Starting a real business
stripe.com
stripe.com
There is still no writeup why Stockfighter was wound down, though this was promised by Thomas H. Ptacek/tqbf on https://twitter.com/tqbf/status/771533037666390017
Concerning the blog post here: As you surely know in Germany credit cards are still not common (by SEPA direct debit mandate and there exists an IMHO far better option; this option exists in the whole EU, though it is particularly popular in German). This is IMHO an important limitation of Stripe (and Stripe Atlas) for German customers (I would even call it a road block for this market) not to offer SEPA direct debit. Are there any plans to add this option in near future?
One particularly tricky topic that I'd love to see covered is paying foreign employees. Paying members of a distributed team is straightforward when they perform as contractors. As we've grown and they've continued working with us, the relationship has become one of employer-employee in the eyes of U.S. law. This puts them in a nebulous situation where they are de facto employed by a U.S. company, but are non-U.S. persons deriving their income from a non-U.S. source.
It's likely other Atlas users could find themselves in a similar situation.
@patio11 or anyone: since Stripe Atlas is still in the early stages and not accepting everyone, what's the quickest/cheapest/easiest way to move a company from a Sole Prop to an LLC/S-Corp?
My CPA recommended a tax attorney but that seems old school and expensive. At the same time, companies like LegalZoom or MyCorporation charge $$ for BS things like "obtaining an EIN" which takes a few minutes, so I don't trust those services either.
Personally I'd look for a solo small-business attorney, they should be able to do this for cheap. Definitely not a brand name startup law firm :)
Disclosure: I'm was a corporate transactions attorney and I applied to Stripe Atlas, it was actually pretty cool, they asked what products/service I would create for Stripe Atlas and I built it here: www.generalcounselcloud.com
The primary purpose is Registered Agent, which is always over looked and I don't think a startup has tackled. For example, I didn't see anything in the initial write up on Registered Agent (what it is, who they are, the price) but every business organization must have one. My startup also does annual reports, your write up mentions they are easy (which they are) and most business owners do it themselves or pay a CPA ~$100, personally I find a lot of business owners willing to pay for the convenience and peace of mind. If appropriate I'd ask your thoughts since these are services are complementary not competitive with Stripe Atlas.
Yes people may be their own registered agent FREE. However, almost no one can act as their own DE registered agent because the Registered Agent must have a DE physical address, and very few DE companies are physically present in DE.
Additionally, for the non-DE businesses, whether you are big or small business you likely don't want process servers coming to your place of business (or your home) and serving lawsuits in front of your employees/family.
Edit: Still your point remains that not many people see the benefit of paying for an Registered Agent (even when they can't be their own) which is why I have bundled 3 additional services (annual report/franchise tax notification; annual report preparation/filing; unlimited legal advice). Annual Reports are easy and can be done by business owners too, but based on the number of people who file late and pay late fees greater than the filing fee, its still a service businesses need.
You're not just renting someone else's address. You're also renting an employee that will take papers from a sheriff's deputy on behalf of your business.
But a registered agent business is not the only type of business that can provide such services. Attorney's offices can do it. A self-storage business can do it. A private mailbox business can do it. A crazy cat-person that never leaves the house can do it.
Those options may be cheaper than the specialist business, but most RA businesses will provide additional services that make the higher fees worthwhile. For instance, they will not only inform you in a timely fashion when your business has been sued, but may also e-mail you a scanned copy of the complaint and summons within minutes of receiving it.
Also, registered agent businesses are likely to have offices in place in multiple states, so they can better compete on price if your business operates in more than just one state.
That said, don't buy RA services from Corporation Service Company, because they buy up tech businesses and then indiscriminately fire all the software pros.
> What “material size” means to you is a great question to run by your accountant, but as a guideline, in the United States, many businesses with revenue above $100,000 choose to incorporate.
Does this mean I made a very sub-optimal play by choosing to incorporate before revenue? We have revenue now, but not very much, and the Stripe fee, lawyer fee, and soon-to-be-accountant fees definitely put us in the red.
If one had hypothetically used the invitation to apply for Atlas, you get a Stripe account instantaneously, should know whether we can support you within 2 business days, and should have a bank account opened in about a week.
We are, naturally, working on making things faster. More news on that front when it is ready.
[1] https://stripe.com/atlas/faq#who-is-in-the-stripe-atlas-netw...
We hope to write more about banking specifically at some point, including (if I have my druthers) about KYC, which you've previously mentioned has been a pain point for you in attempting to get an account opened from overseas. KYC is not an absolute blocker; particular strategies for accomplishing it are something I'll have to write about another day.
If you are a freelancer/contractor and just want to receive payments, a routing number may be enough. I have a Payoneer pre-paid card, it gives me an account number US customers can use in order to send me wire transfers.
My affiliate link is bellow - you get $25 more first time you receive 100 bucks using it (I get another 25).
https://share.payoneer.com/nav/fvwULgacjt7YwEJtAUtbRxP2b3Vfa...
1. They use First Century Bank for the routing which does not have the greatest reputation.
2. You can only get paid out in your local currency (at least for Australia where my business is based) and the exchange rate is terrible. This is a really killer.
3. The fees are very high.
4. They seem rather prone to cutting people off and having very poor customer service in regards resolving issues. They don’t appear to be worse than paypay in this regards, but I would not be keen to have hundred of thousands of dollars in transit with either company.
Thanks for writing this!
The two major reasons why:
1. When you're a C-corp, you pay taxes twice. Once at the corporate level, and once at the individual level. This matters both for ongoing income but also for any liquidation event - as most liquidation events are asset, not stock, sales, you're getting taxed twice here too.
2. You can go from LLC -> C-corp easily but not the reverse. Why would you make the decision before you have to? Start as an LLC. In the very unlikely event you are taking institutional funding you can convert; in most cases, you'll happily stay as an LLC and keep the extra tax dollars you'd be giving the government.
Finally - all this business that VCs prefer to invest in Delaware C corps because of the legal knowledge there is - sorry - bullshit. They do it because they have to invest in taxed entities, because they themselves are partnerships so their interest in any flow-through entity will flow up to their investors, some of which are non-profits. Non-profits, like pensions, risk losing their non-profit status if they have unrelated business taxable income. There is a solution here, which is to have a special purpose blocker corp that sits in between the VC partnership and the LLC. This is done all the time in private equity but not in VC and there is no principled reason why not.
So there you have it. Don't do Stripe Atlas because you're forcing yourself to make a decision you don't need to make right now, that's irreversible, and that may end up costing you a lot of money.
IANAL, but I am a Wharton MBA
I am still suffering headaches from this, even after my company shut down, because of all sorts of bizarre issues of being a PA C Corp. And since nobody knows anything about PA C Corporations, I can't use standard documents and legal advice is particularly expensive (and usually not the best).
Corporate law isn't always so cut and dry.
This is a pretty standard business transaction called a conversion. As you found with dissolution of your PA LLC taking unexpectedly long, these transactions/processing times vary by not just transaction type but of course State too.
After conversion from PA LLC to PA C-Corp, did you end up Domesticating it to DE, because from the sound of it they wouldn't want to invest in any thing but? Some States are so backwards about processing times you might have been able to dissolve the PA C-Corp much faster than the LLC, but that is a little rarer.
Glad it worked out for you and to see a positive HN post about lawyers vs DIY.
The thing is, the more successful your company turns out to be, the more likely it is there'll be lawsuits.
Recent prominent case in point: Cruise Automation [1]
[1] http://www.strictlyvc.com/2016/04/17/a-strange-new-battle-be...
If I were to do it all over again, I would just start out as a DE C Corp.
(I'm in Illinois, have/had NYC parters, operated out of NYC, Chicago, and California, and ultimately sold the company and got to watch a couple hundred thousand dollars in legal and accounting get spent --- like with any serious acquisition --- and neither "DE" nor "LLC" appeared to cause any hiccups for us.)
A C-corp deducts officer salaries. Officer salaries are not taxed twice in the manner the OP states. Assuming there are any profits that remain after officer salaries, and assuming those profits are not kept in the business as retained earnings, and assuming the company decides to pay those profits as dividends, then they are taxed twice.
A C-corp can provide a clear separation between business and business owner(s); and among various owners.
Ask an attorney what to set-up and be clear with them where you think/hope your company is headed.
UPDATE: Its not that other structures don't provide this, its that OPs characterization of C-Corp structure isn't right.
So then the question is: of what possible benefit is a C-Corp to a small business that hasn't taken funding from an investor that requires share classes?
I'm not aware of any protection or separation that a C Corp provides that an LLC doesn't. So far as I know, the sole practical reason to incorporate a C Corp is to get share classes, which startups need pretty much solely to satisfy venture capital investors.
to get non-payroll money out of a c-corp and into the owners' pockets, it will be taxed twice, first as corporate income and then as dividend income on the individual owners' tax return. if you have a way around this that doesn't involve laundering money offshore or to shell companies, i'm all ears.
for a smaller, closely held private company with no institutional investors, an LLC taxed as a partnership or something similar (not an s-corp) will yield a lower effective tax rate for the owners of the company and more closely represent what actually is going on.
investors want to invest in a delaware c-corp usually because all of the laws and case precedence are favorable to them.
You clearly feel differently, I'm just curious why.
at the end of the day it comes down to how much revenue vs. overhead vs. capital structure you feel comfortable with.
yeah, so why switch if you don't have to
OPs characterization seems correct to me. (That you pay taxes once at the corporate level, and once at the personal level.)
Why should an LLC that makes $5,000 a year pay the same flat tax of $800 as a business that makes $5,000,000 a year? There should be tiers instead.
I think a structure like the following makes way more sense, but then again this is the government we are talking about.
Revenue < $50,000 = $250 tax
Revenue $50,000 - $100,000 = $500 tax
Revenue $100,000 - $500,0000 = $1,000 tax
Revenue > $500,000 = $2,000 taxCA is pretty good at making sure they get their money from you.
I think we just have Sole Trade -> Private Limited -> Public Limited and not much other variation.
Generally anyone starting up will have the choice between Sole Trade (you are personally liable for the companies debts) and Private Limited (you are not personally liable, but have more regulations to abide by such as you have to submit accounts to Companies House.)
You can be a C-corp and elect for S-corp taxation (which will allow for flow-through taxation).
The advantage of this is that S-Corp status can be revoked easily.
Source: owned several companies over the past 15 years, at least one of each type of USA legal entity: LLC, S-corp, C-corp.
The reasons to select one entity type over another are many and subtle. Consult your lawyer and accountant for advice (and only act on it if they both agree).
Corporate income is taxed twice in the following sense: once when earned by the corporation, and again to the owner when received as a dividend out of the corporation's profits.
Salary paid to officers/employees is only taxed once, because it is treated as an expense to the corporation and thus only taxable to the recipient. Most small businesses avoid this as much as possible because individual tax rates are usually higher and salary payments incur SSI/payroll taxes.
This seems interesting but makes complete sense. Most ideas likely won't pan out and incroporating usually isn't worth the time. I'm in Colorado and making a c-corp took all of 15 minutes, but I've been told in other states its a huge proccess. If it wasn't so simple and I didn't have free legal support, I definitley would not have done it.
"Corporations. Corporations (both C corporations and S corporations) have the strictest internal requirements, including holding initial and annual director and shareholder meetings, adopting and maintaining updated bylaws, issuing stock to shareholders, and recording all stock transfers. ... Facing the consequences
If a corporation or LLC is sued and unable to show it met all corporate or LLC formalities and state requirements, a judge can rule that the company has been acting more like a sole proprietorship or general partnership. This can result in “piercing the corporate veil” meaning that limited liability protection disappears and leaves individual owner(s) assets vulnerable if a lawsuit judgment is made against the company."
Source: http://www.bizfilings.com/learn/business-compliance.aspx
I've found that bizfilings has a wealth of high-quality information on incorporation and other requirements for starting a business
In Slovenia starting a sole proprietorship was a weird process of starting a corporation that doesn't bring any benefits of a corporation[1] and a bunch of complications with taxes and social transfers and such.
[1] it's tied to you personally, uses your personal tax ID number, and gives zero liability protection
And in Slovenia (potentially elsewhere in Europe) I have to do a bunch of bureaucracy to get a sole proprietorship. In the US, I don't.
Hence why it's one of my fav things about moving to the US.
I understand you may already know this, but I think it's an important caveat that is frequently overlooked in such discussions, causing many small businesspeople surprise when they learn that they may be personally liable in the event of a lawsuit (which will probably name the publicly-listed owners as defendants by default).
IANAL
In France, if I plan to earn any money from a website I built, I need to create at least a "micro-entreprise" [1] to declare my income (up to 32,900€/y for a SaaS).
[1] https://www.service-public.fr/professionnels-entreprises/vos...
Edit: If you know French- https://fr.wikipedia.org/wiki/Entreprise_individuelle might be your answer.
The big diff apparently is that everyone in the US is sole proprietor by default, while in France you need to ask an agreement from the government.
- get a SIRET code [1] (id of your business, needed to make invoices)
- declare your income to pay your income tax and your social taxes
- be eligible to the national health insurance
- increment your rights for the social pension
- update the national statistics [2]
- be eligible to the ACCRE [3] (tax reduction during 1 year)
- be eligible to the ARCE [4] (a capital equals to 45% of your unemployment indemnities, from the social taxes you paid from your previous jobs)
And probably other things.
[1] https://en.wikipedia.org/wiki/SIRET_code
[2] https://en.wikipedia.org/wiki/Institut_national_de_la_statis...
[3] https://www.service-public.fr/particuliers/vosdroits/F11677
[4] https://www.service-public.fr/particuliers/vosdroits/F15252
Depending on what you are doing, you may also need a similiar tax id from your state (and possibly any other states you are doing business in, if you have a physical presence there). Most states have on online process similar to what the federal government has.
Then, you may need to register with your city and get a city business license- some cities don't require this for all types of businesses, but this can be one of the most expensive and difficult parts of the process, as you usually have to go to city hall and pay money for it.
But all of the above can be done as a sole proprietor. It is also fairly easy in many states to get an LLC setup online for not too much money if you want to go that route... though this depends wildly by state, I have heard California is a (comparative) nightmare to do this in!
Also, lots of businesses are very low-margin (to the point where even the few hundred dollars for incorporation is a large expense).
Same with credit card payments, it used to be super expensive and painful to integrate, right now its a simple API.
Thanks Stripe.
But for me it came around 2 months late.
I already used a online website to register a C-Corp and they have no process to "import" your c-corp you either start all over again or dont use it.
I also have no idea what would I have to do to "close" the existing c-corp and start anew using atlas.
The main feeling I've struggled with in the past was that the market I was in had been monopolized by well-funded, well-advertised imposters.
I mean that strictly in the sense that a lot of startups these days are selling their product before it's even finished - I feel that by me actually taking the time to complete the product (instead of going around raising capital), that I'm at a disadvantage.
It's dangerous to legitimize this concept of 'imposter syndrome' - Some actual crooks might use it as an excuse and start to think that what they're doing is normal.
From Wikipedia:
"Impostor syndrome (also known as impostor phenomenon or fraud syndrome) is a concept describing high-achieving individuals who are marked by an inability to internalize their accomplishments and a persistent fear of being exposed as a "fraud"."
> We’re writing primarily from the perspective of U.S. companies—it’s most relevant to Atlas customers (all of whom have U.S. companies)
I take this to mean this won't work for those on the other side of the pond?
Getting off the ground!
Say you have an idea, maybe even a prototype... MAYBE even a functional software business that's drawing some small income! How do you go about GROWING that idea, or tiny business? Do you HAVE to seek external capitol? Do most successful startups utilize angel / VC funds to "make it"?
If so, where do you go, and how much do you ask for? What happens if your business fails?! Do you owe all that money back? Are people going to be pissed at you? Are you blacklisted from the industry? Etc. Etc.
The point I'm getting at is... It seems to me like they've left out the part about resources. Funds. The stuff that really gives your idea, a strong kick in the pants.
The link below has some basic information about fundraising for startups
This is rubbish. Most regular people are not :). Entrepreneurs - maybe.
Just because you're 'faking it until you make it' does not necessarily mean that it's 'ok'.
Most businesses are well established, and there are long running norms and practices.
Working for a bank, usually you need a very specific education, then several years of learning the ropes, and there's no way around it, unless you want an embarrassing hole in your knowledge.
So yes, it's good advice for some, but there's a reason you might feel like an 'impostor' and it could be because you are. There is a reason that most CEO's are 40-50 something and not 23. Heyzeus.
I believe that Stripe Atlas has only Bitcoin as a cryptocurrency, correct?
Are you making money?
If you are, you run a business, if not, you run a liability.
If I buy a government bond I won't "make money" until the principal is repaid. But that doesn't mean I acquired a liability - it means I invested money in something.
Likewise for buying real estate or any business that monetizes a capital asset. Are those not real businesses?
Investing today for uncertain earnings in the future is perfectly legitimate, in tech, in brick & mortar businesses, really in anything. It doesn't mean you can be unrealistic, but it does mean that you shouldn't be short-sighted.
My point is that "are you making money" (implicit: right now) is in fact not an appropriate criteria as you suggest.
On a personal note, Patrick is an awesome guy. I'm still super thankful he took time out of his busy schedule to do our little podcast: http://startupcto.io/podcast/0-23-cross-training-with-sales-...