The term “Legal status” refers to the recognized condition or standing of an individual, entity, organization, or concept under the law. It signifies the rights, responsibilities, and obligations that are attributed to a particular entity based on its classification, structure, and relationship with the legal framework of a given jurisdiction. The Legal Status of a Makerspace can then be defined as the recognized condition or standing of a makerspace/fablab under the laws of the jurisdiction which it operates in. This is  important because it defines the framework within which makerspaces operate, ensuring order, rights protection, and accountability within a society. Every jurisdiction has its own defined legal statuses under which they operate, so it is important to understand the legalities of any jurisdiction you find your makerspace. Makerspaces can exist as : nonprofit organization,  profit organization,

Nonprofit Organization (NPO)

A Makerspace formed for purposes other than making a profit, such as charitable, educational, or religious activities. Nonprofits can have various legal structures, such as corporations, trusts, or associations. Such Makerspaces may focus on community development, education, and fostering creativity.

Advantages

• Non profit Makerspaces are eligible for tax-exempt status. Non profits are eligible for federal exemption from payment of corporate income tax. Once exempt from this tax, charitable contributions made to non profit makerspaces are tax-deductible.
• Many foundations and government agencies limit their grants to public charities. This is a huge advantage to non profit makerspaces as they can apply for grants and donations, and may attract members who support the mission. This is a legal way of rasing revenue for the makerspace activities.
• Under some jurisdictions, creditors and courts are limited to the assets of the nonprofit organization (if there is any). The founders, directors, members, and employees are not personally liable for the nonprofit’s debts. However, there maybe some exceptions. A person (employees. Founder, board, director, ect) cannot use the non profit to shield illegal or irresponsible acts on their part. Also, directors have a fiduciary responsibility; if they do not perform their responsibilities in the nonprofit’s best interests, and the nonprofit is harmed, they can be held liable.

Considerations

• Non profit makerspaces must meet requirements for nonprofit status (as defined by the legalities in the jurisdiction they operate), demonstrate a charitable purpose, and maintain compliance with tax regulations. It is also important to obtain certification as a non profit organization in some jurisdictions, as part of the compilance procedures.
• Nonprofits sometimes do sell products or services to generate revenue, but often, they rely heavily on fundraising, public and private donations to provide services and resources. Raising funds is an ongoing challenge for non profits, which is especially tough when the economy of the jurisdiction iot operates in is poor.  Nonprofits often have a harder marketing battle as they must motivate people to donate or volunteer when they likely get no tangible benefits in return.
• Nonprofits typically must report how they use their funds, mostly to donors and funders.as the government, funders and donors like to see most of their funds go to services and not administrative expenses.

For profit Organization

A makerspace can be organized as a Limited Liability Company (LLC) or as a Corporation.

Limited Liability Company (LLC)

A for-profit makerspace organised as a LLC operates with the intention of making a profit while providing services and resources to its members or community. This provision of servies and resources include but not limited to renting of tools and equipment, spaces and offices, selling tangible and intangible products to the general community, etc. In this context, a for-profit makerspace would offer access to tools, equipment, and resources to community members and the general public for creative projects while operating as a profit-generating entity.

Key considerations for a for-profit makerspace organized as an LLC include:

• Founders or owners of the LLC have limited liability for the debts and obligations of the makerspace. Their personal assets are generally protected from business-related liabilities.
• A makerspace operating as an LLC allows for a flexible management structure where owners or founders can manage the makerspace themselves or appoint makerspace managers to handle day-to-day operations.
• Profits and losses of the makerspace “pass through” to the owners or founders’ individual tax returns. The makerspace itself does not pay any income tax. Instead, founders or owners report their share of the profits on their personal tax returns.
• As a makerspace operating as an LLC, owners or founders can develop an operating agreement. An operating agreement outlines the internal workings of the makerspace, including ownership percentages, management roles, decision-making processes, and more.

Corporations

A for-profit makerspace organized as a Corporation is a separate legal entity from its owners (shareholders) that is formed to generate profit through the operation of the makerspace. This makerspace business structure operates as a separate and distinct legal entity. It is owned by shareholders and managed by a board of directors who appoint a manager(s) to oversee the makerspace’s daily operations.

Key considerations for a for-profit makerspace organized as a Corporation

• Shareholders of the corporation have limited liability for the makerspace’s debts and liabilities. Their personal assets are generally shielded from business-related obligations.
• The makerspace is managed by a board of directors elected by shareholders. The board is responsible for major decision-making and oversight.
• Corporations are subject to corporate income tax, and shareholders may also face taxation on dividends received. This double taxation can impact overall profitability.
• Corporations are subject to corporate income tax, and shareholders may also face taxation on dividends received. This double taxation can impact overall profitability.

In both cases (makerspaces as LLCs or as Corporations), a for-profit makerspace would operate with the goal of generating revenue while providing community members and the general public with access to tools, equipment, and a collaborative environment. The choice between an LLC and a Corporation will depend on factors such as liability protection, taxation, management preferences, and potential growth strategies.

Nonprofit with for profit arm

A hybrid model in the context of makerspace business structures refers to a combination of different business or organizational structures to achieve specific goals or address unique circumstances. Hybrid models blend elements of two or more traditional business structures, allowing makerspaces to leverage the benefits of each while accommodating their specific needs and objectives. Hybrid models can be particularly effective in balancing financial sustainability, community engagement, and mission-driven goals. A nonprofit organization with a for-profit arm is a hybrid structure where a nonprofit entity establishes a separate, for-profit subsidiary or division to generate revenue and support its charitable or social mission. This model allows the nonprofit to diversify its funding sources, increase financial sustainability, and potentially create a more stable base of resources to achieve its goals.

A makerspace could be established as a nonprofit entity to focus on community education and training, workshops, outreach, etc. At the same time, it could create a for-profit arm to offer premium services, access to specialized equipment, or commercial projects. This for profit arm of a makerspace should be separated from the nonprofit arm of the makerspace to prevent the occurence of an identity crisis of the makerspace.

• Nonprofit Organization: The nonprofit organization remains focused on its charitable or social mission. It is dedicated to serving its community members and the general public, promoting social good, and addressing specific needs in the community. The nonprofit arm typically operates with a tax-exempt status, which means it is eligible for certain tax benefits and can receive tax-deductible donations from donors and sponsors.
• For-Profit Arm (Subsidiary or Division): The for-profit arm is a separate legal entity, often established as a subsidiary or division of the nonprofit. It operates with the primary goal of generating profits through commercial activities. These activities can include selling products, offering services to Corporations, institutions and individuals, or engaging in other revenue-generating ventures that align with the nonprofit’s mission.

Considerations

• The Nonprofit status of the makerspace can attract grants and donations, while the for-profit arm generates revenue to support the overall mission.
• The for-profit arm generates revenue through its commercial activities. These profits can be used to support the nonprofit’s charitable and social activities, thereby reducing the organization’s reliance on traditional fundraising methods.
• Both the nonprofit and the for-profit arm should have a clear alignment in their missions and goals. The for-profit activities should complement and support the nonprofit’s social or charitable objectives.
• By diversifying its revenue sources, the nonprofit can achieve greater financial sustainability and reduce its dependence on grants and donations
• The for-profit arm may benefit from the nonprofit’s reputation, mission alignment, and established networks. In return, the nonprofit may gain access to expertise, resources, and revenue generated by the for-profit activities.
• The governance and management structures of the nonprofit and the for-profit arm may differ. There should be clear policies and procedures in place to manage potential conflicts of interest and ensure that the for-profit arm’s activities do not compromise the nonprofit’s tax-exempt status.
• Establishing a for-profit arm requires careful legal and regulatory considerations. Depending on the jurisdiction and the nature of the activities, there may be tax implications, reporting requirements, and compliance obligations to address.
• Open communication and transparency are essential to ensure that stakeholders understand how the for-profit arm operates, how profits are used, and how it supports the nonprofit’s mission.

It’s important for makerspaces to take into consideration that while this hybrid model offers potential benefits, it also requires careful planning, legal guidance, and effective management to ensure that the nonprofit’s tax-exempt status is maintained and that the for-profit arm’s activities align with the nonprofit’s mission and values. Consulting with legal, financial, and nonprofit experts is strongly recommended when considering and implementing a nonprofit with a for-profit arm structure. Moreover, the choice of business structure will impact taxation, liability, and operational aspects.