Founders Admin Headache 2/10: Comparing U.S. Incorporation as Service Platforms.
Navigating the self-help platforms to create your company in Delaware by comparing the features, pricing and customer experience.
In our previous article we built the decision-making framework to help founders think through offshore incorporation.
If you are ready to kick-off the process of incorporating your company in the U.S, the next question is usually whether you can manage the process on your own and how.
There is nothing rocket science about company formation in the U.S. and there are a wide range of service providers offering such services (lawyers or incorporation as a service platforms). We picked the state of Delaware as this is the most common state of incorporation for startups operating abroad (Why? read this).
Our goal in this article is to help you understand:
the relevant company forms in Delaware
the incorporation process so you can manage it on your own
compare the product features of the main incorporation as a service platforms
Delaware LLC or C-Corporations
Delaware is an extremely attractive jurisdiction for foreign entrepreneurs: it easy to incorporate your company, open $US bank account remotely and access online tools to manage your business.
Depending how you intend to fund your business, an LLC or a C-Corp may be more suited.
For VC-backed startups the most common structure is a Delaware C-Corp. This is the most optimal if you are looking to raise with VC as you can issue different class of shares (preferred vs common), grant equity to your employees, and make your way to the NASDAQ (we’re here to dream big).
LLCs are more suited for smaller, privately-held business, like mom and pop shops.
If you want to get fancy, you can explore a more sophisticated structure, like the Cayman sandwich developed by our friends at Latitud. It could be relevant if you operate in emerging markets with no plans to generate any revenue in the U.S. ⚠️⚠️⚠️⚠️ Don’t get into this without consulting a tax advisor and lawyer. You can keep it simple stupid without advisors, for anything else, it’s crucial to have the best advisors by your side from day one.
Self-Help Platforms vs. Lawyer
In Delaware, the incorporation process is pretty straightforward, affordable and fast.
If you are incorporating your company concurrently with an equity round, it may be easier to hire a lawyer to be your single point of contact regarding anything legal, including managing the incorporation process.
Other than for this situation, a self-help platform will do the job as the process has been well standardized. The self-help platforms designed for founders provide guidance at each steps and links to useful articles.
The key is to understand the process and clarify your needs so you can choose the platform that is right for you.
Understand the Process
You need to distinguish two steps :
Incorporation. This step is the official formation of the corporation in Delaware i.e. the filing of the company charter (or certificate of incorporation) with the state of Delaware which takes 24h with expedited processing.
✅ Completion of this step = your company is born 👶
👋 It’s a legal person, with its own bank account, and purpose.
You can find its date of birth on the certificate of incorporation.
Post-Incorporation. This step is to elect of Directors of the Board (the founders), appoint the officers (the founders), adopt the bylaws, obtain the EIN (employer identification number), open the bank account, issue stocks to the founders, assign their intellectual property to the company, and adopt your standard stock plan.
✅ Completion of this step = the company is operational, represented by the officers and the Board, and founders purchased stocks to become shareholders of the company.
👋 Ready to kick off the fundraising.
Clarify your Needs
If you need to customize the legal documentation it will most likely be only for the post-incorporation items. For example, you may want to change the vesting schedule in the founders agreement. The standard vesting schedule is 4 years with a 1 year cliff but there is a new trend of 6 years vesting schedule with a 2 years cliff. If you want to customize anything it needs to be off the platform.
Thus, if you know you need some level of customization post-incorporation, you may want to use platforms which separate the incorporation and post-incorporation process (e.g. Clerky). In this case, you’ll manage the incorporation process on your own and then hire a lawyer for stock issuance to founders.
Product Features Comparison & Score Card
We compared the top rated incorporation platforms targeting startup founders (Stripe Atlas, Clerky, Firstbase) and those targeting any entrepreneurs (Doola, ZenBusiness, LegalZoom).
Key Learnings
💰 Don’t get fooled by the pricing. It’s actually pretty much the same across platforms. Some charge almost nothing for the incorporation but recover the costs with add-on services.
💜 Stripe Atlas is our favorite platform for founders for two reasons;
Customer experience is extraordinary. You don’t even notice the amount of work that was put into it and how well they anticipate questions from founders. It’s in my opinion a true self-help platform.
Founders First. Stripe isn’t looking to sell you more compliance or business apps. As a result, Atlas’ pricing is transparent and its package includes everything a founder needs to get started. The approach is more knowledge sharing than taking advantage of the anxious first-time founder ignorance.
That said, we know that Stripe’s interest is to acquire customer for its payment processing products. They actually waive $100,000 of payment processing fee credits for your first year of doing business if you incorporate your company with Stripe Atlas. It’s a brilliant customer acquisition tool.
For non-VC backed companies, Firstbase and Doola are incredible as they provide all you need to set up and manage your business remotely.
🌍 If you are not a U.S. citizen or resident, things are a little slower. To optimize the process you need a social security number (SSN), a U.S. phone number and a U.S. address. Workarounds?
Temporarily appoint a friend, angel investor, or family member with a SSN as company secretary, and remove him/her after obtaining the EIN. Don’t tell anyone about this trick 🤫
Virtual mailing addresses to receive mails from the IRS. You cannot use the Delaware registered agent address as your postal address. This blog compares mailbox service 💌.
⚠️⚠️⚠️⚠️ To open a bank account, note that Mercury doesn’t accept virtual mailing addresses anymore and rejected some applications with foreign office addresses. Click here to get $250 cash back on Mercury.
Virtual U.S. phone numbers. You need a U.S. phone number to apply for the EIN. This blog compares virtual phones services ☎️. If you use Stripe Atlas, you get 6 months free with OpenPhone.
Self-Help Platforms Score Card
For the score card, we compared only tools offering founders features: Stripe Atlas, Firstbase, Doola, and Clerky.
5 = best / 0 = worst.
Product Features Comparative Chart
This chart can be used as your checklist to compare the service providers.
Incorporation is plain vanilla. Compliance is more tricky. Keep an eye out for basic compliance support. Depending on the provider, you can get full compliance, compliance reminders, or resources to do it yourself.
If you run a VC-backed startup operating globally, basic filings, such as filing BOI reports, the Annual Report, and paying your Franchise Tax, can be handled by an online service. That said, as you open local entities abroad things will get complex and you will need to hire accountants and tax advisors.
Delaware isn’t For Everyone
We know that Delaware isn’t for everyone.
Would you like a similar article about other offshore jurisdictions to help you understand the incorporation process and compare the providers?
If the answer is YESSS, tell us where!
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