“If you are in USA, please start the process 4 weeks in advance to get your merchant account and if you are elsewhere, expect the process to take anywhere between 2 to 4 months”.
Before the days of Stripe, I remember writing this in 2011, as a prerequisite in our help documentation.
Without a service like AWS, you can’t imagine two guys sitting out of an apartment, building a service and competing with highly funded companies from any part of the world!
Just like AWS, the emergence of Stripe has played a huge role in creating a level playing field and a delight to work with. You can get started in hours instead of days. The sandbox is stable, and works as consistently as production. The REST API is a pleasure to work with. They abstracted the complexity required to get a payment gateway account with online workflows. You can go on & on.
In short, Stripe gets developers.
It’s an engineer’s approach to cracking tough problems, that looks naive for any outsider to start with and then looks like a genius idea in hindsight.
Stripe Atlas is a great initiative. I read about Patrick McKenzie (patio11, on HackerNews) joining Stripe Atlas team, which is fantastic. (Congratulations, Patrick).
Stripe Atlas is the service launched by Stripe, to assist founders to easily setup Internet companies, as a C-Corp Delaware entity, from anywhere in the globe. This service includes a network of services including AWS, Silicon Valley Bank account, PWC etc.,
As an international founder, operating a C-Corp Delaware company and one more legal entity in my home country, I wanted to share my experiences.
In the past 2 weeks I came across 3 different founders.
One is at idea stage. Another one building the product. And another one ready to launch and monetize.
All of them got into Stripe Atlas and have setup C-Corp Delaware. One of them had already incorporated a C-Corp and then got into Stripe Atlas and then incorporated again because it was easier to get SVB bank account via this program.
He is considering merging them or shutting down previous one! Talk about overheads, at such an early stage.
In this context, I wanted to share my insights for early stage founders, who are considering using Stripe Atlas.
Remember, the clock is ticking from the time of incorporation
- Even if you incorporate in October, you are required to pay franchise tax & other filings for the financial year.
Do not incorporate at the idea stage.
I repeat, DO NOT INCORPORATE without having a service that is ready to launch.
Do not incorporate for inspiration. Lot of folks make this mistake, thinking this gets the ball rolling.
Knowing your bilateral treaties & country specific laws is important
-
Some do not have a bilateral double taxation treaty with USA. - OECD countries are all figuring out how to get their pound of flesh, or their share of taxes (depends on how you look at it). - India recently implemented POEM, Place of Effective Management, that treats foreign entity as a Non-Resident-Indian, if all the operations are being run in home country.
And there are these myths
There are a bunch of justifications I have heard in the past to setup US company.
I want to incorporate because:
- We will have more US customers and they prefer to buy from US company. This may not be the most important consideration for a US customer to deal with you. Most importantly, do you have a site with well written ToS and Privacy Policy? Do you have a website & application copy without mistakes, one that is suitable for an international audience? English may be second language for you, but you hire a freelance copywriter.
- We want to raise money from US investors. I want to raise money from Tier-1 investors like Accel. Good investors will find you. If you focus on building the right things — good product, great team and customers — investors will find you. Finding good startups to invest in, is their job as well. Even for angel funding, there is no dearth of platforms like angel.co or termsheet.io these days, to help you with discovery and funding.
- We want to price our product in USD. You can do that from anywhere, though in some countries getting a USD gateway account could be harder. Again, there are several ways to workaround this, before you know this is a blocking condition.
Besides, if you decide to incorporate in USA, it only takes a few weeks to get this rolling at any point.
Now Stripe is available in so many countries in Asia, Europe, Australia and Latin America. Braintree is available in even more countries. Together we support customers in about 45 countries.
Unless you have a really crappy situation with respect to payment processing, regulations etc., that are real roadblocks for competing internationally, I do not recommend setting up company for the romanticised notion of using a particular gateway.
Do you have a marketing problem or a payment problem?
In India, lots of Founders complain about payment regulation and inability to collect recurring payments domestically and internationally as the number one reason holding them back.
Look closely.
How many visitors do you have on your website?
How many trials? How many trial-to-paid conversions?
And then are conversions dropping off at the last point because you are redirecting them to a bad checkout page?
If that’s really happening, you can incorporate with Stripe Atlas and fix the problem in a matter of weeks.
The legal unknowns
- My accountant helped me file some forms about foreign accounts and along with that income statement and a 5471 form & such. I made the mistake of putting the 5471 form in a different envelope and filed it. I had to fight a $10k penalty for wrong filing. Thankfully, we had patient investors, who understood the genuine mistake and helped fix it. They can become a blocking condition for investments.
- Every year, you pay franchisee tax, agent fees, federal filings etc., By running a company you have an obligation to file these. We think we don’t make any / much money and may ignore them; it will come back to bite you in a big way. The penalties are huge. And IRS can even block your passport for non-compliance. Be aware and always comply.
- Compliance requirements in home country is also important. How are you going to structure these two companies? Are they going to be related parties, with one being parent and the other subsidiary? Which one should be parent? Which structure has most advantage in the long term? This varies for each country and you should speak with fellow entrepreneurs and folks who are well versed in your country’s accounting procedures.
- Stripe Atlas, right now, does not seem to include all the regulatory filings, tax advice (PWC is the current partner. Let us not kid ourselves expecting free personalised advice for your country. It’s your job.)
- Missed filing 83(b) within 30 days? Oops.
- Delayed allocation of shares to all founders at the time of incorporation? Regulatory foreign exchange laws of your home country may kick-in, as you may need to “purchase” them later and file more documents.
- And then there are a ton of other things to consider, as discussed in this HN thread.
Every good service costs a lot
- If you pay peanuts you get monkeys; hire a shitty accountant, then you are screwed big time. They may not ask all the right questions about your liability in different countries and cross border transactions, and may just follow a template they know of.
- Reset your expectations of hiring accountants and attorneys. They don’t come cheap in USA or really good ones aren’t cheap anywhere.
Even without any activity the actual cost of operating companies in multiple countries is anywhere between $2k to $5k USD.
Apart from this, you need to spare your mindshare to read about the compliance requirements, legal structures, hiring more folks to manage these etc., This is huge.
I wish Stripe Atlas to become a grand success. I really do.
After all, our startup, Chargebee, has benefited a lot because of Stripe. We were able to onboard customers same day, only after Stripe brought this to market.
The world is crying for services like Stripe & Stripe Atlas to simplify the unnecessarily complicated paper work and barriers, that needs to be broken down.
But as an entrepreneur, you have a fiduciary responsibility and an obligation to your fellow founders and investors, to do the right thing.
Before you get too excited and follow what everyone else is doing, think if incorporating in Delaware as C-Corp is the right thing for you, at this stage of your startup. And then do it.
Good luck!
A few more helpful places for additional reading:
Startup Lawyer has a wealth of resources.
Setting up US entity as subsidiary.
Startup Documents_In addition to being simpler and clearer, we intend the safe to remain fair to both investors and founders.During its…_www.ycombinator.com
Counterpoint to consider Singapore for incorporation.
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