Disclaimer: I'm not a lawyer or accountant, and this is not legal or accounting advice.
I recently created a US company. Here's what I learned:
Most companies are set up in Delaware, because of Delaware's taxation and advanced corporate legal system. Setting up (and shutting down) a company in Delaware is very simple and streamlined, and most big US corporations are technically Delaware corps.
If there's a chance of raising US VC capital in the future, you will want to create a Delaware "C" Corporation, specifically. Many VCs will demand that you create a "C" Co. and transfer IP/business if you had another Co. previously. Ownership in a "C" Co. is based on shares, and the "C" Co. can later release and sell new shares to VCs: that's how investment deals happen in a nutshell.
To set up the company, we used a lawyer. After shopping around, $300/hr is what you should be prepared for, with about 10-20 hr to set up the "C" Co., another 10-20 if you want to transfer IP. Also, if your existing Co. is located in say Egypt, you'll need Egyptian legal council to cover your ass on that end (VCs will demand egyptian legal opinion for transfer of IP).
Once you have the company, you will need an EIN. That is simple and can be completed using a website for a Delaware Co. Then you need to open a bank account. In our case a US based partner did that at his local bank. There's an outfit called Bank of Silicon Valley who seem to be helpful in cases like yours and you can open an account with them, over the phone. Then you will need a virtual office and mail forwarding services, such services exist for Delaware Co's for a low yearly fee (~$50/mo), your lawyer will set you up. You'll also need a US accountant. Btw. your US lawyer will give you all this information. Overall you should expect to spend $10-20K on this.
In practice, the whole thing is pretty simple, and can be managed through email (scans for signatures), and US businesses are used to this. The whole thing can be completed in 1-2 weeks from the point of making initial contact with the US lawyer. Although lawyers have a bad reputation, I found that most lawyers are usually very professional and upfront about what they will charge and what the process will be, what to expect. If you need a contact try http://wsglegal.com is who we were recommended, used, and were very happy with. (I'm not affiliated).
So far so good, what sucks is the accounting / tax issues. That's where you will waste most of your time, esp. if you are based in Egypt. In our experiences, while lawyers are pretty professional about what they do, accountants are less so, and accounting/tax issues are the worst offenders for wasting valuable time. That's where you should be prepared for shit to hit the fan initially, esp. for international issues where neither side (US/Egypt) will have complete legal/accounting/tax knowledge. Your cheap plain vanilla local accountant will be useless.
Finally, you should know that the USA is a very litigious country, meaning people are more likely to sue you if they feel you owe them or you've wronged them. So once you have a US presence (a US Co.), customers and business partners, sooner of later shit _will hit the fan_ and you will probably get sued. It's the cost of doing business.
Overall, in my experience, if you don't want to raise US capital, I would suggest you do _not_ set up a US Corp. Staying local, and having to only deal with local legal/accounting/tax issues is _much_ simpler for you. Also, if your company is based in Egypt it's probably harder to sue you. I would invest major energies is trying to figure out how to take payments as an Egyptian entity, although admittedly I don't have much experience in this. You could also look into setting up a UK Co., I know people who did that to take payments.
$3000-$4000 to set up a hygienic Delaware C corporation is not a good use of funds early on. You can spend an order of magnitude less than that to get 99.9% of the benefits of that C Corp with a Delaware LLC.
People often point out that VCs demand C corporations. But they leave out two very important issues with that: first, the closing costs of an institutional VC round will dwarf those of company formation, and the C Corp can easily be rolled into that; and second, it's become an article of faith among my friends who have gotten VC rounds that no matter how carefully you structure your original C corp, the VC's lawyers are just going to rip it up and start over anyways.
Either way: you can almost certainly defer this expense safely, so that it can be thought of as part of the overhead of taking investment as opposed to a a major, speculative, early capital expenditure.
The major benefit of a C Corp over an S Corp, and much of the reason VCs require it, is that C Corporations can issue multiple classes of shares. Similarly, the major advantage of an S Corp over an LLC is that there's a cleaner separation between equity ownership and company participation and employment; it can be tricky to issue equity stakes to employees of an LLC. So: if you have a diverse early membership, with employees and junior cofounders and part-time founders and investors, you should definitely shell out for legal advice ASAP, because those issues will bite you in the ass later.
But if you fall into the mold of 80% of the companies that end up in "Show HN" posts, with 2-3 cofounders with mostly equal stakes (or at least very clear expectations about percentages), you're probably fine with an LLC until you're not fine with one, at which point the expensive of forming a C Corp isn't going to matter.
Just to note: LLCs are treated as partnerships by default for tax purposes, which is what complicates equity compensation for LLCs. S-Corps are mostly treated like partnerships for tax purposes.
You can alternatively choose to have an LLC which is taxed as a corporation by making a "check-the-box" election. After the election, the LLC is an LLC for all purposes except tax purposes, and is treated as a corporation for tax purposes.
Sounds very complicated compared to the UK. You can set up a company (limited liability), here, over the internet, for about £15. If you're in Europe that's usually the preferred approach for a lot of small businesses; indeed, it is the most tax efficient way of operating for businesses that're in the UK as it shelters your person from creditors and liabilities compared with a simple sole trader arrangement. A lot of accountants will do a monthly package deal to manage your company's books and the accounts for you if it is simple, which it invariably is for most IT shops.
It's not that different in the US. OP explained the case in which you're setting up a company for VC investment. It is only slightly more complicated than an LLC. In fact the time consumed by the whole process of setting up a company is negligible compared with the time spent fundraising.
Actually, OP is not interested in setting up a US company for fundraising purposes--the purpose of the US-entity is to easily process credit card payments.
Could you elaborate more on how is it possible to register a company in UK online? I was under the impression that I'd have to be present there in UK to do so.
£5. Enter some forms and that's it. They offer a registered office package; they'll be in the UK for you. I registered a company through them (although I used a more expensive package, including stuff like registered office) and saw no indications I had to be UK based (although I am)
That is not the official Companies House website, by the way, but an affiliate that resells that service with "additional options." I cannot comment on how good it is.
Registering a company in UK is indeed a breeze, but try to open up a bank account for it if you're not a resident.
I'm from Poland, and every single bank in UK asks me not only about my company office's address, but also the founder/director address. Living outside of UK (although still in EU), I found no way around this yet.
I'm about to go self-employed soon so I went to my bank (lloyds) a week ago to ask about opening a business account. Apparently there is not much of an issue. The difference is that I had my personal account at their bank for the past 3 years.
I get a excellent service from Cater Allen, whom I business bank with (but no other affiliation than that.) Instant, direct access to a human in the UK with no phone queues or phone menus. Nice and simple. The only downside is the slightly rubbish internet banking, but I can live with that.
I get free postage paid envelopes so I can mail stuff to them as well. It's good.
You realise that obtaining a Business banking account isn't a requirement - You may use your personal bank account and this applies for LTD, Partnerships or sole traders..
I paid $50 to set up my new business (C-Corp) in Colorado, and got my EIN from the IRS.
If you want to get incorporated in Delaware and you don't have a statutory agent there it is going to cost more money to get someone to forward the mail for you, also you need to be aware of any rules or regulations for that state for opening the business.
We were doing this as part of a fundraising process, so I'm not sure how it would go without that. I presume it'd be cheaper although I'd still want a lawyer involved. But, if there's no fundraising, then based on my experiences I wouldn't create a US Co. anyway.
I'm not sure Delaware has a huge number of benefits for founders. I was under the impression that a large number of companies are based there because its easy to do online and it's what VCs are used to.
No, there are several tax and legal benefits (no jury trials for example) by being incorporated in Delaware. There are lists of pros and cons everywhere on the internet.
The legal benefits go even deeper than that: Delaware has great, extremely well tested laws around corporations (no surprises) and a judicial system that is highly familiar with corporate matters.
It's less about corporate advantage, although that helps, and more about a well known system with no surprises.
Delaware is a great state for: 1) large corporations, 2) boards of directors of corporations of any size, and 3) the investors who control the board of directors for a corporation. Delaware is also a great state if you expect to have lots of litigation over your corporate structure or in regards to corporate management activities.
Delware is a horrible state for anyone else, especially minority shareholders. The reason large companies and VCs love Delaware is because it allows them to run roughshod over minority/non-controlling investors in ways that are illegal in almost every other state. (This is also the premise behind the investing maxim, "never vote against management".)
Furthermore, incorporating in Delware does not shield you from legal liability from other states. For example, if you do business in California, you will generally be subject to California laws. You can contract jurisdiction to Delaware for certain legal items, but not all (for example, employment issues). This is relatively easy to do for consumer-facing contracts, but most locally incorporated businesses will reject jurisdiction clauses from non-essential vendors and clients.
Have I got this right? If you set up a company in Delaware, and then had your actual operating offices elsewhere (say San-Fran), you wouldn't need to pay any corporation tax? Or would you need to pay it in San-fran?
In most states, as I'm fairly sure is the case with California, you would register as a foreign entity in California, and would pay taxes in California relative to the income produced in California. Which, if you were a Delware Corporation with all of your resources in California, would be 100%.
If you want to open a business bank account in California, you need paperwork from the California Secretary of State. HSBC, Chase, Wells Fargo all asked for it. If someone managed to get an account without the paperwork, I'd like to know where.
For international companies, you will want to hire an accounting firm which has offices in both/all of the nations in which you will be operating.
There is a reason that accountants and tax lawyers dither more about the tax issues than lawyers do about other issues. (Tax lawyers will be lumped in with accountants hereafter because tax law is generally considered the practice of accounting in the US.) Under the laws of most nations, accountants can go to jail and be made to pay potentially unlimited penalties if they give bad tax advice, in addition to malpractice liability. Lawyers generally only have to worry about malpractice liability. Accountants generally face more risk than lawyers, and correspondingly spend more time mitigating that risk than lawyers do.
I recently created a US company. Here's what I learned:
Most companies are set up in Delaware, because of Delaware's taxation and advanced corporate legal system. Setting up (and shutting down) a company in Delaware is very simple and streamlined, and most big US corporations are technically Delaware corps.
If there's a chance of raising US VC capital in the future, you will want to create a Delaware "C" Corporation, specifically. Many VCs will demand that you create a "C" Co. and transfer IP/business if you had another Co. previously. Ownership in a "C" Co. is based on shares, and the "C" Co. can later release and sell new shares to VCs: that's how investment deals happen in a nutshell.
To set up the company, we used a lawyer. After shopping around, $300/hr is what you should be prepared for, with about 10-20 hr to set up the "C" Co., another 10-20 if you want to transfer IP. Also, if your existing Co. is located in say Egypt, you'll need Egyptian legal council to cover your ass on that end (VCs will demand egyptian legal opinion for transfer of IP).
Once you have the company, you will need an EIN. That is simple and can be completed using a website for a Delaware Co. Then you need to open a bank account. In our case a US based partner did that at his local bank. There's an outfit called Bank of Silicon Valley who seem to be helpful in cases like yours and you can open an account with them, over the phone. Then you will need a virtual office and mail forwarding services, such services exist for Delaware Co's for a low yearly fee (~$50/mo), your lawyer will set you up. You'll also need a US accountant. Btw. your US lawyer will give you all this information. Overall you should expect to spend $10-20K on this.
In practice, the whole thing is pretty simple, and can be managed through email (scans for signatures), and US businesses are used to this. The whole thing can be completed in 1-2 weeks from the point of making initial contact with the US lawyer. Although lawyers have a bad reputation, I found that most lawyers are usually very professional and upfront about what they will charge and what the process will be, what to expect. If you need a contact try http://wsglegal.com is who we were recommended, used, and were very happy with. (I'm not affiliated).
So far so good, what sucks is the accounting / tax issues. That's where you will waste most of your time, esp. if you are based in Egypt. In our experiences, while lawyers are pretty professional about what they do, accountants are less so, and accounting/tax issues are the worst offenders for wasting valuable time. That's where you should be prepared for shit to hit the fan initially, esp. for international issues where neither side (US/Egypt) will have complete legal/accounting/tax knowledge. Your cheap plain vanilla local accountant will be useless.
Finally, you should know that the USA is a very litigious country, meaning people are more likely to sue you if they feel you owe them or you've wronged them. So once you have a US presence (a US Co.), customers and business partners, sooner of later shit _will hit the fan_ and you will probably get sued. It's the cost of doing business.
Overall, in my experience, if you don't want to raise US capital, I would suggest you do _not_ set up a US Corp. Staying local, and having to only deal with local legal/accounting/tax issues is _much_ simpler for you. Also, if your company is based in Egypt it's probably harder to sue you. I would invest major energies is trying to figure out how to take payments as an Egyptian entity, although admittedly I don't have much experience in this. You could also look into setting up a UK Co., I know people who did that to take payments.
The EverWrite guys have a nice writeup here:
http://everwrite.com/opening-a-delaware-corporation-an-incor...