How to Incorporate a Startup in the US from Anywhere

If you’re reading this article, you probably have an idea or a technology that you plan to turn into a business. If it’s your first time registering a company in the US it might be confusing and time-consuming. The issue becomes even more challenging if you as the founder of the company are not based in the US and are not a U.S. taxpayer. For the purpose of this article I’m using some of the most asked questions by the founders I worked with to create a step-by-step guide for incorporating a company in the US while you're based in Europe or somewhere else in the world. 

Pre-incorporation considerations

What type of legal entity should I pick when incorporating a startup in the U.S.?

When it comes to registering a startup there is one generally accepted rule: startups are incorporated as C-Corporations or C-corps. Do not incorporate an LLC or S Corporation. If you are starting a startup and plan to raise funding from US investors in the US market a C-Corporation is the only commonly accepted legal entity. There are several reasons for this and below are the 3 most important ones: 

1. Intellectual Property: Most startups are built using intellectual property (IP) that was created by the founders of the company. The IP created by the founders should be owned by the C- corporation. If the IP ownership in a startup is uncertain the company is doomed to failure. 
2. Investments: If you are building a startup you will seek capital at some point. To be able to receive investments from third parties, properly manage investor funds and ensure that they are not mixed with the personal finances of the founders, it is important to use a C-Corp and open a separate bank account for the company.
3. Taxation: LLCs are considered pass-through entities for the purpose of US taxation; they don’t file taxes in their own right, but have their income reported on the personal income tax returns of their owners. C corporations file their own tax returns. 

A C corporation that makes a loss generally carries the loss against future tax years, to offset future profits. A loss made by an LLC is usually used to offset income of the owners during the same tax year—for example, income from employment. Hence the C-corp makes sure that the finances and taxes of the company are not mingled with the founders' personal finances and the taxes.

[TIP BY A VC] Spending time and money on selecting the best legal entity to win the “small and marginal prize” of taxation, when you're aiming to build a $1B+ company is unnecessary and wasteful. There are legal and tax best practices in place that all tech startups follow. Following standard practices will save you time now and eliminate main legal risks for the future. ‍

Where should I incorporate a startup?

The standard accepted state to set up a US based startup is Delaware. There are various tax and legal benefits in doing so, which we will not cover in this article. If you are interested to explore further, you will find helpful resources by googling about the specific tax benefits of the State of Delaware.

Incorporation process

What are the best platforms and tools to incorporate a startup in the US from Europe? 

The 2 easiest tools for founders outside of the US to register a startup are:

1. Stripe Atlas
2. Clerky

Please note that neither I nor SmartGateVC have any affiliation with the platforms above. We've just seen a lot of founders, both in the US and Europe, use them successfully, and they're very popular.

How much does it cost to register a startup in the US? 

Both of the platforms above offer similarly ranged pricing: 

Stripe Atlas: $500 one-time fee for incorporation and $100 for each year to be your registered agent, 

Clerky: $799 one-time fee for a lifetime subscription.

After you incorporate, you'll also have a small one-time cost to send certified paper mail for your 83(B) election.

How do I incorporate a startup using the Stipe Atlas?

You can use the following link to start the company set up . The referral link does not generate revenue or any benefits for us but will speed up the incorporation process for your company. After you register and verify your account you will be redirected to a page where you will see 11 sections. Below are some of my recommendations for each of these sections: 

• Structure: C- corporation 
• Address: It is likely that at this stage you don’t have a permanent office address. We usually recommend founders use their home address. Even if you are based outside of the US you can still use your home address.
• Ownership: Generally number of the shares to be authorized when registering a startup is 10M shares. When you reach the section you will notice that in addition to allowing the allocation of company shares between all the existing founders, Stripe Atlas offers to reserve 15% equity for the future team which includes advisors or employees. If you are interested to learn more about allocating equity to advisors follow the link. This effectively means that you will issue/purchase 8.5M shares and keep the remaining 1.5M for future allocation. After you issue the remaining 1.5M shares you will be required to consult a lawyer to authorize additional company shares. 
• [TIP BY A VC] When it comes to issuing shares to co-founders typical allocation of ownership that we see within our pipeline and portfolio companies is close to even split which means in case the company has 2 founders the equity is split almost equally between two: 50%/50%, 40%/60% or something in between these lines. If the equity split between two founders is drastically different it raises the question of “why” within the early investors and might be viewed as a negative factor during the due diligence of the company. Equity should be split based on how critical each person is to the future of the company and if the founding team member is not critical enough to the future of the company to have a close to even split of shares he/she might not be the best pick of a co-founder. 

• Ownership Part 2: The section also introduces the term vesting. When founders issue stock the standard practice is to put them under a vesting schedule. This basically means that although the stock is issued to the founders their full ownership will not happen until a certain period of time passes. The rationale for this is to incentivise all founders to stick with the company during the hardest times and distribute the ownership of the company fairly. In case one of the founders decides to leave the company before all of the issued stocks are vested, the founder will be owning only the portion of the stocks that got vested during the period he/she was involved in the company.
• Roles: You will be required to select the board of directors, and officers (president and secretary) for the company. While this might sound alarming or something that should be discussed with the lawyers it is much more straightforward. In the context of registering the startup you are required to have a board. Board is the governing body of a Delaware corporation and up until the company's Seed or even series A round consists of the founders of the company. If you would like to learn more about the functions of the board you can have a look at the article: Our approach is to recommend having both founders on the board initially and allocate the position of president and the secretary to the CEO. 

• Tax ID: Part of setting up a company in the US is getting a Tax ID or an Employer Identification Number (EIN). This is mandatory for running a business and Stripe Atlas will file all the docs required for your company to get a tax ID. You will be provided with options for a timeline to get company EIN: Standard 21-35 days and expedited which is 10 days. If you don’t have a social security number and are not a US resident you will have to proceed with the standard option. 

How do I incorporate a startup using Clerky?

You can use the following link to start the incorporation. This will directly take you to a page to start incorporating a C-corp in Delaware. In Clerky you have 5 sections and these are more or less similar to what you have at Stripe Atlas.

• You  will need to fill in the name of the company, details of the person who will sign the certificate of incorporation (preferably one of the founders), address which can be your home address and the number of shares that should be authorized. I recommend authorizing the industry recommended number of shares which is 10M. 
• You will provide Clerky with an email address and you will receive an email requesting signature for 2 documents which are the Certificate of Incorporation and the CSC Filing request. After you sign the docs the incorporation process will start.
• When the incorporation is finalized you will receive an email notification with a copy of the Certificate of Incorporation. I won’t go over every detail of the process but in case you have questions refer to the previous section of the article “How do I incorporate a startup using the Stipe Atlas? And you will find your answers there. The process for both are similar and for the sake of convenience I will avoid repeating myself.

Post-incorporation setup

After incorporation is complete the founders will need to sign and finalize bare minimum mandatory documents before they can start company operations: 

• Issue common stock and signing the Common Stock Purchase Agreements,
• Sign the Confidential Information and Invention Assignment Agreements,
• File 83(b) elections,
• Open a bank account.

While there is no hard deadline to finish the process it is strongly recommended to do so promptly for numerous legal reasons which we will not discuss for the sake of keeping the spotlight on the process of incorporation. 

What are Common Stock Purchase Agreements?

As we discussed at the beginning of the article you should authorize 10M shares during the incorporation process. We also discussed distribution of the shares between the founders. You can think of issuing common shares and signing the Common Stock Purchase Agreements as the process of actually splitting the stocks. If you used one of the platforms discussed above you probably will end up signing common stock agreements for a total of  8M or 8.5M stocks split between co-founders. The best part of using incorporation platform is that the agreements are automatically generated and sent to you and all the other co-founders to sign with a click of a few buttons. 

What are Confidential Information and Invention Assignment Agreements?

The agreement is there to make sure that (1) the founder is bound to confidentiality and (2) the company owns the IP the founder creates. The Confidentiality and IP Agreements will also be automatically generated and sent to each of the cofounders for signature just like common stock purchase agreements.

What is 83(B) election and how to file it? 

83(B) election is absolutely critical.  Your 83(B) election allows the recipient of stock to pay no taxes as shares vest, and to only pay whenever the shares are finally sold.

By default, vesting is seen by the IRS as income - the company paid you with the stock so you must pay taxes. This is one of the few legal documents that if done incorrectly or late there is no way to go back and fix: More reading.

Note: An 83(B) MUST be completed by each founder within the 30 days of signing the Common Stock Purchase Agreement, so make sure you plan accordingly.

How do I open a company bank account if I am not a U.S. resident or a U.S. taxpayer? 

The main challenge of setting up a bank account in the US is having a physical US address for the company.  

The most common banks for US startups are:

• Brex
• Mercury 

Mercury and Brex will allow you to set up a company bank account without having a physical US address. You can use virtual offices or registered agent offices. Earth Class Mail and many similar services offer a virtual mailing box and a US address you can use for different business needs.

If you incorporate with Stripe Atlas, it will offer to create your bank account in the first two banks as part of the setup. If you incorporate with Clerky, you'll need to create your bank account on your own.

The founders I worked with used both of those, and they both offer valuable banking solutions to founders outside of the US.

Brex is another option which offers a whole in one banking solution with debit accounts and credit card options and ability to manage the expenses of all co-founders, employees. 

Referrals from SmartGateVC get VIP onboarding and an increased sign up bonus! The exclusive sign up bonus for SmartGateVC referrals - you will receive $250 (or 25,000 airmiles), $5K AWS credits and $150K in SaaS discounts after $3K spent on your Brex card. Here is a referral link for your convenience.

For people from Europe or other parts of the world, even the most startup-friendly US banking can feel a bit clunky.  For example, as of 2022, sending money can take a few days, and the cards do not support contactless payment.  But the banks mentioned above are focused on supporting everything you need as a startup.

Taxes

Taxes are a big and complex topic, and specific to the jurisdictions where you’re operating.

For setting up your US company, the key thing to know is that your US bank account is a record of your income and expenses, that will be useful for your US tax declarations.

US taxes work differently than taxes in most European countries. In the US, you file your tax declarations, and then you need to store all the receipts of your business expenses as part of your tax returns. These receipts are the only way to prove that business expenses were actually business expenses if there is an audit.  A bank transaction, like a credit card or debit card expense, is as good as a paper receipt.

Every year, you will transfer your US bank account transactions to your US accounting software or accountants.

Bonus info to use when dealing with future administrative challenges

At this point you know everything there is to know about setting up a startup in the US. As the months following incorporation go by you will need further accounting and legal help as your company's administrative challenges become unique and can’t be solved with a standardized platform. You will need a personalized approach. These include: 

• Tax filings for the company.
• Setting up an employee stock option plan. 
• Etc

At that point in the company's journey we always recommend founders to consult lawyers and accountants before taking actions. Doing it yourself can take you only so far. After numerous trial and errors SmartGateVC has been able to filter down and find the best accounting and legal firms who specialize in working with international founders and not only. For further recommendations and referrals feel free to reach out to me over LinkedIn:

Disclaimer and final notes

Please don't consider the information above legal advice. The recommendations are based solely on my previous experience of incorporating companies and filing documents with international founders.

I hope the article answered your most important question and that you're now in the process of incorporating your company. If you still have some unanswered questions, feel free to reach out to me! You can find me on LinkedIn.

And even if you don't have any specific questions, don't hesitate to connect with me! Drop me a note on LinkedIn and let me know what you think of the article. We at SmartGateVC and Hero House always appreciate feedback.

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