Company-as-a-Sevice?
Company-as-a-Sevice?
Some time ago I've looked at Stripe Atlas, Gust Launch, and others - before I passed on all of those and simply used my friend's LLC and their business PayPal to accept payments. I believe paying customers is the best validation, so at the time I just needed to be able to invoice a potential client. The idea failed, but at least I spent zero time and money for incorporation paperwork and account opening.
That experience, however, suggested another idea - to help other founders to do the same, I mean to avoid incorporation when it's just too early for that. I checked the legal side and made sure that's legit and doable. I also found other founders, like Joel of Buffer, saying basically the same things: don't incorporate ideas (source: https://joel.is/incorporate-your-startup-only-when-youre-forced-to/). I wrote my idea down and it was hanging on my list of ideas for months if not years.
Recently I picked it up after I've met yet another non-US founder complaining about getting tax IDs (foreigners need a so-called ITIN), banks and merchants blocking their accounts accessed from a non-US IP, ... all the same stuff that I hear again and again.
So I launched http://www.saaspilot.co/, sort of a "Company-as-a-Service".
[ Paradoxically enough, I had to register a U.S. LLC for that :) But in my case, the LLC is a critical part of the service and I already have a plan B how I'll use it if the "company-as-a-service" thing doesn't work. ]
I see some initial interest, but the idea is yet to be validated and you people can help me with that a lot.
So,
- Do you have a product/MVP?
- Have you incorporated and where? (U.S., home country, ..)
- Would you consider an option of using a friend's company early on?
- Would you recommend it to other founders?
- Would you pay a monthly fee or a revenue share?
Thank you so much for the answers and feedback!
The pros/cons of this will vary by jurisdiction, but I see two big flaws in this idea. I'm not a legal expert and my interpretation is based on how companies work here in the UK, but I'd imagine there are similar issues elsewhere.
Firstly, one of the biggest benefits of incorporation is that it provides limited liability. Assuming everything is operated legally, creditors can't take more than the company has in assets. If you're combining several logically distinct entities under one umbrella, everything is at risk if one of them messes up.
Secondly, there are various incentives to encourage the establishment of small businesses. These include tax thresholds and exemptions from certain legislation. If your company is one single large company it won't benefit from these. For example, in the UK you don't have to collect VAT (Value Added Tax) on your sales until your annual turnover exceeds £85,000. Also there are some employment regulations that don't apply until you have a certain number of employees.
Very good point regarding the risks, @dwdyer!
Risk management is the most critical part in this model, so that's what I've started from (btw my background is in financial risk management). There are several absolutely legal solutions to avoid risk sharing, plus there is quite affordable business insurance in the U.S.
Note, we are not combining companies under our umbrella, we are combining software / partnering / buying franchise / etc - depending on the mode we pick for a particular client. And we ourselves are an LLC, of course.
Tax implications also depend on the mode, but in the default one a non-US founder pays certainly not more than the US withholding tax of 30% that applies to non-resident sole-proprietorship LLCs ;)
Thanks again for the comment, that was thoughtful indeed.
I’m not sure how it works in other places, but in the UK it’s very easy to set up a Stripe account and process payments as an individual for testing out an idea.
If successful, setting up a basic corporation costs just £15 and some paperwork. Or about £100 for an accountant to do it for you.
There’s probably no real need for what you’re offering here, however I know things aren’t as straight forward in the US and many other places.
Thanks, @kylegawley. Do you mean in the UK you can have a Stripe Billing account for an individual?
With regards to incorporation, it's usually easy to do locally, but when it comes to foreigners, things become way more complicated. Even in the UK. For example, a UK bank won't open a business account unless there is at least one UK director in the company.
Yes, I have one Stripe accout that’s running multiple experiments and I’m set up as an individual. It’s very easy to set up, but not ideal for the long term.
Yes, good point actually. I have the same issue in Thailand, it’s a total nightmare to incorporate and impossible without 51% Thai ownership.
Yes, it's a very interesting idea but this sounds like a nightmare from a legal standpoint.
What if the legitimate product does something for which it is sued (IP infringement, or some other legal notice). Who is responsible for it? How about handling simple things like chargebacks? How about taxes?
You are absolutely right @sankumar, that the legal side is the most difficult one. All these questions, however, equally apply to traditional sales models like reselling, revenue sharing, franchising. It's not that hard to split the risks.
Answering your questions:
All your points are valid and very much relevant. I hear the concerns over IP and taxes again and again, so I think it's time to add those to the FAQ. Thank you!
I am simply doing a DBA for my product and I have no plan to incorporate or file for an LLC until I'm making decent money and can go full time on it. For most of us we are worrying too much about having an s-corp right away, it is not usually necessary but there are edge cases and certain clientele who expect it.
Interesting. Do you mean like "Colin McAttee doing business as xyz.com". DBA is not free, however, takes time too, and has to be registered in every single state where you have customers if I remember it correctly. I'll check it with my lawyer, though. Thanks for the feedback!
Yeah I just filed with my county it was a one time fee of $50 I never said it was free :) I can use the name Soccercruit for my product legally. I am sure it is different depending on where you live.
Thats actually a good idea. I would have wanted such a service couple of years back (not now)
However, couple of doubts:
Just some 30000 ft questions
Thanks
Thanks for the questions, @Responsek!
Does it make sense to you?