Penn State "Collective" business"

[blion72]

not sure where the Penn State crowd funding "collective" businesses are in terms of being setup, but our diner discussion today was interesting. One of our diner group is an Illinois grad and been active with one of their crowd funded "collectives". He indicated that there is some significant costs in setting these up and operating them. He said there are many models out there, with some non-profit and others for profit. Here are a few of the items he mentioned they were into (he is a lawyer and is charging $$$ to the UI company for services but at a reduced rate of $80/hour).

• Need continuous legal work around every player agreement - turns out while there are some template agreements there is also a lot of customization.
• Legal work around obtaining the funds and how they are treated. In profit model, the funder become stock holders. In any case the corporate structure organization has to be maintained legally like any other business.
• Need to have some people actually working with the players directly. These are essentially recruiters.
• Need considerable tax work and filings. Players may have incorporated (if smart) but either way the company is dealing with tax documentation, and the entity needs to provide 1099's for player's tax return (i.e. the Miami guy gets the car worth $150k and in his new tax bracket will cost him around $60k in taxes from whatever NET income he got in cash.
• On going accounting is part of the business.
• If this collective company is going to now market like an agent, they will be talking to places that will take their services. There is an on-going marketing cost.
• These companies are going to need management and services, even if outsourced. Nobody is assuming a large group of people are now working for free. These entities are real businesses.
• One thing he indicated was that many of the players were anticipating these contracts as a contingency to attend UI, which is not allowed. He also said many of the players were not understanding they were getting $$$ with tax liabilities - i.e. thought they were just getting all the cash. WOW

I thought the most telling thing he said was that one of their team approached a guy who was an alumni and a CEO for "support". He was very clear he could not have his company involved, but could be a contributor personally. He also indicated he could not be involved in any public or active way. I think that would be true of most CEO's - unless they want to get fired.

 

[GrimReaper]

Why would someone funding a collective ever become a stockholder? They would either become 1) customers in cases where they receive goods or services from a player(s); or 2) conributors, where their money underwrites a player(s) performing services or providing goods to a legitimate charity(ies).

Are these collectives ever expected to provide a return (above the money contributed by the co-called shareholder/investors)? If not, the IRS would likely view any accounting done for them a sham.