Why Aren't There 'No-Profit' Open Source Companies?

kipple asks: "I've been working in a no-profit organization as a volunteer in California, and had the chance to learn something about no-profit in the US (I'm Italian). Now, I was wondering why open-source companies are trying to make money instead of turning no-profit. Let me explain: in a no-profit company, employees can be paid, and the board of directors are paid as well. They can survive. The only 'issue' is not to make money at the end of the year."

"As I understand it, no-profit companies have better chances to put their hands on used hardware which could be donated by other profit companies or the government. Result: more computer hardware 'donated' (companies won't have to pay taxes to 'recycle' their old hardware), better chances to develop drivers for specific hardware, less necessity to make money at any cost and happier people. Any opinion about that? Is there anybody out there who already know a similar situation?"

Comments

you mean non-profit or not-for-profit?

[The Mayor]

I think you've got some terms confused here. There's no legal category called "no-profit". There's non-profit and not-for-profit.

Non-profit enjoys greater tax benefits - contributions to non-profit corporations are tax deductable. However, as I understand it, the accounting regulations make this a very difficult status to achieve for a small company. This status is usually reserved for churches, universities, and the like.

Not-for-profit is basically just like any old corporation, except that the company can't make a profit at the end of the year. They often get around this by paying their staff large bonuses or spending the "profits" on capital goods (assuming a good year). The accounting regulations are much more relaxed when compared to non-profits, but gifts to the corporation are not tax deductable. This is what many charities are classified as, and what would probably be most likely for an open-source "no-profit" company.

Now, IANAA (an accountant), and I might have the two definitions backwards. But, in any case, the general argument remains. Why are more open source efforts not "not-for-profit"? You got me. Maybe people want a corporation that actually makes money. Maybe people are interested in selling the corporation to a big conglomerate (i.e. Slashdot...). I don't know.

Re:you mean non-profit or not-for-profit?

[jsfetzik]

You got it pretty much right. There are two minor errors.

Non-profit and not-for-profit are legally the same thing. The name used is dependant on how and where you are registered as an organization. Being tax deductible is determined by the federal government based on what your organization actually does.

The other thing that isn't correct is the statement that they can't "make a profit at the end of the year". These organizations can 'make a profit'. The problem is that you have to explain it to the federal government in order to keep you tax exempt status.

There are plenty of legitmate reasons for 'making a profit', i.e. you are building up a trust fund, you are going to make a large capital investment next year, you get a large indowment to be spent over multiple years, etc. For many organizations it is easier to spend any extra money then it is to explain it to the IRS.

LinuxPPC

[rak3]

LinuxPPC announced its intentions on becoming a non-profit company earlier this year. Here's the link:

http://maccentral.macworld.com/news/0101/25.linuxp pc.shtml

Re:LinuxPPC

[Bingo Foo]

VA Linux has been a non-profit from the beginning.

Oh, you meant intentionally non-profit...

Bingo Foo

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Just go to F---edcompany.com

[JiveDonut]

You'll find tons of "No-profit" companies there. Some are even open source ones.

No capital for expansion

[cthugha]

Why exactly would other companies (or government) donate hardware (or other capital) to your organization? Sure, they'll do it if it's good publicity for them (like donating to charity) or if the company performs some vital function they like. But Open Source doesn't exactly register on the public radar screen, and doesn't provide anything that's exclusive to Open Source.

Investors aren't going to pitch money in unless they see a return, which they aren't going to get. That leaves you drawing on your own revenue for expansion, which means that ultimately, after paying employees and directors, you need surplus funds for growth, in other words, a profit.

It's a nice idea (in a socialist collective kind of way) but I just don't see it getting off the ground. Unless your employees pitch in their own money and bring their own hardware to work.

Re:No capital for expansion

[ryants]

Why exactly would other companies (or government) donate hardware (or other capital) to your organization?

Tax benefits.

Investors aren't going to pitch money in unless they see a return, which they aren't going to get.

Which means you look for benefactors, not investors.

It's a nice idea (in a socialist collective kind of way) but I just don't see it getting off the ground

The idea of charity or non-profit is not necessarily socialist. As for not getting off the ground, the FSF has been operating this way pretty much since the beginning.

Ryan T. Sammartino

FSF is a charity

[ryants]

I don't know the difference between non-profit and not-for-profit and a charity, but anyways...

The Free Software Foundation is a 501(c)(3) charity (like the Read Cross, apparently).

They use donations and sales of books, CDROMS, etc, to pay developers.

Ryan T. Sammartino

Church of the Open Source

[TKinias]

Why not found a religious order? Get yourself a mail-order D.D. (Doctor of Divinity) and register the Church of the Open Source with the Feds. They youre tax-exempt, but theres no restriction on your turning a profit. Recruit among slashdotters and convince them to tithe to save their souls . . .

I think itd work . . .