The issues with the "conversion" of CouchSurfing to a for-profit corporation are many and complex. I keep getting asked what the problem is, often accompanied by the remark "But for me, nothing has changed".
Here is an attempt to explain in a simplified and hopefully easily understandable way what to the best of my knowledge happened, with a summary of the issues at the end:
CouchSurfing was founded as a non-profit organization in the U.S. state of New Hampshire in 2003.
Under repeated assurances by CS management that CS would always remain non-profit, volunteers, dedicated members and donors helped build and rebuild CS after Casey Fenton accidentally deleted the database in 2006, gave up and walked away.
In 2010, CS was notified by the U.S. tax authorities that it would be denied the 501c3 charity status for which it had applied because the way in which CS operated was viewed as social rather than charitable in nature (and for a number of other reasons).
At that stage, CS had to change its status. It could have chosen another non-profit type, such as 501c7 for the social and recreational organization which the IRS said it was, or go for-profit. Although CS had always pledged to remain non-profit, it decided to break that pledge and go for-profit.
To prepare this “conversion”, the chairman of CouchSurfing, Dan Hoffer, had already been working at the venture capital firm Benchmark Capital months before the IRS denial was officially notified.
The bylaws of CS and the law stipulate that upon dissolution the assets of the non-profit organization had to be distributed to a charity or to the government.
CouchSurfing petitioned a New Hampshire court for authorization to buy the assets itself, telling the court that nobody else could receive the assets and that there were no interested parties to be notified of the plan to sell CouchSurfing. At the same, time CouchSurfing volunteers were told only that changes were coming, but not that CouchSurfing would be sold. Members and donors were told nothing. This lack of information deprived these stakeholders of their legal right to oppose the petition.
Based on a valuation commissioned and paid for by CouchSurfing, the non-profit assets were valued at only about $600,000, less than 1/3 of annual revenue.
The founders of CouchSurfing set up a new company under the name “Better World Through Travel Inc.” (BWTT) in Delaware (a famous tax haven) which bought the CouchSurfing assets for a fraction of the actual value.
The proceeds of the sale went to a New Hampshire grant fund rather than to the CouchSurfing community which had created the assets in large parts.
The majority shareholders of BWTT, Casey Fenton and Dan Hoffer, issued shares to themselves and sold a minority share of the supposed $600,000 assets for $7,600,000 to two capital venture firms, Benchmark Capital and Omidyar Network. This puts the value of Casey Fenton’s and Dan Hoffer’s share at more than $7,600,000, most likely at more than $15 million.
Initially they announced that CouchSurfing had been converted to a Benefit Corporation, which was then corrected to “B-Corporation”. The right to carry the "B-Corp" label was obtained by submitting false information about the dissolved non-profit organization to B-Lab, the organization which hands out the label for a fee, and by using that label for the just created profit corporation under the false name “CouchSurfing International” (the real name being “Better World Through Travel Inc.”).
CouchSurfing has been misrepresenting the nature of the business as “half-way between a non-profit and a for-profit” when in fact the legal form is a conventional for-profit C-Corporation (like Coca Cola or Microsoft). The future of CouchSurfing is now uncertain because it will have to go public in the not too distant future in order to repay the venture capital with a profit and to allow employees to exercise their stock options. Nobody knows who will then be the new shareholders and what their plans for CouchSurfing will be.
So, in summary, there are serious issues with the dishonest way in which CS, against repeated assurances that this could and would never happen, has been secretly privatized for the personal enrichment of a few when other alternatives existed, with how this has been justified, with the impact this has on the CouchSurfing community which in large part built what is now being taken away from it, and with how the nature of the new owner of the website and of our data has been misrepresented as a kind of non-profit when legally it is nothing but a conventional profit corporation illegitimately parading a B-lab label.
The moral issues with the above should be obvious. The legal issues are currently being investigated. The first consequence of this investigation is expected to be the withdrawal of the B-Corp certification. Other consequences could include the criminal prosecution of key actors in the above "conversion", its reversal, or the withdrawal of the investors.
By continent
By category
By tag
BeWelcome :: Meetings :: Couchsurfing :: forum :: Brussels :: Camp :: translation :: Meeting :: New Features :: groups :: Bug :: development :: bevolunteer :: wiki :: Berlin :: General :: :: Party :: volunteers :: hitchhiking :: brainstorm :: Travel :: BW Citizen :: Technical Help :: Design Summary of CouchSurfing-Disaster by Polyglot
posted 2012/01/01 20:47 Visibility: World
I found an old message by Casey in my CS inbox. It's from November 24th, 2007. Isn't it nice? Enjoy ;-)
Dear Members,
Great news! After a long and difficult process lasting for more than a year, it is with great excitement that we announce the submission of our application for the federally recognized 501(c)(3) US non-profit status.
Currently, CouchSurfing International, Inc. is a legally recognized and official charitable non-profit corporation in the US state of New Hampshire. This means our purpose and any income is dedicated only to charitable non-profit use but as a locally-based organization in New Hampshire.
Submitting our application to be federally recognized "tax-exempt" non-profit organization is an exhilarating time for CouchSurfing. It shows how we have grown from a small community project into a structured charitable enterprise with a clear focus on the mission of facilitating intercultural understanding. This status will also provide several large and dynamic benefits that will serve to ensure the CouchSurfing community remains strong, sturdy and sustainable.
The advantages of 501(c)(3) non-profit status include:
- Worldwide recognition as a philanthropic
organization that complies with legal
requirements for charitable endeavors - Increased legal protections and accountability
- Eligibility for financial grants
- Donations to CouchSurfing will be tax-deductible
in the US
We are confident our 501(c)(3) application will be accepted based on the advice we have received from several experienced legal professionals, however the approval process will take several months so we will keep you updated when we have more news. We expect this classification to be a major step forward for achieving CouchSurfing's core purpose of facilitating intercultural exchanges that lead to understanding, tolerance, and ultimately a kinder world.
We are very grateful for the efforts of Matthew Whatley, CouchSurfing member and international non-profit lawyer, who has been a key force in moving this process forward. We also owe many thanks to this amazing community for carrying out our mission everyday!
For more info on US 501(c)(3):
Happy Surfing!
The CouchSurfing Leadership Team