by Michelle Hunt, Director, Alliance Management Operations
Step One: The Collaboration Concept
Today’s need to deliver continuous innovation in global markets has most high-technology companies understanding the benefits of forming strategic not-for-profit alliances to provide product/technology solutions. Through a membership structure of ecosystem members, industry collectives generate significant benefits for members like:
a) Extending product lines and portfolios
b) Influencing standardized technologies to fill industry gaps and provide much needed solutions
c) Networking with competitors and members to better position entering new markets and tackling new opportunities
d) Ultimately reducing costs, risks, and the time required to compete and gain market acceptance and adoption of your innovations worldwide.
To achieve these goals, global companies are willing to contribute technology and collaborate on innovations that benefit the entire collective. That’s the first decision…and it is a good one.
Step Two: Forming a Legal Entity
The next crucial set of decisions is how to establish and maintain your organization as a credible, legal, operating entity. In many cases, the default first step is to form a new not-for-profit corporation.
While the initial process of filing papers of incorporation is, in fact, pretty simple, incorporation itself carries a significant set of ongoing responsibilities – some of which are time consuming, costly, or both. Because many of ongoing tasks related to incorporation are not obvious, and are often not considered at the time you file for incorporation, it is not uncommon for self-incorporated associations to require considerable hands-on attention to your association as well as higher-than-expected maintenance costs.
These considerations are very much the reason why ISTO was formed: to be a flexible, convenient and cost-effective alternative to incorporation for emerging not for profit organizations.
ISTO offers technology associations an attractive alternative to incorporation, saving you considerable time, money and effort while providing all of the requisite benefits. To that end, ISTO encourages stakeholders of associations to consider all of the facts before making the very significant decision to leap into incorporation.
Step Three: Components to Consider
- Drafting Legal Governing Documents
- Gaining Tax Exempt Status
- Conducting Annual Tax Filings and Financial Audits
- Procuring the right Insurance
Bylaws, Membership Agreements and IPR Policies
Under the ISTO structure, alliances and associations are considered member Programs. As such, your organization can enjoy the full protection of the ISTO legal umbrella from the minute you sign a Participant Program Agreement. There are no filings, no applications, and no delays. As a member Program, you can leverage ISTO’s extensive library of governance document templates, which not only speeds the development of your group’s legal formation, but can save you thousands of dollars in legal expenses.
Gaining 501(c)(6) Legal Status
Beyond filing for incorporation, your new organization also needs to file for tax exempt status with the IRS. While this is a fairly simple process, startup associations should be wary of this stage for several reasons. First, obtaining an IRS ruling can take time (six to nine months today). During this time, your associations is encouraged to build up a tax reserve in the event it is denied the tax exemption. For fledgling organizations, this can funnel critical cash away from value-added activities.
Second, defense of an exempt filing can be costly and time consuming. Depending on circumstances, there could be several rounds of back-and-forth discussions that occur between the IRS and your association before a ruling is made. Seeking advice from legal counsel during such exchanges is strongly advised. Further, the IRS may suggest structural changes to your organization to better comply with regulations. Implementing such changes can be costly to your startup on a number of levels and gaining exempt status is far from a certainty. The IRS looks at trade association filings quite closely, to ensure they truly are for the benefit of the industry(s) which they serve versus for the benefit of the member companies involved.
By contracting with the ISTO, member Programs may share in the ISTO’s not-for-profit legal status and assume full not-for-profit operations immediately.
Tax Filings, Audits and Insurance
ISTO provides the infrastructure under which your association can operate knowing full well that all the legal annual obligations of a not-for-profit such as tax filings, financial audits and insurance policies are provided for using cost-effective and professional resources that protect your association.
Incorporate or Not Incorporate
We understand that determining the right course forward for your association will boil down to what’s most comfortable to your members and stakeholders. For some groups, incorporation may make the most sense and ISTO can provide support to an incorporated alliance as well. An incorporated alliance supported by ISTO may be able to take advantage of agreements ISTO has with accounting firms and insurance companies to reduce costs for services and insurance. For others, the comprehensive, pop-up infrastructure offered by ISTO is an attractive alternative due to its substantial time and cost savings. Whatever direction your group decides to take, ISTO wishes you and your association much luck in making the right decision!