I'm a Canadian citizen/resident and startup founder, my co-founder is an American citizen/resident living in San Francisco, we've got one employee who's also American living in Colorado. We expect a handful of American employees and handful of globally dispersed employees from outside the U.S.
Does it make sense to incorporate in Delaware?
Some possible advantages that are on our mind to not incorporating in Delaware:
- As a Canadian, I can't visit the states while working for our company if it's a U.S. incorporated company - but I can visit up to 6 months if it's a non-U.S. company.
- Lower Taxes
- Simpler law / less bureaucracy
Some possible disadvantages:
- Harder to raise money
- Harder to IPO
- Harder to get an acquisition
- Negative tax implications we're not aware of
When you've got a physical office the "where to incorporate" question is straightforward, but when you've got a remote team of multiple nationalities it gets complicated and we're unsure how to weight these options. Does it make sense for a globally dispersed team to incorporate in Delaware?
I usually Delaware is the best choice for any startup looking for fundraising with a US focus.
However, if you are a remote and global team, an overseas or foreign corporation or US tax purposes might make sense.
You'd have to talk to an advisor who can dive into your situation, but it would be more difficult for the US owner come tax time, as he'd likely have to file form 5471 to the IRS for any controlled foreign corporation, and form 90-22.1 for any foreign bank accounts.
There are a lot of other concerns I didn't hear you raise that entrepreneurs usually have and ask me about, namely banking and merchant accounts/ payment processors.
In terms of accepting online payments, any US corporation or LLC is far and away the best option for a company.
It's difficult to suggest without knowing more about the company but you might explore Delaware, Wyoming, Hong Kong and other offshore jurisdictions for your legal entity. Each tend to have positives and negatives and there is no one size fits all solution.
I do write about issues of incorporation quite regularly on my website FlagTheory.com - so you can read those articles for free, or we can schedule a call - Clarity.fm/incorporation when you have specific questions.
Thank you and hope this was helpful!
I mainly do business in Latin America and have found quite advantageous to be in Incorporated in Delaware as a "C" corp. As long as you are able to do "transactions" via credit cards for services (gets trickier w/ merchandise) you should be OK, except with countries like Venezuela and Argentina where tight controls are imposed on the dollar.
Happy to jump on a call and share our experience.
This is a complex topic because as you've so rightly mentioned it's very multi-dimensional so it matters a lot what your top priorities are. Let's start with the basics:
1. As a Canadian co-owner of a US corporation you're going to get screwed on taxes. First the US has the highest corporate taxes in the world so you'll be nailed with those, then you've got US dividend withholding taxes to deal with and finally Canadian taxation.
2. You don't have to choose between Canada or the US you could potentially choose somewhere else entirely. People tend only to think of the places where they are involved but as soon as you cross borders the whole world opens up to you.
All of this being said it is highly likely a portion of the income is going to be taxable in the US regardless and Canada regardless because you don't just get taxed based on where you're incorporated you also get taxed based on where you've got a "permanent establishment" and managers and sales people among others are considered "permanent establishments" under the terms of the tax treaty.
Usually, if you've got sufficient scale the best approach in these cases isn't to form just one company but multiple and if you do it well you could actually end up with an incredibly favorable tax position over being based in just one or the other. That being said this takes extra cost and administration so if you're just getting started and not making much money it doesn't make sense.
If you're raising money from Silicon Valley VCs you've essentially got just two choices that are worth considering, a Delaware or California company but this is where sometimes you can use a hybrid structure to get the best of both worlds.
Feel free to contact me if you'd like to discuss details.