Has anyone incorporated on their own?
I'm leaning towards using Stripe Atlas ($500) to incorporate Cloud Campaign, but I'm curious if anyone has gone the route of incorporating on their own through Delaware or any other state/institution for that matter.
I know doing it yourself can be significantly cheaper (< $100), but I want to make sure I'm fully covered from any liability and properly get an EIN, share documents, etc...
We used https://www.clerky.com/
Then we failed to create an actual business behind our B2C product. Spent a bunch of time trying to fundraise (lesson learned). Pivoted to bootstrapped B2B and had to dissolve the CCorp. Pain in the ass. <- Just a reminder to make sure your timing is right.
That's an excellent point - timing is crucially important.
If you were to do the B2C company/product again, what would you have done differently? Would you have waited until you had more customers before incorporating? What was the major drive for you guys to incorporate in the first place?
Sorry for all of the questions; I have a feeling your past experience can be extremely helpful to me and other starting entrepreneurs alike.
Our main mistake was incorporating because we thought we were ready to raise money. We would speak with "mentor" types and they advised us to incorporate sooner rather than later because investors will prefer it regardless.
^ Would have been all well and good if we actually raised money.
If I were to do the B2C thing again: Given it is fairly easy to incorporate in Delaware, I would stay as an LLC until investor interest was significant or you get a verbal agreement.
perhaps for some international founders: Some countries (like mine) have very strict exchange control laws. What this means is you cannot start a company in another country if you're already getting revenue without some rather nasty IP transfer process with the local tax authority - which usually costs $$$. So for me it's probably way too early - but have to incorp to avoid all that nonsense.
ya I didn't even think of that. Luckily for me, I'm in the US, but that's good insight.
... busy going through the atlas registration atm. Just a heads up to anyone doing the same. The number of shares you are issued effects the amount of Franchise Tax you are charged annually by the state of Delaware. The default is 10mil shares - which technically is a default of $180000 invoice! - you then have to motivate a share par calc. Specifying an initial 5000 shares makes you a "minimal" stock company, and the franchise tax is considerably cheaper than the cheapest par calc method (and simpler). More info here https://www.delawareinc.com/delaware-franchise-tax/
What does that mean exactly? Is that what you would pay in yearly franchise tax?
Looking at the resources on delawareinc, it seems like forming a C corp as a minimal stock company (AKA <= 5k shares) is slightly more cost effective than forming an LLC.
vs.
That obviously changes once you go over 5k shares, but it seems like that is the way to start.
yup.
The default number of shares suggested on Atlas is 10 mil - hence a rather nasty default invoice - one would then have to justify a lower charged amount using the "par value of shares" method, which the min amount is $300, and is a bunch of red tape to get right - you have to prove the current value of your shares.
Much easier to specify 5000 shares up front - it's easy enough to change later as the company grows.
... that being said (as Atlas would often remind me) - it's best to consult legal council on the matter - this is just my take-away: it wasn't fully communicated by atlas when specifying the number of shares on the application.
RyanB,
I have incorporated in the past, by using both online incorporating services and by doing it myself. I have not used Stripe Atlas before.
I incorporated myself by visiting my state's Secretary of State's business website, creating an account, filling out the online forms, and paying online. It was really simple and took about ten-minutes. After a couple of hours my state's Secretary of State approved my company. I then filed with the IRS to get my EIN, which took another ten-minutes. A few hours of waiting, and the IRS emailed me my EIN. 20-minutes tops of actual typing in information, and 6-hours of waiting. All approved on the same day.
I had a similar process with online incorporating services, except the companies usually offered a free registered agent services for the first year. Registered agents usually cost $50-$200 a year. Which is handy if you want privacy, or travel.
Why did I incorporate? The first reason why I incorporated my business was liability. I did not want to be personally financially liable if something bad happened. Because of the businesses I have it was definitely possible in the unlikely event something catastrophic did happen. This is called the 'corporate veil'. Be warned, you need to do certain things in order to prevent 'piercing the corporate veil' and being held personally liable; for example mixing personal/corporate funds, not having bylaws, and etc. Obviously, consult a lawyer about the particulars and your business will vary.
The second reason was reducing my personal income taxes through a properly structured corporation. There are many deductions you can take, and you can reduce your taxes by paying out in stock dividends instead of being self-employed (where you usually pay both ends of FICA, medicare, medicaid, federal, state, taxes etc). Look up the 'Gingrich-Edwards Loophole'. Obviously, consult your CPA and tax lawyers before doing any of this.
The third reason was having the ability to offer stock to investors if the option ever presented itself in the future. I have had a handful of investor opportunities, but did not go through with the deals mostly cause we didn't share the same vision.
I hope this helps, and if you have any questions I'd be happy to answer.
Samuel,
Thanks so much for this thoughtful response; it's extremely helpful!
Based off this, I'm leaning towards doing the legal work myself, but also makes it apparent that I still have a lot of research to do.
Thanks again and assuming it's okay, I'll contact you in the future if I hit a roadblock during the process.
You're welcome.
There isn't that much legal information to learn in my opinion; maybe 10-hours tops if you're struggling and your state has lots of rules/regs. Once you learn it, creating corporations will come easy and is a useful skill.
Most of the work will be in Articles of Incorporation and Amendments, Bylaws, Resolutions, Stock/Share Agreements for all shareholders, Minutes of all meetings, proper record keeping at registered agent's address, annual reports, separation of personal/business finances, liability insurance, paying your taxes, and a few other things in order to make sure the corporate veil cannot be pierced.
If you don't want to hire a lawyer, but want to get some free advice from some lawyers I'd recommend:
Contact your State's Secretary of State, or whatever state agency handles to incorporating. Ask them for recommendations for local workshops on how to incorporate properly. In my experience, they love to help businesses. In the end, they want to bring jobs and tax revenue to their state.
City or county business development office. Usually the local community college will have an office as well.
Reach out to various non-profit organizations like SCORE (https://www.score.org). They can help you get a business mentor, and also host business classes that include incorporating.
Contact the local non-profits that administer your state's Individual Development Accounts; think of it like a federal and state government matching 401(k) for starting a business, buying a house, or going to college. It's usually reserved for people below a certain income level, which isn't that low in my opinion. Before dispensing the matching funds, it's usually required you take business courses they administer, which may include incorporating. If you don't qualify, you can usually sit in on a class. This is usually the place to go if you don't have a local college or business development office.
It's not uncommon to have these free workshops hosted by lawyers and CPAs, or the lawyers and CPAs are guest speakers. If you research this info beforehand, it's even better. Because you can ask the lawyers more in-depth questions and get free legal and financial advice.
Best of luck.
I've incorporated myself. I've incorporated with a lawyer. I haven't tried Stripe Atlas yet.
In almost every case, incorporating has been a huge waste of time. It's something you can do that makes you "feel" like you're running a business but doesn't actually do anything or move you forward.
Does it matter for credibility? Not really, just impresses people who don't know enough to matter.
Does it matter for liability? Many people with corporations don't execute the necessary precautions and procedures in order to be protected from the corporate veil.
All it does is create an ongoing expenditure (you have to renew with your state every year).
If you have investors lined up and they are prepared to pay the expense of incorporating, then you can add that to the terms of the deal.
PS. I have a business credit card with my company's name (Code For Cash). It's backed by my personal credit and tied to my EIN which in this case is my SSN since I'm a sole proprietor. 2% cash back and 17.7% APR (decent).
This is great insight, thanks Zack! So it seems in your experience there aren't many benefits to incorporating unless you really need to for sharing equity.
My biggest concern is really around liability, but it sounds like you haven't had any issues with that in the past?
I'm a bit worried about the IP as well. At one of my previous companies we got sued for having a conflicting business name and had to rebrand, which is a pain in the ass.
You can do this without incorporating. Check out http://fi.co/FAST – they provide an example contract that gives an advisor equity, and does so without necessarily having a company that has issued shares. Adaptable to a cofounder type relationship, certainly..
Your contracts should have indemnification clauses. One of the chapters in our book is called "Legal Ideas" and explains this. Here's a free download: https://codefor.cash/legalideas.php
I am not a lawyer, but the guy who wrote that chapter is.
Exactly. Rebranding is a huge PITA and an expense, if you want to reincorporate rather than filing a DBA (doing business as). Your agreements (NDA, etc.) should protect your intellectual property. If it becomes a necessity to incorporate, you can then assign your IP to the company.
Does anyone know if Stripe plans on supporting companies that want to file as an S corp? @csallen any insider knowledge? 😉
On their website it says, "We’ll cover S corporations in more detail at a later date", but that's about it.
Have any of you guys and gals seen a service like Stripe Atlas that incorporates LLCs for solo founders?
Really not interested in forming a C-Corp. And Stripe only caters to those type of founders, I think because they are in sillicon valley.
... also doing the stripe atlas thing pretty soon. Seems like the best option for non-US citizens (like me). I know YC also sends all their startups to clerky for documentations stuff.
Wow, just stumbled on this old thread.
It's crazy to think back to this time of just starting the company. We're a team of 11 now approaching $1M ARR 🤯
Awesome
Stripe Atlas is appealing, but it only supports Silicon Valley Bank, which is oddly known to have a terrible online services.
https://launch.gust.com/start/ seems to fit the bill, especially access to the legal counsel, but then again, Delaware C-Corp only.
I'm curious if anyone has used either one of them.
Here in Florida I've always just incorporated on the State Division of Corporations site, sunbiz.org
It is cheap and cheerful :-)
Awesome! Any hurdles down the road with issuing shares or anything legal related? Did you form an LLC or S/C corp?
I wonder if there's a site that explains simply how to form a Delaware Corp for startups
Incorporate.com does a pretty good job of laying out the steps and explaining which forms needs to be submitted for which route you're trying to go (LLC, S corp, C corp)
https://www.incorporate.com/limited_liability_company.html