How to register a company in the USA: the most comprehensive guide for founders(aynuriev.com)
aynuriev.com
How to register a company in the USA: the most comprehensive guide for founders
http://aynuriev.com/how-to-register-company-usa/
35 comments
Thought experiment: Suppose that every employee in the USA decides to go into business as a sole proprietor. I really mean everyone. Workers contract out their services and file a Schedule C to report income and expenses. Is this possible? Is it desirable? How would it affect the corporation as we know it today?
This is wonderfully detailed about which exact steps to take. Even if I don't agree with each point it gives me a framework for further research. Thanks for the read!
I shuddered reading through this but I attribute that to my trained paranoia from the other non-engineering career. For heaven's sake treat the contents as CoreFailure recommends, a starting point or a framework of topics to raise with a professional versed in the laws in all of the states you'll be doing business in.
Can't all of this be done via Stripe Atlas for $500?
Yes, Stripe atlas can be a pretty good choice for some of this. With that said, if you don't need anything fancy, and just need a basic LLC for yourself, you can save money (and also choose your state of incorporation if desired) by using some other legal services, which will be slightly cheaper, as all they really do is file the documents for you, which is pretty easy to do on your own as well. But Stripe atlas obviously comes with more than what those services offer in case you need it.
Stripe Atlas doesn't accept very many companies. I signed up and was rejected... even though I use Stripe for processing. Somehow Stripe feels they are taking on a greater liability for your company beyond processing.
This too was my immediate reaction.
Are there situations where Stripe Atlas would not be the best choice?
(Also curious if anyone has experience with Clerky or Gust Launch, which are also mentioned in the article.)
Are there situations where Stripe Atlas would not be the best choice?
(Also curious if anyone has experience with Clerky or Gust Launch, which are also mentioned in the article.)
Also used Clerky, it's great. Just fill out a form and give them a credit card and it handles all the paperwork, generates incorporation documents & bylaws, files with the relevant secretary of state, and gives you instructions for what to do afterwards.
I've talked to a couple lawyers since that are familiar with the Clerky paperwork, and they said that legally it's pretty solid as long as you're doing something fairly standard. If you've got complicated ownership structures (converting from an LLC, founders quitting or joining after incorporation, spinning off IP that might not be yours) you probably want to talk to a lawyer, but for the standard situation where a bunch of friends get together, can all agree on ownership percentages, and start a company from a clean slate, Clerky's great.
I've talked to a couple lawyers since that are familiar with the Clerky paperwork, and they said that legally it's pretty solid as long as you're doing something fairly standard. If you've got complicated ownership structures (converting from an LLC, founders quitting or joining after incorporation, spinning off IP that might not be yours) you probably want to talk to a lawyer, but for the standard situation where a bunch of friends get together, can all agree on ownership percentages, and start a company from a clean slate, Clerky's great.
Stripe Atlas won't help you start a company with ethics baked into its mandate so that's worth considering. Clerky will help you to incorporate as a Public Benefit Corporation if that is of interest.
https://www.clerky.com/public-benefit-corporations
https://www.clerky.com/public-benefit-corporations
I use Clerky and can only recommmend it.
How do foreign founders deal with the visa situation when doing business in the US?
As long as you are not employed by your company, you don't need a work visa.
If you want to be employed by your company and live in the US, currently the E2 is the best option (for that, you already need ongoing substantial operations in the US).
If you want to be employed by your company and live in the US, currently the E2 is the best option (for that, you already need ongoing substantial operations in the US).
This is brilliant thanks. Perfect help for someone outside the US
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Good article, pleasant read, but it's missing https?
Are you worried that a malicious attacker will MITM the connection and give you inferior advice about starting a company?
Step 1: do not misspell the word "company".
Very valuable article! Thanks for it.
One thing to be aware of is that registering a company in the US (or anywhere else) does NOT mean that it's not taxable where the founders or management are resident.
For example, in Australia, a foreign company is taxable if i) Australian tax residents control the company’s voting power; or ii) Its “central management and control” is in Australia.
Other jurisdictions have similar laws.
For example, in Australia, a foreign company is taxable if i) Australian tax residents control the company’s voting power; or ii) Its “central management and control” is in Australia.
Other jurisdictions have similar laws.
For individuals tax residence (residence for tax purposes) is usually the physical presence in a jurisdiction.
You have to check tax treaties between the US and the other country to see how it goes. Usually when there is tax treaty, there is no double taxation.
For corporations fixed place of business is important legal concept in OECD couturiers. Significant digital presence is a new emerging concept.
You have to check tax treaties between the US and the other country to see how it goes. Usually when there is tax treaty, there is no double taxation.
For corporations fixed place of business is important legal concept in OECD couturiers. Significant digital presence is a new emerging concept.
Nearly all US tax treaties carve out exceptions for management activities, meaning for example that if a US-incorporated company is managed in Australia, then it is subject to tax in Australia and also in the US, though they would get foreign tax credits in the US to offset the Australian taxes paid.
See the permanent establishment article of...nearly every tax treaty based on the US or OECD model tax treaties.
See the permanent establishment article of...nearly every tax treaty based on the US or OECD model tax treaties.
> One thing to be aware of is that registering a company in the US (or anywhere else) does NOT mean that it's not taxable where the founders or management are resident.
I always wondered about this and how it affects startups. In particular, YC requires that all the companies it funds be registered as US entities. How do these companies manage double taxation ?
I always wondered about this and how it affects startups. In particular, YC requires that all the companies it funds be registered as US entities. How do these companies manage double taxation ?
By filing taxes in every jurisdiction they are legally required to file. Let's use the grandparent post's example: australian founders, company registered in deleware, USA.
They need to file at least the following:
1) US federal corporate income tax
2) Deleware state franchise tax
3) Australian income tax
Probably more. If you want to stay fully legal and compliant, it's just what you have to do.
They need to file at least the following:
1) US federal corporate income tax
2) Deleware state franchise tax
3) Australian income tax
Probably more. If you want to stay fully legal and compliant, it's just what you have to do.
And if this is extended to sales taxes: how companies actually pay taxes worldwide? I mean, a SaaS would require the company to be registered anywhere it gets a new customer? In real life how it is handled?
Also, I have read that some services like 2checkout offer "name of record" where they seems to pay taxes on behalf of a company globally. But I haven't seen any other company offering that, so I'm not sure if it it's standard or not...
Also, I have read that some services like 2checkout offer "name of record" where they seems to pay taxes on behalf of a company globally. But I haven't seen any other company offering that, so I'm not sure if it it's standard or not...
Sales taxes are a US-centric concept. Most of the world uses VAT, though Australia uses a variant known as the GST. (And not to be outdone, Hawaii has a variant of VAT based on gross income.)
That being said, for SaaS, it is still currently generally the prevailing rule that sales/VAT/GST/whatever compliance isn't required in the customer's country unless you have a physical nexus to that country (i.e., office, employee, etc.)
However, the US tech dominance has resulted in many countries proposing or even adopting rules that would subject SaaS transactions to VAT/GST/whatever compliance regardless of the location of the vendor. Most intl tax experts agree that this will become the standard within a decade, though there is substantial disagreement as to how soon within the next decade the transition will occur.
That being said, for SaaS, it is still currently generally the prevailing rule that sales/VAT/GST/whatever compliance isn't required in the customer's country unless you have a physical nexus to that country (i.e., office, employee, etc.)
However, the US tech dominance has resulted in many countries proposing or even adopting rules that would subject SaaS transactions to VAT/GST/whatever compliance regardless of the location of the vendor. Most intl tax experts agree that this will become the standard within a decade, though there is substantial disagreement as to how soon within the next decade the transition will occur.
I believe there exist treaties between countries that limit the taxed amounts, similar to how many states will account for income tax on income earned in a place other than your resident state (in the United States, that is).
Can't disagree more with Step 1. Just split it 50/50. Anything else will cause problems further down the road.
>Just split it 50/50. Anything else will cause problems further down the road.
It's not that simple. There are plenty of horror stories from founders explaining how the ideals of 50/50 or 33/33/33 equal splits actually caused problems and resentment about unfairness.
Sometimes equal splits will lead to problems.
Sometimes unequal splits will lead to problems.
Therefore, there isn't any one-size-fits-all advice. Each group of founders have to figure out what type of equity split is appropriate for their startup.
It's not that simple. There are plenty of horror stories from founders explaining how the ideals of 50/50 or 33/33/33 equal splits actually caused problems and resentment about unfairness.
Sometimes equal splits will lead to problems.
Sometimes unequal splits will lead to problems.
Therefore, there isn't any one-size-fits-all advice. Each group of founders have to figure out what type of equity split is appropriate for their startup.
I encourage you to share some of these stories. Future entrepreneurs are in this very thread and such experience could greatly help them out.
I happened to make a previous comment about this.[1]
To add some observations.
Equal split can work if the cofounders have known each other for a long time and have already worked together on a previous project. They have the history to confidently gauge each others' future work dedication. An example would be family siblings. Another example is Larry Page & Sergei Brin of Google. When they cofounded Google Inc in 1998, they had already met in Summer 1995 and worked on the "Backrub" research (precursor to google) for more than 2 years.
Unequal split may be more prudent when the entrepreneurs haven't worked together much and therefore haven't tested each others' resolve and dedication to a startup. A famous example would be Drew Houston and Arash Ferdowsi of DropBox. Drew needed to add a cofounder in a hurry and a friend helped him connect with a possible candidate. In this case, he gave cofounder Ferdowsi a smaller ~25% instead of 50%. Other examples of unequal splits include WhatsApp, Instagram, Youtube, Microsoft.
Every situation is different. Robin Chase (Zipcar) thought she was in the 1st scenario of equal cofounders giving equal effort when she was really in the 2nd scenario of unequal effort. That ignorance led her to regret her decision for equal split.
Another generalization I've noticed is that more experienced founders that had equal splits in their 1st startup prefer unequal splits for their 2nd startup. I can't think of any famous founders that went the opposite direction of unequal to equal.
[1] https://news.ycombinator.com/item?id=17376634
To add some observations.
Equal split can work if the cofounders have known each other for a long time and have already worked together on a previous project. They have the history to confidently gauge each others' future work dedication. An example would be family siblings. Another example is Larry Page & Sergei Brin of Google. When they cofounded Google Inc in 1998, they had already met in Summer 1995 and worked on the "Backrub" research (precursor to google) for more than 2 years.
Unequal split may be more prudent when the entrepreneurs haven't worked together much and therefore haven't tested each others' resolve and dedication to a startup. A famous example would be Drew Houston and Arash Ferdowsi of DropBox. Drew needed to add a cofounder in a hurry and a friend helped him connect with a possible candidate. In this case, he gave cofounder Ferdowsi a smaller ~25% instead of 50%. Other examples of unequal splits include WhatsApp, Instagram, Youtube, Microsoft.
Every situation is different. Robin Chase (Zipcar) thought she was in the 1st scenario of equal cofounders giving equal effort when she was really in the 2nd scenario of unequal effort. That ignorance led her to regret her decision for equal split.
Another generalization I've noticed is that more experienced founders that had equal splits in their 1st startup prefer unequal splits for their 2nd startup. I can't think of any famous founders that went the opposite direction of unequal to equal.
[1] https://news.ycombinator.com/item?id=17376634
For the financial split, the goal is to come out with something viewed as fair and reasonable. However for decision making, it is critical to have some way the company can make effective decision. If, for example, the co founders are on a sailing ship suddenly see rocks dead ahead, a decision must be made whether to go to the right or the left. The worst thing is not to be able to decide because two co-founders/co-captains have equal shares/voting and there is no mechanism to effect the decision.
Further more, if two (or more) co founders cannot decide before hand on how to deal with a deadlock, then it is always better to quit while you are ahead.
And yes, I had this experience as well as one that was the opposite.
Further more, if two (or more) co founders cannot decide before hand on how to deal with a deadlock, then it is always better to quit while you are ahead.
And yes, I had this experience as well as one that was the opposite.
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I've personally seen several companies get into deep trouble for being split 50/50. Initial equity split is probably one of the most basic, yet most impactful things for a company. And 50/50 is maybe the worst split of all.