When to incorporate a business in the US: cost and expenses for startups
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- เผยแพร่เมื่อ 6 ก.ค. 2024
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Why should you do it?
When is the right time?
An overview of the process
Alright, most companies are incorporated as C-Corporations. The second, rather common alternative is LLCs or limited liability corporations.
An LLC is a type of company organized under an Operating Agreement, which is a contract between the owners specifying how it will be run and how the economic burdens and returns will be split.
We'll focus on C-Corps, today. In our experience with investors and accelerators, most of them will want to invest on Delaware C-Corps: so if your plan is to raise venture capital, that's probably the way you want to go.
A C-corporation is an entity designed to act as an abstraction layer between the operators of the business and the owners of the business. The power of a C-Corp is that it generally separates liability from the business owners.
Ownership is tracked by shares, with each share corresponding to a defined portion of control of the business and entitlement to the economic upside of it.
The state of Delaware has a highly developed body of law governing corporations.
So why doing it?
Clarity with Co-Founders.
While those agreements can be put in paper first, as your product and company increase in value you'll need to have them in full, legal writing, and a legal corporation is the best way to do it.
Allows Equity Ownership and Compensation
Not only for founder shares but for early team members. You'll want to define an option pool for them to compensate them for taking a risk with your company.
Intellectual Property
If you are developing code, that code belongs to you unless you have a contract with the company. By creating a C-Corporation you can ensure that all code generated is owned by the company.
Personal Liability Protection
If the corporation is sued, the assets of its founders are more likely to be protected.
You will probably not be able to raise money to your name. It needs to be put into a corporation.
While incorporating normally costs around $500, you need to pay around $500-$800 per year in state fees.
Furthermore, you need to be compliant with accounting and tax filings.
The process is rather straightforward and we laid it out in our platform FounderHub. We built that specifically to help founders navigate this process.
1. Filing takes about a day.
2. You'll want an EIN number.
3. You'll need to define a Board of Directors and company Bylaws.
4. You'll need to define share ownership and vesting.
5. Very important, if you are vesting stock, you'll need to file an 83B election form.
6. You'll want to sign a Restricted Covenants Agreement between the founders.
We have details on each one of these steps as well as document templates available on our free FounderHub platform.
If you are from outside of the US, this last part is for you.
Do you need a US company vs a local company? It depends.
a- If your product is global, and you want to bill customers around the world, it is expected for those credit card charges to come from the US.
b- Charging credit cards as a US company is very easy. Stripe and Square are two companies that have perfected that model.
c- If you are looking for US investors, or even plan to raise from investors from multiple countries, they can probably all agree to invest on a Delaware C-Corp.
d- Startup mechanisms such as vesting, stock option pools, and convertible notes: not all countries have legislation or mechanism in place to handle these agreements, it's all quite standardized in the US.
#startups #incorporate #smallbusiness
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You are great teacher. Your UIPM (Useful Information Per Minute) is OVER 9000
I didn't know there was such a term 🤔
DragonBall fan I assume
Pavlos Vasileiadis lol
@@keshav2136 i made it up:) but it makes sence)
Ur channel is so underrated sir
*one of the big resaon of being so is because there are very few who are interested in startups*
Caya, honestly speaking, I can't express the gratitude in words! Keep up the good work brother! Cheers! ❤
Dude, you are always so on point and no bs. All of your videos grab my attention like a magnet whole time. Thanks for your contribution!
Great, thank you for clarifying all that. Very important.
You are my mentor!.....Thanks for all your support!!
Extremely useful! Thanks!! 👍
Glad it was helpful!
Thank you, Caya!
El Tico is to the point! Gracias!!
Can you do a video on LLCs please?
I know I will eventually need to incorporate. I was thinking about S Corp but will research more on C Corp.
Very rare video and very useful
I have a question, if I'm a foreign personal, and want to establish a LLC subsidary in Delaware, but keep my HQ in my country of Origin, can that work?
great videos guys they are really helpful! i live in iran and i am part of 2 startups which both of them targets basically everyone and is not border restricted or anything! we want to crowdfund becuz well we dont have any money and man rials worth nothing vs $ so someone just suggested i should use stripe to get started up and then try indie gogo? but im not sure if that solves the issue plus stripe or square never would say no to 500$ easy money even if it wouldnt work out!!!!
Nice video 👌
Greetings for the day sir, I hear that state/federal taxes on LLC rather than c-corp is that rue and which is best for foreign founders R&d technology startups, which has fewer compliances, taxation, and cost of operation per/year estimate. thank you
I don’t have an SSN though, Stripe Atlas is asking for that to register a company in the US.
Thankyou for this video bro
My pleasure
When is the right time to incorporate? 3:41
The answer = essentially when customers are ready to pay for your services.
@@amindforall442 I think you mean equity. You wouldn’t have stocks at this point.
Hi Caya, thanks for your Insights. Your Videos are Straight to the Point and Highly Educative. I Reside out of the US. I Registered a Delaware C - Corp 8 Months ago, . I had Vested the Company's share at a 0.000010 Per Share with One Year Cliff during registration, but got ITIN last month to be used in Completing the FORM 83B Election. What can you advise as per the Form 83B Election Submission expecially for foreign funders like me. Thanks
On the founderhub.io website, the privacy policy is not able to be opened when signing up. Can I access this somewhere else?
Thanks a lot for the info.
I have a question. I reside in Canada and I have this market place where I want to payout sellers. I’ve noticed that pretty much every service I find, payouts to countries outside of Canada is not available. However, if you’re based in the US this is pretty straightforward.
Why is this?? And is there a solution out there that allows global payouts outside of canada?
What about the App startups where the transactions would be done via in-app purchases?
what international alternatives are there to a Delaware C-Corp? Can one get similar coverage in, say, Ireland or Malta?
but if you do not have a working visa in the US then you can not earn salary and profit-share from your own C-corp... right? isn't that a reason to start an LLC?
We have incorporated the company in our country outside US. If one day we need to move to Delaware C Company, can we move the company to US? Is it the same with filing new company?
What happens when you dont file for 83B?
Hello thanks for the great content
Do we need lawyer for this
Thanks for the info. Any advice on when/where to trademark a global software startup?
Visit USPTO website for trademark
Thanks@lott,, This video is really helpful for us 👍🏆🥇💯🤗
Glad it was helpful!
@@slidebean 👍💯
All videos of this channel are unique. Learned so much so far. Thanks a lot :)
LLC is a “Limited Liability Company” haha notice you said corporation but probably just a mix up lol it acts with limited liability as a corporation but itself is not a corporation
Quick question: Hi Caya and Slidebean team, I am based in Ontario Canada, and I am also a Canadian. I am currently building a software product that I hope one day will go global. My question is, is it that necessary for me to incorporate in Delaware or are investors alright with Ontario based corporations as well? I also heard that if I needed to move the business there at a later stage that is also possible. What are your thoughts?
Can I use just Paypal to collect payments globally just with my local company ( outside the US - I'm from morocco ) Thank you for the video ^^
This is great content! Congrats!
Should it explicitly be US
im planning on doing affiliate marketing here in the US. I stay in Texas. should I incorporate in Delaware? what are your thoughts?
Caya - thanks for the helpful video. Qs- when you say 'foreign' founder, but the person is in the US on visitor visa, does the form 5472 still apply to them ?
Good Q! Welcome to discuss with other founders or Caya on Discord slidebean.com/startup-cafe
What happens If I am the only member in my startup? (I am a software engineer)
I always hate that part about non-compete clausules. Comapny "protects itself" which sounds nice until you are the one who is leaving. Imagine you are a CTO with expertise in a specific niche technology and you sign agreement with non-compete clausule.
If something goes wrong and your CEO will fire you, what are you going to do next ? You are tech. expert in specific niche industry and now you cannot compete with your original company. Anything you could possibly do in your field could be considered as competition even if you would only get a regular job (at competition company).
So I don't think this has anything to do with "protection" it's unfair business practice that can get you out of job or business for life. It's nobody's business what I am going to do with my life after leaving the company. Everybody should have the right to start over.
However maybe I don't really understand deep enough how this really works, I would be appreciate some more information about this topic.
I don't know the specifics around the US but in the UK (therefore likely across the EU) non-compete clauses aren't recognised in statute. Courts don't generally look favourably on them. This means the onus is on the company to prove that it is legitimately necessary and doesn't go so far as to restrict trade for the employee leaving. They cannot be open ended so usually are only 6 months but can be longer for a senior employee with access to sensitive information. They may be unenforceable if too long or too restrictive in scope.
drednac I would of thought that it would be, to not enter in direct competition with a competing product/service...🤔, or is it more broad than that?
Most non-competes in the US are thrown out when challenged. It's mostly a scare tactic. Courts have generally found that individuals have a right to earn a living within their field. They're mostly enforced if you leave and try to steal customers who you had a relationship with at the prior company.
Where do you get the graphics & animations for these videos?
We make them :)
Do you have any information in filing an SEC Form C?
Thanks for your question! Are you on Discord yet? slidebean.com/live to join! Many of these questions will be discussed there since early 2020!
you still can incorporate your company in #estonia via #eresidency
bs
What about making a US company the SUBSIDIARY of a Foreign Holding company?
Thanks for your question! Are you on Discord yet? slidebean.com/live to join! Many of this questions will be answered there since early 2020!
Trying to login into founderhub... but not working... keeps loading forever... tried on different gadgets... please fix and let us know in case it is a bug...
Hi! Our FounderHub community migrated to Discord. Join here: slidebean.com/startup-cafe
Thanks I am in Uganda can I form a tech startup then cooperation remotely .am new to your channel but I really like it. Thanks
Thank you for watching! Welcome to our channel!
@@slidebean
But I did not get a clear answer to my question can you please make it clear
Did you need to have a citizenship in the US for opening a bank account / incorporation?
He explains you do not.
You dont need
I would prefer starting a Cantonese business since you wouldn’t have to pay taxes outside of Hong Kong.
Thanks Slidebean Caya
Thank you, Dharam!
I wasn't expecting my profit from Austin but I was amazed when I saw my bitcoin profit just today.
i just don't like the US. I'd rather incorporate anywhere else but the US