Ask HN: How to setup a company in U.S. without being there?
Hi guys,
I am working on a startup, and I will need to charge users for my services.
I am in Egypt, and its not possible to have an international merchant account, or in other words, its very expensive..
So I would like to know, how can I setup a tax ID and EIN or whatever, so I can make a merchant account based in U.S.?
Is it possible to do that without having to be physically in the U.S.? Are there any companies that help do that?
Thanks so much in advance.
76 comments
[ 6.0 ms ] story [ 152 ms ] threadhttp://blog.freshdesk.com/how-to-incorporate-a-us-corporatio...
Can not recommend it enough.
People on a US student visa often aren't required to file US taxes and therefore do not need an ITIN.
There are some useful info on that article. Nevertheless if someone has more info I would like to know different perspectives on that topic.
It's more geared towards Canadians but I'm sure many things apply.
I recently created a US company. Here's what I learned:
Most companies are set up in Delaware, because of Delaware's taxation and advanced corporate legal system. Setting up (and shutting down) a company in Delaware is very simple and streamlined, and most big US corporations are technically Delaware corps.
If there's a chance of raising US VC capital in the future, you will want to create a Delaware "C" Corporation, specifically. Many VCs will demand that you create a "C" Co. and transfer IP/business if you had another Co. previously. Ownership in a "C" Co. is based on shares, and the "C" Co. can later release and sell new shares to VCs: that's how investment deals happen in a nutshell.
To set up the company, we used a lawyer. After shopping around, $300/hr is what you should be prepared for, with about 10-20 hr to set up the "C" Co., another 10-20 if you want to transfer IP. Also, if your existing Co. is located in say Egypt, you'll need Egyptian legal council to cover your ass on that end (VCs will demand egyptian legal opinion for transfer of IP).
Once you have the company, you will need an EIN. That is simple and can be completed using a website for a Delaware Co. Then you need to open a bank account. In our case a US based partner did that at his local bank. There's an outfit called Bank of Silicon Valley who seem to be helpful in cases like yours and you can open an account with them, over the phone. Then you will need a virtual office and mail forwarding services, such services exist for Delaware Co's for a low yearly fee (~$50/mo), your lawyer will set you up. You'll also need a US accountant. Btw. your US lawyer will give you all this information. Overall you should expect to spend $10-20K on this.
In practice, the whole thing is pretty simple, and can be managed through email (scans for signatures), and US businesses are used to this. The whole thing can be completed in 1-2 weeks from the point of making initial contact with the US lawyer. Although lawyers have a bad reputation, I found that most lawyers are usually very professional and upfront about what they will charge and what the process will be, what to expect. If you need a contact try http://wsglegal.com is who we were recommended, used, and were very happy with. (I'm not affiliated).
So far so good, what sucks is the accounting / tax issues. That's where you will waste most of your time, esp. if you are based in Egypt. In our experiences, while lawyers are pretty professional about what they do, accountants are less so, and accounting/tax issues are the worst offenders for wasting valuable time. That's where you should be prepared for shit to hit the fan initially, esp. for international issues where neither side (US/Egypt) will have complete legal/accounting/tax knowledge. Your cheap plain vanilla local accountant will be useless.
Finally, you should know that the USA is a very litigious country, meaning people are more likely to sue you if they feel you owe them or you've wronged them. So once you have a US presence (a US Co.), customers and business partners, sooner of later shit _will hit the fan_ and you will probably get sued. It's the cost of doing business.
Overall, in my experience, if you don't want to raise US capital, I would suggest you do _not_ set up a US Corp. Staying local, and having to only deal with local legal/accounting/tax issues is _much_ simpler for you. Also, if your company is based in Egypt it's probably harder to sue you. I would invest major energies is trying to figure out how to take payments as an Egyptian entity, although admittedly I don't have much experience in this. You could also look into setting up a UK Co., I know people who did that to take payments.
The EverWrite guys have a nice writeup here:
http://everwrite.com/opening-a-delaware-c...
It's less about corporate advantage, although that helps, and more about a well known system with no surprises.
Delware is a horrible state for anyone else, especially minority shareholders. The reason large companies and VCs love Delaware is because it allows them to run roughshod over minority/non-controlling investors in ways that are illegal in almost every other state. (This is also the premise behind the investing maxim, "never vote against management".)
Furthermore, incorporating in Delware does not shield you from legal liability from other states. For example, if you do business in California, you will generally be subject to California laws. You can contract jurisdiction to Delaware for certain legal items, but not all (for example, employment issues). This is relatively easy to do for consumer-facing contracts, but most locally incorporated businesses will reject jurisdiction clauses from non-essential vendors and clients.
£5. Enter some forms and that's it. They offer a registered office package; they'll be in the UK for you. I registered a company through them (although I used a more expensive package, including stuff like registered office) and saw no indications I had to be UK based (although I am)
I'm from Poland, and every single bank in UK asks me not only about my company office's address, but also the founder/director address. Living outside of UK (although still in EU), I found no way around this yet.
I get free postage paid envelopes so I can mail stuff to them as well. It's good.
Which part of UK are you located in?
This is the real deal: http://www.companieshouse.gov.uk/
If you want to get incorporated in Delaware and you don't have a statutory agent there it is going to cost more money to get someone to forward the mail for you, also you need to be aware of any rules or regulations for that state for opening the business.
People often point out that VCs demand C corporations. But they leave out two very important issues with that: first, the closing costs of an institutional VC round will dwarf those of company formation, and the C Corp can easily be rolled into that; and second, it's become an article of faith among my friends who have gotten VC rounds that no matter how carefully you structure your original C corp, the VC's lawyers are just going to rip it up and start over anyways.
Either way: you can almost certainly defer this expense safely, so that it can be thought of as part of the overhead of taking investment as opposed to a a major, speculative, early capital expenditure.
The major benefit of a C Corp over an S Corp, and much of the reason VCs require it, is that C Corporations can issue multiple classes of shares. Similarly, the major advantage of an S Corp over an LLC is that there's a cleaner separation between equity ownership and company participation and employment; it can be tricky to issue equity stakes to employees of an LLC. So: if you have a diverse early membership, with employees and junior cofounders and part-time founders and investors, you should definitely shell out for legal advice ASAP, because those issues will bite you in the ass later.
But if you fall into the mold of 80% of the companies that end up in "Show HN" posts, with 2-3 cofounders with mostly equal stakes (or at least very clear expectations about percentages), you're probably fine with an LLC until you're not fine with one, at which point the expensive of forming a C Corp isn't going to matter.
You can alternatively choose to have an LLC which is taxed as a corporation by making a "check-the-box" election. After the election, the LLC is an LLC for all purposes except tax purposes, and is treated as a corporation for tax purposes.
Edit: Here's your California SOS FAQ on the subject: http://www.sos.ca.gov/business/be/faqs.htm#form-question7
Thus, if you are incorporated in Delaware but based out of California, you would be subject to taxation in both Delaware and California.
There is a reason that accountants and tax lawyers dither more about the tax issues than lawyers do about other issues. (Tax lawyers will be lumped in with accountants hereafter because tax law is generally considered the practice of accounting in the US.) Under the laws of most nations, accountants can go to jail and be made to pay potentially unlimited penalties if they give bad tax advice, in addition to malpractice liability. Lawyers generally only have to worry about malpractice liability. Accountants generally face more risk than lawyers, and correspondingly spend more time mitigating that risk than lawyers do.
http://www.ready2inc.com/outsideUS.asp
It's also good to have at least one of the sets on hand via retainer for best practices for tax and legal issues. That's if he's making enough to deal with these costs.
(A company I was a co-founder in a couple of years ago did everything bootstrapped - even our terms of service we kind of slapped together quickly with sections of other company's terms that we re-wrote. We found out pretty quickly you can get blindsided by legal trouble that you never thought was possible.)
1) http://everwrite.com/opening-a-delaware-corporation-an-incor...
2) http://everwrite.com/opening-a-us-corporation-an-incorporati...
Anyway, the issue is that no merchant account will accept your US company, even if it has an EIN and a bank account, without a personal guarantee. And they won't accept a personal guarantee unless they can either: 1. Pull your US credit report (which you don't have) 2. Be assured you have some assets that are within reach of the US judicial system or 3. take a huge rolling reserve off of your payments.
I would strongly suggest using 2CO, Paypal to get started. Too often we get involved in the paperwork and other stuff without proving the MVP.
Good luck from due east.
In effect, it will be treated as if the LLC distributed all of its assets to its partners, who then contribute those assets to a new corporation with the same name as the LLC. You may recognize income on the conversion, it depends.
The company corporation exists to provide most of the services you need. You can find them at www.incorporate.com They are good about reminding you of everything you need to file, and they also provide registered agent services. Every company needs to have someone in the state where they are incorporated who is there to receive process (e.g.: if someone sues you you have to have an agent who is identified publicly so you can get the court papers.)
They provide registered agent services and will facilitate incorporating in many of the states.
If you decide you need a mailbox in the USA, then there's earthclassmail.com which will offer you addresses in many states. I'm not sure what they require for non-american citizens to set up an account.
Denying entry to foreign investors would actively discourage foreign investment in US industry, which is completely at odds with most of tax code. Indeed, US law is too generous to foreigners who own businesses in the US.
Law firms help do this. A few grand you can get someone like http://www.grellas.com/ do it 100% venture capital ready in Delaware.
If you're really just looking for a merchant account, make an LLC and get one in the name of that. Far cheaper, but will require the redo when/if you want investment.
Make sure you file the paperwork to do it's taxes like a C corp instead of a disregarded entity (Form 2553)http://www.irs.gov/pub/irs-pdf/f8832.pdf
1) Ask yourself WHY you need a company in the US. It might not be worth it.
I registered one so that 1)it would be easier to accept payments from the US through their native gateways, because in my country, all of them suck.But if I had known the pitfalls first, I would rather have integrated with Paypal.
2)An American company's products are always perceived to be better than the rest.
I registered an LLC and every year, I'm required to pay an annual fee of $250 USD as Franchise tax. Mine is in Delaware so its just $250, if its in California, its going to be approx. $800 or so. $250 might not sound like a big deal, but for companies like mine, that are bootstrapping, it really is.
You are required to pay some more money as tax, apart from the Franchise tax on your ECI. ECI is effectively connected income - ie, The income generated by doing business with the US. This is going to get complex if you have an online internet business model.
You are required to have a registered agent to represent your company in Delaware. They charge anywhere from $50 to $200 a year.
The total tax you might end up paying for the same revenue stream is:
Franchise tax + tax for your ECI + registered agent fee + your local country's tax.
The situation gets even more complex when you hire more people.
Also, the organization's taxation methods change depending on the number of members (single/partnership/multi-member, etc.)
More on this: http://www.irs.gov/businesses/small/article/0,,id=98277,00.h...
The worst part is, if someone decides to sue you, suddenly you are answerable to the American government, which you were not before. Your liability is also increased (unsure of this though).
Travelling to the US becomes a nightmare when you own an American company. Visa officers think you have a higher probability of settling there, rather than returning and it becomes increasingly difficult to get to the US, which I'm pretty sure is not what you want.
FYI:
I registered through a known friend, but the best place to get it done, if you ask me, is through Harvard business services (www.delawareinc.com). They have a lot of benefits (total cost to set up an LLC is under 600-700$ USD) and MANY of my friends have registered through them. They also are very transparent and their registered agent fee is only $50 a year! (I'm not their salesman though, for god's sake)
Anyway, If I had known these disadvantages first, I might as well have gone with a local organizational structure. Just keep these in mind while registering your new company... my 2 cents.
If you are looking for a lawyer I received good recommendations for:
- Ryan Roberts @ http://startuplawyer.com/contact
- Scott Edward Walker @ http://walkercorporatelaw.com/
- Grellas Shah LLP @ http://www.grellas.com/
The way I branched out my company into unknown territories is to find a reseller there. Let them take care of the regulatory stuff. In this economy it should be easy enough to find someone who already has the company in place and needs some extra work on the side.
You can set up the contracts in such a way that you retain the option to buy them out and set up your own company at some point in the future.
A few things:
-Getting a US FEIN no longer requires a Social Security Number or ITIN, you can call a special phone # the IRS provides.
-As mentioned, you can form the company now (e.g. a Delaware Corporation) using an online service like ours (~$300) and the VC will require you to modify your articles of incorporation later anyway so I don't see the necessity of spending this much up front unless you are guaranteed getting financed.
-There ARE some banks that will open an account for you without a visit, we've listed a few at the link above but it usually depends on if they have a branch in your home country or if it's a "trusted" country (e.g. Singapore vs. Nigeria).
among all these comments the one by ari_1 is the only one i would attest to.
i am not a u.s. citizen nor a resident but i was in u.s. as a graduate student between 2007 and 2010. i formed my company http://www.pratimaanllc.com in 2009 and went through the situations that you are considering. i even have an eVerify number so that i can hire persons with valid work permit in the u.s. who are not u.s. citizens or residents.
my company was originally an industrial design firm but i found many people interested in the basic questions that you are faced with.
i re-geared my company to provide start up services like the ones you require.
no matter what, a company in the u.s. needs to be bound to a human's Social Security Number (SSN). A company can be formed by the Employer Identification Number (EIN) of another company which, in itself can be tied to an EIN of another and so on. but eventually there is a human's SSN tied to this arrangement.
forming a foreign company's u.s. subsidary is common and easy in every state due to the reforms in 2008 where practically every state adopted simpler procedures and "Uniform Corporation Codes". it is so simple that many state governments have a daily limit (15 or 20) on the number of companies that can be created with the same SSN or EIN. yes, a daily limit means that there are people registering more than 15 companies daily with the same SSN.
the most crucial component is a manager within the u.s. who carries out the "fiduciary" obligations partnering to the company's daily operations. you don't have to explain all these operations and the managers'complete role at the time of incorporation. but you really ought to do thin in an "operating agreement" which basically a document maintained at the company premise explaining the company's bylaws, rules, regulations, roles etc.
depending on the state, registering a company can take between $50 to $300 as a processing fee taken by the secretary of state's office. as a personal observation, states on the west coast and the east coast are the most expensive, the central ones are the cheapest.
i registered my company in iowa, another one in seattle and one ind washington d.c. i'm operating them from india.
all these offices were merely to grab market share based on the services i am providing and for giving my employees a sense of belonging and ownership. i'm an industrial engineer and i believe that work must inculcate such a notion in a worker.
but what you really ought to consider is, why do you actually need an office and bank account in u.s.? do you expect more than 5 daily transactions? is you plan to accumilate these daily transactions at the u.s account and transfer them to yourself in egypt monthly to avoid transaction fees?
something like that does make sense but...
to start out, using paypal would be a valid and worthwhile advice. all the paper work takes time, money and will remove you from the actual process of dealing with your customers and providing them the service/product they need. all the u.s. banks have weird hidden fees and shopping for banks is an arduous task which, is also a very serious managerial decision.
if you want to chat more send me a hollar on my company's website. but as ari_1 suggested, concentrate on proving Market Value Proposition before dealing with the backend processes that companies eventually need to handle.
wish you all the best,
sam khan