To kick off the beta, we found that the C Corp was the best place to start based on what entrepreneurs in emerging markets were already looking to do. We go into much more detail about C Corps and their tradeoffs when we invite someone to the beta. In addition to other company structures (like LLCs) here in the US, we're also looking at equivalent structures as we expand Atlas globally.
Depending on if you have no money coming in, or a small amount of money, it may not be worth it to do payroll... but that's only for the smallest of businesses.
As others have mentioned, we've started with the C-Corp form because we think it will be what most of our users would prefer initially, but we'll look at expanding it to other forms.
In California there is a "gross receipts tax" based on revenue for an LLC. Do over a million dollars? Pay $6,000 in LLC Fees. Fine for a software co or a law firm not a huge deal. Ecommerce can be a crazy low margin business though and many Stripe customers could get hurt.
http://www.sandiegobusinesslawyerblog.com/2013/05/california...
I think the Delaware corp is a fine idea and a good choice here, but combining that with a Silicon Valley Bank bank account gives me pause ...
California really goes after state tax revenue, and I worry that a corporate entity that has no presence in California, and is not a CA corp has created an opening with a SVB bank account to allow CA FTB right in ... and they are aggressive.
I would feel more comfortable if the bank account was also in Delaware...
Law is a messy business, but they have literally taken the most typical arrangement for startups in US accelerator programs as the first template for Stripe Atlas. I can't imagine a safer set of choices.
Also, the business might not succeed, so why waste all that time+money on creating a C Corp, which is even more expensive to dissolve? C Corps also have many more expensive legal requirements. If the business is successful and you plan on getting VC money, convert it later to a C Corp.
Does this mean no state-level tax-paying requirements, or no tax paying requirements at all?
In other words, for an overseas non-citizen sole-owner of a service-providing LLC formed in Colorado, are there no US taxes due at all?
However, you might owe taxes in your home country.
If you sell goods or there are co-founders, then you have to pay.
This line is key. You can't escape taxes, you can only change where you pay them (and therefore potentially how much you pay...)
The complication with setting up a business in the US is figuring out both what the IRS expects and what your country's tax agency expects. This varies both based on treaties with the US and based on local interpretation of US company structures. You have to be careful, or a few years later you could owe back taxes either to the IRS or your local tax authority, even if your only mistake was not filing the correct paperwork to say you didn't actually owe taxes.
A better way of saying you don't owe taxes is to say ... understand what taxes you owe, it could be $0. You still have to file, however, and you'll have to file both locally and abroad. :)
It varies state-to-state what constitutes "doing business," but just having a bank account usually doesn't qualify. Coming from harmonized tax laws, the US is an unexpectedly different place. But this is a step in the right direction!
- Processing fees(paying someone to file for you, obtain EIN etc.) = $50
- Registered agent service = $100/year
- EIN for foreigners = $50
Registered agent... that's a tricky one. I saw this advice on Reddit: "Lots of small business law firms will serve as registered agents for free. Really the only purpose of the RA is to accept service if you get sued, and they figure you're most likely to hire the firm that's already looking at the complaint and forwarding it on to you."
Also some registered agents are national, e.g. Harbour Compliance, just one I found on Google. Here are others: http://registered-agents.credio.com/ (hmm, this website is less useful than I expected, remember to check off "All 50 states" or you'll be missing some...)
Delaware has a $300 annual tax on LLCs.
An LLC can elect to be taxed as a C corp, but that's not the same thing from an investor point of view. An LLC taxed as a C corp still has interests instead of shares and still has use an Operating Agreement under the relevant state LLC act.
Changing entity types isn't especially hard, but it's tedious. Usually you do some sort of subsidiary merger maneuver.
It is expensive and time consuming to go from LLC to C Corp. Maybe you mean S Corp which has some similarities with LLC but it is easy to switch to C Corp if you need to.
I generally agree they should not offer C Corp though because the paperwork is extremely complicated and cannot be done correctly by an internet form at least in my experience.
EDIT: I should have said very unlikely to raise VC investment even though it is technically possible to raise investment with most types of businesses such as LLC. [1]
1. http://www.dividendsandpreferences.com/2009/02/why-dont-vent...
Also they are quite easy to setup. Requiring a simple Internet form and a few checks written here and there.
Additionally it is extremely dependent on the LLC in question as to whether switching will be difficult later on in any way. Sole member LLC with no additional equity holders? You can fill out a form.
EDIT: your edit is wrong too. Whether you switch it from "investments" to "VC investments" or provide a source to attempt to backup your falsehoods.
> EDIT: I should have said very unlikely to raise VC investment even though it is technically possible to raise investment with most types of businesses such as LLC. [1]
We should be careful in how we continue to spread this common misinformation. It is not helping people who are actually new to this and trying to learn. The likelihood of landing VC investment has little to nothing to do with you being an LLC or not.
VC attorneys convert LLCs in their sleep. If they want to invest in only C Corps and you're an LLC, between your legal and their legal: it'll get worked out.
Some of them require C Corps. Some of them require S Corps. Some of them require a specific C Corp like one in Delaware. Some of them are just fine and dandy for LLCs. Some prefer LLCs. For all cases[1]: there are appropriate methods and paperwork to ensure parties can come to agreements.
Continuing to add comments to this site with phrases that characterize VCs as being a single entity is confusing and not helpful.
New founders have a lot to worry about. Whether they created the right type of company or not, is so far removed from initial worries and so often easily taken care of at later dates. I don't think it's helpful at all to continue to try and convince them that there is a wrong or right way to do things.
[1] - I dont have any examples where a business owner and an investor couldn't come to an agreement when both parties wanted to work together.
Lol! I noticed I made a typo (missing VC) within one minute of submitting and fixed it. Wow you are fast.
For some reason you, and a lot of other folks, have gotten ideas in your head like:
- an LLC is somehow a lesser entity than a C Corp
- you can't raise money with an LLC
- you're not as well protected with an LLC
These are all completely false in a lot of very important ways that can make differences that have many commas when it comes time for liquidity events or payouts of any sort.
I appreciate your passion and agree it is an important topic. I just found that specific sentence funny.
> an LLC is somehow a lesser entity than a C Corp
Personally, I have never thought that. They are just different.
> you're not as well protected with an LLC
I would have agreed with you until recently. I bought a house and the audit for the home loan was extremely thorough. They wanted tax and financial records for all sorts of things that I wouldn't think would be relevant. Since I am self-employed that included my business tax and financial records. I pushed back because I don't think that is any of their business and they relented only because it is a C corp. I have only bought one house and have one loan. I don't know if it is standard practice to audit the business too, but in my case having a C corp saved me from a business audit.
> you can't raise money with an LLC
Technically correct, but I strongly disagree with the blanket advice that first become LLC and then later become C corp if necessary. Likewise I strongly disagree with the blanket advice to just be a C corp.
I always ask people what the ultimate goal is. If the ultimate goal is to become Google, Facebook, etc (forget likelihood), then I say C corp. Otherwise I usually say LLC.
What being a founder really means is your job is to build confidence. Build confidence with employees that you are a good leader and they can depend on a paycheck from you. Build confidence with customers that you can build a good product and you will support them if they have problems. Build confidence with investors that you will make them money.
One way to build confidence with VCs is to have the business set up as a Delaware C Corp. If your goal is to become like Facebook, Google, etc then you will probably need VC money at some point and you will be forced to become a C corp eventually too. Why not just do it at the beginning and show VCs you are serious and have some knowledge about what it takes to become a big, public company. That isn't the only way to build confidence nor is it the best way, but it is a way. Why start with LLC and make it a question you have to constantly answer?
This is not true. You can sell membership interest in an LLC the same way you can sell stock in a C corp.
And in my experience it's fairly simple to go LLC to C. I didn't get confused with S corps.
And you can always go from LLC to C if you're taking VC investment.
And you should be able to stay as an LLC if VCs would learn to use blocker corps like PE shops do. VCs don't do that but not for any principled reason as far as I can tell.
(Thus completely avoid corporate taxes by never paying dividends, and nominally having zero profit.)
- Flow through taxation = you only get taxed once. With a C corp you pay corporate income tax and then you get taxed on any distribution
- If you sell the business, you better hope you have enough leverage to get a stock sale and not an asset sale, because in an asset sale, you're again getting majorly double taxed. The vast majority of exits are asset sales though because they shield the purchaser from unknown liabilities
- From an LLC, you can easily become a C corp. From a C corp, it's majorly difficult (practically infeasible) to become an LLC; you retain optionality in one case but not the other