Hi everyone! I help quite a bit of people with the establishment of legal entities, and was asked to provide some input to this discussion. I am not a lawyer, and I’m definitely no expert on US law, but I have helped to start a bunch of 501c3s and plenty of (charitable) organizations in Europe.
In short, I would like to resonate that the German e.V. is probably what you’re after, and I’m happy to help with the details. It does depend however on what your goals are, what kind of funding you plan to apply for, and what activities you plan to do. Things like Transferwise “Borderless” make it easy to deal with foreign currency – Transferwise can provide you with a US bank account even as a German e.V.
The charity status is often conflated with the type of legal entity. It is however independent from the type of entity - an e.V. does not necessarily need to become a charity (“beneficial to the public”), similar to how in the US you can be a non-profit that does not apply for national 501c3 status.
The distinction between the different types of legal entities is not clear cut, because you have a lot of options in how you define the actual entity in its bylaws. Looking at the e.V. (registered association), I’m not aware of a similar type of legal entity existing in the US. Typically, a registered association has a process for individuals and, possibly, legal entities to become member. Each member has (equal) voting rights in the general assembly. The general assembly is the highest organ inside the organization, and votes on all important issues including the organization’s representation by an executive board of directors. This is in contrast to how most “501c3” are set up, where a self-electing board governs the legal entity, and much more bottom-up.
A few things are stricter in Germany: Receipts need to be kept around in “original form”, which means that for reimbursements it is not enough to get scans or photos of receipts from people, they need to send in the physical receipts (if there are any).
A typical problem that people run in is that you need to hand in paperwork including a narrative report after the first year, but then only every 3 years. A lot of associations manage to survive the first year of keeping the paperwork in order, then slowly become less well-organized during the following three years, and when it’s time to again submit paperwork have to basically (re-)do three years of accounting.
Another downside is that the essential paperwork has to be done in German: The accounting itself (which is pretty straightforward once you understand how to do it properly), but also the annual reports and the minutes of all general assemblies. The “source material” for the minutes can be kept in English and then summarized in German, which is what eVs with international membership usually do, but someone has to translate them and ideally at least two of the board members speak German and can deal with necessary interactions.
You can do general assemblies online, but that needs to be declared upfront in the bylaws, and there’s some amount of required process. All of this is meant to protect the organization in case of conflict (with its membership).
In terms of timeline: Someone would draft bylaws (I am happy to help with that since there are a few nice things you can take care of in them), and then send them to the tax authorities for review. It will take a few weeks for them to evaluate whether the bylaws meet the requirements for charities. You might have to submit a second and third time, so all-in-all this might take some time. There’s a nice feature you can implement in the bylaws which allows the elected board to modify the bylaws without another general assembly if tax authorities require changes, so in theory you can establish the organization already before you have the final feedback, but I strongly suggest you first get the approval and then have the first general meeting to create the organization. The elected board has to go to a notary to have it confirm their identities. The notary will then submit the information to the registry. The (public) registry will hold the names and addresses and birth dates of all board members, and a copy of the bylaws. Board members do not strictly have to be German residents, but it makes interactions easier if at least two of them are.
The typical way to establish an eV is to get at least seven people together in person to hold the first assembly. You need signatures of at least 7 people before the board can go to the notary to register it. In theory, you could even do the first members assembly online, physically mailing around the signatures of all founding members until at least seven people have signed on, but this requires a certain level of rules stated in the bylaws, and should be done with the permission of the tax authorities.
A relevant question is the registered address of the association: Someone with a pretty stable address needs to reliably be able to receive and open postal mail at that address (yes, there will be some, especially at the beginning), and the location of that address defines which tax office is responsible. It is not easy to move associations around, and ideally it stays with the same tax office. It is possible to for example use a lawyer’s office as address (or eg a hackerspace).
Overall, the costs are less than 100€ for the notary and the registration.
There’s a lot more details that we should discuss, but maybe in a smaller round in person?
I will post updates here as that progresses.
I’ll be away on the July dates you are here, but can do end of August. If you can, it would be great to have you at our next monthly Open Source Design call: