Stripe Atlas for LLCs
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Be aware that if you are "doing business" in California which means you live there you also have to file as a California foreign entity and pay the absurd anti-small business flat tax of $800 a year.
This also does not include your state income tax liabilities in California. Just because the LLC is formed in Delaware does not mean you don't have to pay income taxes in the state you reside. Delaware is just the legal residence, has nothing to do with income taxes.
I moved to Tennessee in January and switched my single-member disregarded entity LLC from California to Tennessee. The annual fee in Tennessee is $400 vs $800 and there is NO STATE INCOME tax in beautiful TN.
Euphamism for "That's on the roadmap, but I'm not allowed to announce it yet." Probably.
https://leginfo.legislature.ca.gov/faces/codes_displaySectio...
I'd be happy to know about other states which have similar laws.
This will complicate your life in two ways: First, your internet company now has to enumerate subscribers in the same state as you and charge them sales tax. Your competitors, located in friendlier territories, can undercut you by not having to do this.
Second, any payments you make to a SaaS/hosting vendor are now subject to use tax. Do you pay AWS for hosting every month? Get ready to cough up ~6% of that for Texas' treasury. If you're running the kind of business where your hosting bill will grow proportionally to your revenue, this amounts to a tax on revenue. In my case, it wildly exceeds anything California ever charged me in income tax.
Corporations wanted to be people. People pay income taxes on their revenue, not their profits.
https://www.ftb.ca.gov/businesses/Doing-Business-in-Californ...
For taxable years beginning on or after 1/1/2011, a taxpayer is doing business in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California or if any of the following conditions are satisfied:
> The taxpayer is organized or commercially domiciled in California.
> Sales, as defined in subdivision (e) or (f) of R&TC 25120, of the taxpayer in California, including sales by the taxpayer’s agents and independent contractors, exceed the lesser of $500,000 [1] or 25 percent of the taxpayer's total sales.
> Real and tangible personal property of the taxpayer in California exceed the lesser of $50,000[1] or 25 percent of the taxpayer's total real and tangible personal property.
> The amount paid in California by the taxpayer for compensation, as defined in subdivision (c) of R&TC 25120, exceeds the lesser of $50,000[1] or 25 percent of the total compensation paid by the taxpayer.
> For the conditions above, the sales, property, and payroll of the taxpayer include the taxpayer's pro rata or distributive share of pass-through entities. "Pass-through entities" means partnerships, LLCs treated as partnerships, or S corporations.
So if your 'HQ' is in California, if 25% of your sales are in California, if more than 25% of your property is in California, or if more than 25% of the total compensation you pay is in California, you need a California LLC.
Two different people? Aren't those words synonyms?
Two big advantages to Delaware:
1. Fast courts. When I last looked, it was 180 days from complaint to decision in the Superior Courts while California took 900+ days. (Also notable, Delaware proudly publishes these statistics. California's were tougher to find.)
2. Developed law. Since most companies are in Delaware, most law is settled in Delaware. Lots of edge cases have been smoothed out. It's also a more business-friendly code than California's.
That said, everyone's situation is different. Consulting with a lawyer is advisable.
https://www.tn.gov/revenue/taxes/franchise---excise-tax.html
https://revenue.support.tn.gov/hc/en-us/articles/204647155-W...
Essentially it says if I am a disregarded entity for federal tax purposes I am exempt from both franchise and exercise taxes.
https://revenue.support.tn.gov/hc/en-us/article_attachments/...
How do you even have a single member LLC that is a disregarded entity where the single entity is a corporation? Huh?
That seems to indicate I am responsible for these taxes?
LLC stands for "limited liability company," not corporation [1]. When one says "corporation" in a legal sense, it is typically understood to exclude LLCs. (That said, LLCs can elect to be treated as corporations for tax purposes.)
FWIW, I don't live in TN, but I used to. And I've done sole prop LLC's in a couple states now so I looked into moving back to TN and found this info.
> Since you are an LLC, and you are operating an active business, you will need to file a Franchise and Excise tax return, but you will be exempt from the Excise portion of the tax.
No idea how it works? I'm thoroughly confused.
But just like with Stripe Atlas for C-Corps, what you're paying for isn't the paperwork and the filing fees, it's the access to lawyers and tax help and the network of other founders. It's Stripe's experience, and help for people who aren't in the US. I'd say it's worth it because to be honest I have no idea what my company's responsibilities for taxes are and yeah that makes me a little uneasy.
Yikes. You should get an accountant. Ask for referrals from other businesses in your area that are similar to yours. Ask your local co-working spaces or incubators. Google...
(Drop us a line if you need a referral to an accountant; we can introduce you to an accountancy that works with a lot of Internet businesses. We also have some guides about it at https://stripe.com/atlas/guides to demystify it a bit.)
It also lets us help refer companies to accountancies whose sweet spot most closely corresponds to the facts of the company.
Disclaimer, not a CPA or lawyer, this is not legal advice
I’m sure I’m not the only one here who has never started a company and has no idea what this means. :)
The vesting schedule should reflect their contribution to the company over time, and can be whatever the founders negotiate as reasonable. If someone helps found a company and brings a ton of immediate value (ie IP or cash or contracts, etc) then their vesting schedule can reflect that. Issues such as assignment to estate or beneficiaries are important legal issues that need to be considered at startup time as 'insurance' against things no one wants to see happen, but might.
Here is a useful link from Cooley (a large, well-respected law firm) that goes into some of the nuance of these things: https://www.cooleygo.com/founder-basics-founders-stock/
Atlas C corporations with multiple founders have a vesting schedule built-in (4 year vesting; 1 year cliff), the market standard in Silicon Valley.
Vesting in an LLC is complicated:
Because an LLC is a partnership, there can be complicated consequences of someone stepping back from an operational role (like e.g. being a founder) but remaining an owner of the business. We didn't think it was appropriate to have a one-size-fits-all answer for this: some companies might choose to buy out the departing founder, some might choose to pay them dividends on an ongoing fashion, and some might not have financial bandwidth to pay dividends but might want them to participate in upside in the event of a future acquisition.
Conversely, adopting vesting establishes some fairly substantial tax consequences (83(b) elections, etc).
This is heavily dependent on facts-and-circumstances.
Vesting is more of an established concept, with off-the-shelf support throughout the ecosystem, for C corporations. For those who want it in an LLC, please speak to an attourney. You can still adopt it for your Stripe Atlas LLC, it just isn't built in to the default experience.
An LLC is not a partnership. (A limited liability partnership is an LLP.) An LLC is a distinct business structure with some similarities to a corporation, some to a partnership, and some unique features.
> Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless [...etc...]
(To grandparent comment: for what it's worth, I too find it highly confusing that "partnership" and "LLP" (vs LLC) are both terms and not as closely related as one might first suspect...)
The primary difference between an LLC and an LLP: an LLC must have at least one "general partner" who is fully liable for all of the LLP's debts in the event the LLP defaults.
Another major difference: until recently, law firms and accounting firms could be LLPs but not LLCs, due to malpractice liability concerns. Now that most bar associations and/or states require these firms to maintain malpractice insurance, many states allow law firms and accounting firms to be LLCs.
They are just as closely related as one might suspect: an LLP is a partnership where the partners enjoy limited liability.
An LLC is not a partnership, though multimember LLCs are, by default, treated like a partnership for federal income tax purposes.
(The LLC is a fairly new form of business entity originally created as a lower overhead alternative to the corporation that would provide a distinct entity for corporate joint ventures; the LLP is also fairly new, but [in its US form] it was formed to protect innocent members of professional firms from personal liability for actions of other members of the firms, and is in many jurisdictions restricted to professional firms.)
LPs and LLLPs make things even more fun, though.
[1] Edited to be more comprehensive.
The only LLC-specific wrinkle I think we ran into is that we had to spell out that vested equity wasn't equivalent to a pro-rata claim on profits or distributions. But that's like a a sentence or two.
Non-vesting Atlas LLCs are probably super useful for a bunch of different kinds of companies.
But I'll argue that a non-vesting structure is never appropriate for a multi-member startup.
I'm not picking on Atlas; lots of people DIY or even pay lawyers to put this stuff together and get it wrong. We got it wrong at Matasano. It was painful.
This brings up a very interesting issue under the Delaware Limited Liability Company Act, that is without an Operating Agreement in place that allows a Member to resign their ownership, the Delaware Law is controlling and does not allow a member of a multi-member LLC to withdraw (resign their interest) prior to dissolution and winding up of the company. One may be able to get the other member(s) to consent in writing but at the point someone wants to leave, good luck getting the other(s) to sign anything.
Edit: it doesn’t appear the Stripe Atlas LLC comes with an operating agreement; therefore, the Delaware Limited Liability Company Act is controlling and a Member would not have the right to resign their interest prior to dissolution.
I'm 100% sure it does. The description talks about things like being split into 10,000,000 units, for example, which is definitely not in the Act.
Their Operating Agreement is drafted so the resigning member would require unanimous consent of all the other members to resign.
https://onlinetaxman.com/us-llc-tax-haven-for-foreigners/
If you don’t have a dependent agent that substantially furthers your business in the US and don’t have an office in the US, you are not subject to US tax. Even if the LLC generates income in the US, the income is not taxed in the US.
Furthermore, if you reside in a country with an applicable tax treaty with the US, then you would not be subject to US tax. Since you reside in your tax home, you can claim you operate a “permanent establishment” (e.g., an office or other fixed place of business) in your home country.
Let's say you have a lifestyle side-business and many clients in US.
Where is the legal tax avoidance here?
You still have to report the pass-through income to your home country.
You can't just keep the money in the LLC and delay the tax?
Maybe you want to buy 10 servers in US to be used and shipped home to Europe to be used for the same business.
Would you be able to deduct those kind of expenses?
PS I had a vanity Delaware C Corp in in the 90s which I did absolutely nothing with besides getting all the cool corporate knick knacks.
For my state (NY), I am required to register an out of state LLC (a "foreign" LLC [1]) before conducting business in NY. Is this registration or assistance with this registration included?
[1] https://www.nolo.com/legal-encyclopedia/how-qualify-foreign-...
It seems to do this I will need a lawyer to be my registered agent for mail forwarding (a regular mail forwarding service such as https://www.virtualpostmail.com/services/registered-agent/ was apparently not enough since it doesn't have attorney-client protection). That was as far as I got when I last tried to start a LLC for my side project.
I was sincerely asking about it because of privacy and not tax reasons though.
Speaking broadly: You can always work with lawyers/accountants to see about the feasibility of converting your C corp into an LLC. We just haven't worked to specifically enable it in the fashion that we attempted to smooth out LLC-to-C-corp.
My use case is that I used Atlas to incorporate quickly -- which was lovely -- but the business is turning out to be a solo venture and the C Corp is overkill.
The real user need is a way to reduce business operations time and cost for a small biz.
(not a tax advisor / CPA, talk to one for actual specifics)
I just did my own LLC in MI, too—two hours and $50.
If I'm going to trust my accounts anywhere, I like to know at least something about their business operations. Azlo is completely fee-free according to their FAQ. They also say they require zero minimum balance and have no ATM fees at 55,000 partner ATMs nationwide. That raises some serious red flags to me. Either they make money from fees or they make money on the interest of your minimum balance, but somehow they have to make money. Of course they're low overhead with no branches and no owned ATMs, but they're not cost-less.
What's the catch? Are they going out of business when the VC/Partner money dries up, or are they aiming to get you hooked and then jack up fees afterwards or what's the deal?
[0] https://en.m.wikipedia.org/wiki/Fractional-reserve_banking
https://en.wikipedia.org/wiki/Interchange_fee
and
https://en.wikipedia.org/wiki/Interchange_fee#/media/File:Ga...
As long as they've set up their underlying tech stack such that the marginal cost of an extra account is nearly zero, then offering accounts with no fees or minimum balances is useful way of attracting customers, many of whom will grow into good sources of revenue.
Also, we are a banking platform built for developers. Tech-savvy customers will have access to their accounts through our recently announced API portal https://www.azlo.com/tech/ (scroll down to 'Coming soon')
Hope you give us a shot and provide feedback for our API beta!
If you are in the market, I hope you check us out. If you aren't, tell your friends!
They probably make a lot of money on transaction fees (charging merchants when you use your debit card) and loaning your money to other customers at interest.
However, if a marketplace came with the application. To use a 3rd party for all that comes with it. IOW, not wanting to use Stripe Connect for various reasons that make sense to the business.
(We in fact go further than that; Atlas actively goes out of our way to help our companies take payments outside of Stripe, for example getting paperwork together to e.g. publish apps on the App Store.)
(It's under Business Details in your Stripe Dashboard; same process as usual.)
I think (b) in particular is not considered by many who look at Stripe Atlas. I consider it a tremendous risk.
I'm wonder if a US LLC would be better for me? I'm a mISV in Canada. I use Stripe & PayPal and make almost enough to live on. I have a US bank account but Canadian everything else (sole proprietorship, business license, tax id, citizenship, etc.). I don't plan on ever being funded, selling the business, taking on partners or making more than a 150k/yr.
Any kind of corporation (US or Canadian) is much more effort, both from legal and accounting perspectives. It's worth it if you need legal protections a corporation gives you or care for some of the tax advantages. But it comes at the cost of extra effort in managing the complexities if a corporation.
Or consult with an accountant, many of whom offer free first-time consultations.
This is the most important part. LLCs tend to be cheaper and more flexible before you raise money, but a C-Corp is basically necessary to raise money. Converting an LLC to C-Corp conversion is often quoted at about $10K from a law firm. With Stripe Atlas, you are set up to make the conversion easily.
You could owe tax to the state in which you incorporate, if they tax LLC income earned out of state. (Most states don't, but you will have a "minimum franchise tax" that you must pay regardless of LLC income for the privilege of being registered in their state.)
You generally would owe US federal income tax on the income you earn from your US customers. But, in many cases you could qualify for tax treaty benefits that reduce your US tax liability to zero. You would still need to file a US tax return, but you would not actually pay US taxes. (Your tax return would explain why you don't need to pay.)
You would generally be taxed on the income in your home country. Despite common belief, almost all countries tax the worldwide income of citizens residing in their country. (Territorial taxation is generally reserved for corporations and expatriates.)
Ok, sure. Similarly, an LLC is probably overkill if you're making under $100k. I'd argue it's a minority of entrepreneurial software consultants who make over $100 but under $150. Finding a good accountant to help you figure it out (and to handle the paperwork) is also likely to help you join the S-Corp cohort.
No one else agrees LLC is overkill if making under 100k profit. I would in fact encourage LLC from day 1 for anyone making anything.
(and just auto converting to S-Corp at 150k is also silly, talk to an accountant. Many reasons to be a LLC even if making millions of dollars a year, see many real estate LLCs or companies with 100-1000 employees but still a LLC)
Or consult with an accountant, many of whom offer free first-time consultations.
I understand the desire to turn a profit on this, but that’s kind of overboard, IMO.
Free only if you don't value your time, I suppose. And you left out the support part from Stripe Atlas and their community, which could easily be worth many multiples of $500.
(Unless you're saying there are easier ways to get those free credits? Where else would you find them? Startup accelerators?)
Quick google says this is 21% (federal) + 8.7% (Delaware). Is my understanding of this correct, that a Delaware LLC pays 29.7% taxes on its profits?
Also watch out for franchise taxes - if you live in California it’s $800/yr minimum.
* Edit: a single-member LLC
For multiple members it will be taxed as a corporation.
[1] Most VCs require C-Corps. A few enlightened VCs will invest in LLCs, recognizing the tremendous tax benefits of the LLC form. In either case, they will require the entity be formed in Delaware due to its business law history.
Each U.S. state has laws that allow you to form an LLC. Similarly, each state has its own rules governing the formation, governance and management of LLCs. Delaware LLCs have the benefit of being simple to form, extremely flexible (with few restrictions on management and governance arrangements), and more familiar to parties you will interact with. In addition, the process of converting a Delaware LLC to a Delaware corporation, should you ever decide to do so, is straightforward and common enough that there are standard forms addressing most elements of the process.
LLCs will not typically pay corporate income tax anywhere; they're a pass-through entity. Establishing a Delaware LLC will not, by itself, obligate a person to file a personal income tax return in Delaware.
How much legally grounded advice is provided as a part of the service about how to avoid activities that could make the corporate veil easier to pierce in the event of a lawsuit?
I've heard anecdotally about doing a good job of keeping business and personal accounts completely separate, for example. This is the type of advice that I would typically lean on a lawyer for, but it seems could be easily provided as a part of this service.
I ended up forming a local state LLC. This is still delaware LLC, which seems an extra hoop for (potentially dubious consult your lawyer) gain... but still good to see them going this direction.
That send - end to end to form a LLC in the state of Indiana, it took about a half day and $250. I do not need to file anything in delaware or deal with my company as a foreign entity or any of the extra stuff you would get going this route.
What are the advantages / disadvantages of having an LLC based in Delaware vs creating one in Florida?
I'd love to use Stripe Atlas - but not sure if I'm making things more complicated than they need to be by opening in Delaware vs Florida.
Or another way to put it: if don't plan to do business outside of Florida, why would you subject yourself to the laws and jurisdiction of another state just to save a few bucks?
Well, I do have clients and customers outside FL - lots of them. Does that make a difference?
It's impossible to give you a fully inclusive quote without knowing more of your situation, and I'm not qualified to comment on e.g. tax consequences for you if you live outside the United States, but broadly speaking the total cost of ownership ranges from about $1k to about $2k depending on circumstances (C corp vs LLC, number of founders, whether founders are US-based or not, etc). This includes annual costs for Delaware taxes but doesn't include e.g. corporate or personal income taxes.
On https://stripe.com/atlas: Delaware tax filing: preparation is free, Delaware fee starts at $225
On https://stripe.com/docs/atlas/tax-obligations: All LLCs formed or registered in Delaware must pay an annual LLC tax, currently at a flat rate of $300.00.
Mind if I make a guess? You're probably wondering "Can I get a DUNS number so that I can list something on the App Store?" if you're like 90% of people who ask us this. If so, let me just tell you now what we'd tell you in the future:
> My most recent understanding is that if they’re using the DUNS number as a part of the Apple Developer program, we should recommend that they email appdeveloper@dnb.com and they will advise you how to apply for your situation. Just let them know that you’re representing a US company trying to get a DUNS number but that you’re headquartered in [country outside of the US if that’s an additional consideration].
Are you saying we may not need it? Or that there's an expedited / cheaper way if we're just getting it for that sole purpose?
If there is a particular thing you'd want to improve the service for folks outside the US, I'd love to hear about it -- feel free to email me at my HN name at stripe.com
We're still in the growing phases and constantly looking for ways to expand and improve, but I'm afraid, the Atlas program is only accessible as a package deal.
As an example, a pal once worked for some medium-sized company where if you wanted a new pencil, you go down to the basement and through a long hallway to a window. At the window you had to confront the Dragon of the Office Supply Horde, and to prove your worthiness, you had to bring a sufficiently used existing pencil. That company was definitely cheap, but was very much not lean.
Toyota, on the other hand, is the classic lean company. When they don't need to build cars, they don't lay people off or send them home, which would be the cheap thing to do. Instead, they have them clean, polish, train, and generally improve the plants and themselves. They spent extraordinary sums building the first Prius prototype, which could barely get around a track. But they kept on improving it, eventually making one of the world's best-selling cars and making them a leader in a new market.
Spending $500 to incorporate a startup may not be cheap, but it certainly can be lean if you determine that the investment in learning how to correctly do the legal and financial dance will not have as much ROI as paying for it to happen and focusing instead on building the actual business.