice, most
typical expenses of FOSS projects will come well within these limitations.
Activities that are restricted include lobbying activities and spending
money in ways other than consistent with the charitable purposes of the
conservancy (i.e., forwarding FOSS).

Paragraph 6 - Representation of the Project in the Conservancy

As the note in this section indicates, we understand that each project will
have its own management structure that it has developed to reflect its size
and community.  This paragraph requires that certain representatives be
named as the individuals that can officially communicate decisions on
behalf of Gentoo.  This can be a single maintainer, a committee of
developers or a few specified representatives.  To the extent that it makes
sense for Gentoo to have a committee of representatives, we should indicate
how decisions can be made by that committee.  For example, should all
decisions be communicated to the conservancy by all members of the
committee or would a simple majority suffice?  Can any one representative
communicate official decisions on behalf of all?  Gentoo should also
consider adding a mechanism here for adding and removing representatives
over time.  We're happy to discuss methods that have worked for other
projects with you to help you select the solution that is right for you.

Paragraph 7 - Outstanding Liabilities

In this section, Gentoo confirms that it has told the Conservancy about any
liabilities that might be outstanding prior to joining the Conservancy.
This gives the Conservancy some assurance that its due diligence process
has been complete and that the Conservancy's board received all of the
information it needed to properly evaluate the project.  Liabilities
include, for example, financial obligations, such as any debts or
outstanding bills, or any legal claims that could be outstanding against
Gentoo.

Paragraph 8 - Termination

Projects can leave the Conservancy at will.  This section sets out the
mechanisms for termination to make sure that when a project leaves the
Conservancy it does so without jeopardizing the tax exempt status of the
Conservancy (and, consequently, the status of all of the other projects in
the Conservancy).

There is a 60 day notice requirement so that a new tax exempt non-profit
can be found for Gentoo to join.  If there isn't another fiscal sponsor or
other tax exempt non-profit to take over Gentoo, Gentoo can incorporate as
a separate entity and apply for tax exemption recognition.  If there is no
separate entity -- for example if a project loses momentum and has been
abandoned by its developers -- the Conservancy must be left with the assets
for use by the Conservancy for other FOSS-related charitable work.

These restrictions would also apply to any separate tax exempt entity, so
if Gentoo were to incorporate and achieve tax exemption outside of the
Conservancy, it would have to deal with the same considerations upon any
wind-up or distribution of assets.  Members of the Conservancy's board are
familiar with non-profit wind-down situations, and can assist in the
unlikely event that this unfortunate outcome occurs.

Paragraph 9 - Miscellaneous

These provisions are standard agreement boilerplate - they clarify the
enforceability of separate provisions, specify that the contract be
governed by New York Law and state that any amendments to this agreement
need to be agreed to in writing by all of the parties.

Paragraph 10 - Counterparts/Facsimile

Although it's good to have original signatures in the corporate records,
this allows you to simply sign the signature page and fax or scan a copy
for the contract to take effect.


We hope this break down has made it clear why the agreement is structured
in the way that it is.  If any provisions seem problematic to you, let us
know and we'll work with you to try to build an agreement that works for
both of us.  We look forward to Gentoo joining the Conservancy!

Karen Sandler
Software Freedom Conservancy

An obvious question is what would happen with our current paypal account, bank
account, store, etcetera. Here's what we have so far:

Michael,

Since I currently handle most of the financial details for the Conservancy,
I answered some your questions below (the conservancy@ address goes to both
me and Karen).  I've left one of the questions to Karen.

Michael Cummings <mcummings_gentoo.org> writes:

>   a. What happens to our existing bank account, paypal account, and
>   cafepress account?

Speaking non-legally (IANAL), they become assets of the Conservancy,
earmarked for the Gentoo project.  They could be spun out of the
Conservancy if Gentoo decides to leave the Conservancy and sets up another
501(c)(3) non-profit.

We'd suggest closing the bank account so that we can open one for Gentoo at
our bank.  We keep all the project earmarked accounts in one place, and
this makes it easier for us to manage the finances for you.

For the Paypal account, it would be set up to transfer the money into the
Gentoo bank account at the Conservancy.  Although, we'd actually prefer
that the Paypal account be shutdown if possible and set up an address at
the Conservancy's Paypal account.  However, this means that the email
address used for people to send money to the Paypal account would have to
change.  This has been a problem for some projects.

I am not sure how we'd handle the Cafepress account, as we've never handled
one of those before, but it could probably be configured in a similar way.
We'll work with you find a reasonable solution.

>   b. How involved is the process of spending money?  In this kind of dire
>   circumstance, currently this process is rushed so that within a day of
>   discovery the part has been ordered and paid for. How does this work
>   with the fiscal workings falling under the Conservancy?

We'd recommend in this situation that someone from the project use their
personal credit card or other financial instrument, and then submit a
reimbursement request with a receipt to the Conservancy.  We can't turn
around payments in 24 hours, but we typically process reimbursement
requests within two weeks.  (We do processing once per week, so the most
you'd usually have to wait is two weeks.)

> Can you walk us through the normal procedure for handling these more
> doldrum scenarios as well?

Currently, you just send an email to <conservancy_softwarefreedom.org> with
a receipt and/or invoice attached and a brief note describing what the
expense is for.  If we have any questions pursuant to our due diligence for
making sure the expense fits the 501(c)(3) status of the Conservancy, we
send them to you.  Once the questions are answered (or if there are no
questions), we send a check either directly to the vendor, or, in the case
of a reimbursement request, to the project contributor who made the
original expense.  We can also wire money to vendors/individuals, but this
incurs fees for the project so we try to avoid it.


> 2. Outstanding liabilities. In reference to paragraph 7, we don't have a
> current filing. Our income used to be below the cutoff that required a
> non-profit to file, though we're not sure if that's still true or not.

I'll leave this one for Karen.

--
Bradley M. Kuhn
President, Software Freedom Conservancy

I'm currently working with Ms. Sandler to get our various "liabilities" worked out.
We may need to pay some taxes on the store profits, although that would be minimal
since it's a pretty small part of Gentoo's income. We've never filed the official
IRS paperwork, although it's not generally required for a non-profit our size.

For the most part, the Trustees think that this is either a good idea, or at least
a better idea than what we've had so far. Comments? Although comments are
enabled on my blog, it might be better to comment on -dev instead.