There are a lot of good reasons for getting 501c3 status. However, I think that there is a general assumption that it is the only possible option, and some healthy questioning of that might be a good thing. At a minimum I think people should make sure they fully understand what it will mean, and what other possibilities exist.
The "giving things" point is a good one. If you have no legal identity, some people will feel uncomfortable giving you stuff or money, because the only thing stopping that stuff from going directly into the pockets of the people involved is the idea that a group exists (no laws, no requirement for standard accounting practices intended to keep everyone on the level, etc.). And if you are in the market for grants, many granting agencies won't give you anything if you don't have a legal identity of some sort. Some only give to 501c3 also.
That said - there are other ways to gain a legal identity than 501c3 status. And you can get insurance with any of them, which takes care of the "protection from being sued" issue. You can be a not for profit business, or a straight up business corporation (there are a couple of ways to do that, I don't know much about it). In some states it is also possible to incorporate as a collective. These do not have the tax advantages of 501c3 status gives your group and people that give to it. They do not have as many restrictions on your activity or quite as close scrutiny of your accounting (but it would be mistaken to believe you can entirely avoid accounting work by being a business rather than a non-profit, many of the standards are the same). Pittsburgh's radical bookstore decided to go one of these routes, even though they are non-profit and all volunteer. (www.bigideapgh.org)
The main point that I learned at Bike!Bike! is that once you put assets in the name of a non-profit, they can't be taken out. They can only be given to other non-profits. If at some point in the future you want to do something that doesn't fully fit with what's allowed for non-profits, you can't use the money (or building, or other assets) you made as a non-profit to help you. So - I don't fully know what non-profits are and aren't allowed to do. There are restrictions on political activity and commercial activity. I'd find that out, and make sure that what you want to do with your group can fit within those restrictions.
A half-way step you can take is to get a fiscal sponsorship relationship with an existing non-profit. You don't have to do as much paperwork, they help you figure out what's going on, but you have the tax and legal advantages of 501c3 status. However, as far as your assets are concerned you are still putting them in the name of a 501c3 entity, so if you leave, you can only keep them if you become your own 501c3.
Anyway, that's what I know, which I feel is not enough.
-Jessica
----- Original Message ---- From: Jonathan Morrison jonathan@slcbikecollective.org To: The Think Tank thethinktank@lists.bikecollectives.org Sent: Wednesday, October 24, 2007 12:31:04 PM Subject: Re: [TheThinkTank] HELP! non-profit/insurance questions
At Bike!Bike! I was shocked by how many organizations didn't have their 501(c)(3) status yet. Plenty of organizations do not get it right away. However, I would say that as much as dealing with the IRS can suck (it actually isn't that bad) becoming an official non-profit is worth it because it makes it easy and quick for everyone to give you things -- money, bikes, tools, compressors, space, grants, you name it. In Salt Lake we were a 501(c)(3) on paper before we touched a single bike or tool. Thinking back, non getting that status would have been like trying to ride a bike cross-country sans the tires. Sure you could do it, but why would you want to? It was nice that we could just enjoy the ride, instead of worrying about every little pebble.
I would agree with Mario, just because you don't hear about it, doesn't mean that settlements aren't going on all the time. Besides, Murphy's Law clearly states that you will get sued right after you make a conscience decision to decline insurance. In that case, the individuals behind your organization could be stripped of anything of value and the organization will no longer exist.