May 10, 2019

Incorporating or not? and where...

edoos

Hello guys,

We are an EU based team with a product who get traction in the US.

We are currently thinking about incorporating in the US (Delaware with stripe atlas or Gust launch) to start launching our premium feature.

The app will be out soon but the website is running with decent traffic.

Should we start to incorporate now to be able to test our premium feature business model and receive money from our users, or should we wait before doing so?

And what's your advice for an EU based team is a good idea to incorporate in Delaware for your mobile app as our targeted market is in the US and we are gathering some health data and do not want to have a mess with GDPR and data transfer from US to EU.

Thanks for your help.

  1. 1

    My business is based in the EU and I regularly revisit the idea of incorporating in the US, or in other places. So far, I have rejected the idea every time.

    My take on this is that the US brings many risks and very few benefits. The main risks are: 1) the first lawsuit will bankrupt your business, 2) taxes are complex and difficult to handle without professional advice, which is in turn expensive. Additionally, you know your laws & taxes relatively well at this point, or you can easily find people who do, so you are immediately at a disadvantage in any foreign jurisdiction.

    The legal risk is underestimated by most entrepreneurs. Yes, this doesn't happen often, but being based in the US means that the first patent troll or any other lawsuit will cost you at least tens of thousands of dollars just to defend yourself.

    The main advantages are: 1) if you are going to take an investment, investors will be much happier with a "standard" Delaware corp. (but I do not want investors), and 2) accepting payments is generally easier, with less invoice-related formalities and the availability of automated options like Stripe.

    EU does have its inconveniences, too. The ridiculous VAT MOSS regulations and reporting make selling to individuals difficult and expensive. Invoices need to be perfect. Some countries (like Poland) additionally require all documents to be in their language, which requires dual-language invoices. And regulations like GDPR affect you (though, to be fair, they affect everyone worldwide, it's just that you are closer to penalties if you are based in the EU).

    In my case, every time I consider moving the business elsewhere, I find that it really doesn't make sense for me. Apart from the VAT MOSS situation, most other things are better in Poland (where my business is based), and the 19% tax rate is pretty good, too! I'd say that in general if you do not need investors and do not plan to sell the company soon, it's better to remain in the EU.

  2. 1

    You can check the list at https://projectilo.com/rankings .

    You can perhaps wait and not charge your users for a few months, until you can be sure where and if you want to incorporate.

    A US corporation might help you avoid the full GDPR compliance as long as the "processor" of data is outside the EU as well, however it is going to complicate things regarding your compensation etc.

    Perhaps after Brexit the UK might be an easier place to incorporate.