I see that US states like Colorado have no franchise tax. But I also saw posts here that Delaware is usually ultimately cheaper.
What is the recommendation for a company to manage an open source project? Sure it might be worth money, but likely not, so I would like to keep money tight.
thanks!
Delaware is definitely not the cheapest or even in contention for the cheapest.
Still, if you want to raise capital, the correct answer is DE C Corp. If you're not looking for external funding, any state will do. If you care about anonymity, do Nevada or Wyoming. If you don't care about anonymity, Colorado is actually a very good choice. Very simple, intuitive online filing system that accepts filings instantaneously. Filing fees as cheap as anywhere in the country. No need for an attorney (or LegalZoom or some other random service) unless you just don't feel like dealing with it.
Costs will likely be $50 to file, Registered Agent (as cheap as $30 per annum), and $10 periodic report fee annually every year you're in business. Colorado is even nice enough to send plenty of reminders on when to file that report if you give them an email address.
Since you're a US citizen, my instinct would be LLC taxed as an S corp. But confirm with your accountant!
Good luck!
If I'm a non-resident alien looking to incorporate the cheapest US-based company so that I can open a business bank account for credit card churning, would a Colorado LLC still be the the best choice for me?
Edit: put simply, it’s very unlikely that opening an LLC will help you in obtaining credit cards as a non-resident.
These visas don’t authorize you to work for a company other than the one officially sponsoring the visa, but you are allowed to own your own business. Perhaps that is the motivation for wanting to open an LLC, but I’m not sure what an LLC gets you in this situation that simply declaring yourself a sole proprietor doesn’t.
H1B is a dual purpose visa on the other hand. LPRs and Citizens are obviously categorized as residents.
the only shady thing about this part of nevada are all the promoters advertising anonymity
Nobody knows Nevada or Wyoming law. I don't even think Wyoming attorneys know Wyoming law.
DE's court of chancery is also very sophisticated with respect to corporate legal issues. That makes it the venue of choice for investors, which means it has become the venue of choice for those seeking investment.
But in terms of states and their processes for filings, DE is a total pain in the butt. You have to pay an expedited filing fee just so that they can process your filing in less than a week. Their system is counterintuitive and clunky. You better like elevator music if you ever want to talk to a human. Sometimes they reject filings and just don't bother to tell you. It's all opaque and antiquated.
The short answer is that companies incorporate in Delaware to mitigate risk.
The slightly longer answer is that the Delaware courts that deal with corporate legal matters are much more predictable than comparable states. There is voluminous settled case law, and so when you incorporate in Delaware, it is a safe option, a known quantity, relative to other states.
That's why VCs and other investors want the company to be incorporated in Delaware. It's not just because everybody else is doing it; it's to mitigate legal risk.
When we look at consumer products, we sometimes consider the total cost of ownership. Maybe a pair of sneakers is not the cheapest, but it lasts longer than a budget pair, so it has a lower cost of ownership over the lifetime of the product. Delaware might not be the cheapest state to incorporate in, but it has the legal equivalent of a low cost of ownership over the life of the business.
We all could have picked Road Island or New York instead. But for historical reasons it was Delaware.
My point was that it's not just because it's trendy or a matter of conformity. It is a risk-management strategy.
Everyone hates Facebook but everyone uses it. Why? That's where the people are. Same for Instagram, Reddit, etc.
Everyone hates JavaScript. Buggy and counter intuitive. Mess in all the different browsers - historically. But everyone uses it because everyone uses it so it gets the community.
Maybe Delaware is the best... or a victim of circumstance. Or being good enough and one of the early states to get that foot hold.
If you're fundraising as a Delaware C Corp you will face no questions about that, but if you've done something else you will need to explain why to your potential investors (and they will probably push you to reincorporate).
It's certainly a different question if you're likely to get funding, but it's not hard for a skilled attorney to re-incorporate your business as a Delaware corp if that's a condition of financing, just takes a bit of time to do the work, and maybe not much more time than incorporating in Delaware to begin with, and delaying hassle that you might be able to avoid is better than paying it upfront.
Conversion costs and/or re-incorporation complexity varies considerably by state. Some states allow for simple statutory conversion; other states expressly prohibit it. It is not accurate to to say that reincorporating is just a bit of work. Sometimes it is, and sometimes it's a lot of work. If you're serious about raising capital, start as a DE C Corp from the gun. Especially if you have multiple founders.
In some cases, depending on the originating state and business structure, there may not even be a way to accomplish that without selling your old business to your new business. Even if that’s “just on paper”, it becomes an entirely different (and sometimes much more costly) beast.
Unlike Wyoming and Nevada, Texas does have franchise tax, but that is 0 until you exceed $1.23M in revenue, and it maxes out at .331% or .75% after that (https://comptroller.texas.gov/taxes/franchise/).
Delaware has all of these (personal, which wouldn't apply if you live elsewhere, corporate income tax, corporate franchise tax, minimum $400 annually). Wyoming costs only $50 to incorporate but has a $50 annual filing fee.
Also, you'll probably need to file foreign corporate status if you have employees in Texas but are incorporated elsewhere, which is about $700 (one-time).
Some people and tax authorities may draw an inference from states like Nevada with a reputation for shady companies in some industries.
Usually, it is easiest to start a "limited liability company." Smaller states compete for the lowest LLC cost. For example, Arizona, Mississippi and Missouri all charge $50 for an LLC, with no recurring fees. Kentucky charges $40, but requires a $15/yr report. But you may need a registered agent or other ongoing costs in those states.
By comparison, Clerky (a popular C-Corp startup service) charges $99 + $328 in state fees. If you get people interested, you can easily convert from an LLC to a Delaware C-Corp.
But if you are in Taiwan, why do you want a US company?
As for your question, I'm an American citizen and generally get advise to not directly create a Taiwan company as the tax and banking system are incredibly bureaucratic. Having painfully started a subsidiary here in the past, though not an actual TW corp, makes me suspect the advise I hear is worth listening to.
A branch can repatriate profits to the parent company, after paying Taiwan tax. If you have a standalone Taiwan company, then you have to pay dividends, then pay personal tax on it. If you are not resident in Taiwan, then you would pay 20% tax on those dividends. There is also a 5% tax on retained earnings.
Another benefit is that if your company pays someone overseas for services, then Taiwan considers that "Taiwan source income", and they owe 20% tax on it. Other countries like Hong Kong would not tax that money.
As foreigner, if you leave, then you would find it difficult to run your company remotely. So you might as well set up somewhere else.
People hold IP in LLCs all the time. Obviously, though, the outcome depends on TW law and its loopholes as much as the IRS and state law. And the cheapest US LLC services just won't have any clue about any of that.
"The business will be mostly open source and likely to have low to no revenue."
No revenue would be interesting for a UK company. Just fill a dormant status.
Delaware is not a bad option.
"What is the recommendation for a company to manage an open source project?"
Start without a company? Investments (Domain, Server) could also be tax deductible from your current income.
https://incorp.com/ is generally a good incorporation service. But in the past their administration interface required windows. Don't know how it is now.
My gut feeling: Start without a company. (I am not a lawyer).
Edit: Open in Rwanda. Free and nobody is going so sue you there for sure! :-)
https://www.visualcapitalist.com/wp-content/uploads/2021/07/...
Considering atrocious taxes and a broken hmrc i would not advice anyone to register a uk company.
Please be advises, compared to the rest of the core EU your taxes are pretty decent (lets not talk about HU, BG etc.)
And what most angel-sax people are not aware of: Everybody can open a company in the UK or US with a few mouse clicks. Try this in some other EU countries :-) (e.g. Germany).
And as a non UK/US resident, HMRC is not realy relevant to you.
Post brexit uk is seriously under skilled (the media calls it under staffed, but we all know whats really happening).
I moved to Europe (purely for the weather and food, everything else is better in the UK: job prospects, crime, services) but keep my UK limited because it's so much nicer to work with.
With the right international structure and the ability to shift profits corporate tax is not that important.
Where did you move from? Has the UK not only left the EU but also Europe? That would be a real tragedy.
HU has low income taxes too but for a big salary, social security, retirement payments etc. is also pretty high.
"but the system has so many small issues here"
You can always abandon a company. Especially as a foreigner and online? Forget about it.
I have no experience with the HMRC and I am sure every British person hopes for a better service. But please keep in mind that AFAIK life expectancy is still higher than in the US.
Life expectancy likely _was_ higher in the uk than the us but given that the nhs is in shambles i’d be surprised if it isnt dropping.
To digress, the nhs is in such a bad state that guaranteed east europe will overtake the uk in terms of health care unless anything changes. The tax money is being wasted by the government either on inefficiencies or corruption. And now they cant blame europeans anymore.
Personal Income Tax is relatively low at 15%, but due to the fact it applies to every forint you earn, personal income tax is higher in Hungary until your salary reaches about 50 000 GBP (more than three times the median Hungarian salary), after which the UK is higher (noting that the median salary in the UK is already around twice what it is in Hungary).
Capital gains are taxed at the same rate of 15% with no allowance, while the UK has a 6 000 GBP allowance, and after that there's a system which has 10% for lower income tax payers, or 20-28% otherwise, meaning capital gains of less than around 25 000 GBP are taxed higher in Hungary than in the UK (assuming a higher rate tax payer, for lower rate tax payers, it's cheaper in the UK for a bit longer).
VAT is at 27% in Hungary compared to 20% in the UK.
Inheritance and gift taxes are 18% in the UK with no allowances while in the UK you pay 40% of everything above 325 000 GBP (meaning inheriting under around 600 000 GBP is more expensive in Hungary). Corporation tax is 9%, with additionally a possible 2% local tax.
In short, for the majority of tax payers, taxes are lower in the UK. The more money you make, the more favourable Hungary becomes.
Corporation tax though is indeed lower than the UK, at only 9%, compared to the UK's 19-25%.
Basically, expect around $800 to $1,000 in maintenance costs per year. LLCs may be cheaper, but open you up to tricky tax setups (you could be personally liable for U.S taxes).
> What is the recommendation for a company to manage an open source project?
I don't think you need that.
There is a non-trivial legal and accounting overhead that you will have to deal with to keep the corp running.
I did a Delaware C Corp as a bootstrapper. The first year cost $1,000 in total incorporating cost and the second year was going to be several hundred just to stay in good standing.
This is compared to an LLC costing $100 one time in South Carolina.
If you’re bootstrapping, it’s worth thinking about the costs.
I know nothing about it and the paperwork involved, but a quick search [1] suggests that the fee is NT$700, or about US$22, which does not sound expensive.
[1] https://bizportal.moea.gov.tw/showPageEngDetail?search=16
Delaware is great if you want someone to eventually either invest in or buy your company, but the fees associated with Delaware corporations and LLCs are very high.
Something like Clerky or find a registered agent, or use an attorney for everything?
If you're not forming a startup and are considering Wyoming or Nevada, then I think whether you use an online service (like a registered agent) or an attorney could depend on whether you're just looking to have an entity for the sake of having one or if it's possible the paperwork will be important (e.g. if you have business partners). Unfortunately, there are no major online services similar to Clerky (in terms of legal quality) for Wyoming or Nevada, that I'm aware of, so if you fell in the latter category, I would recommend talking to an attorney. But if not, an online service could be fine.
Accidentally infringe a copyright it is probably 1000x harder to cause the owner of a company grief tan it would be to devistate the life of a sole-trader.
My basic take has been that incorporation costs are a rounding error, and why would I do anything more exotic than Delaware?
But if you're doing an open source project that isn't going to take any money in and is unlikely to ever go out for funding, costs and admin headaches might dominate the decision.
Incorporating in Delaware means that you'll be filing a U.S. tax return every year, the cost of which would likely exceed your business maintenance costs (if any, depends on the state). If you need to raise money, you can always incorporate a Delaware subsidiary (or parent) then.
I know that Delaware is a popular choice in the startup community, but that is because it is what VCs want. Delaware is very rarely the proper choice for the founders, it is generally not the right choice for small businesses (meaning fewer than 50 employees or $50 million in annual revenue), and it's almost never the right choice a small business that have no physical presence in the U.S.
More to OP's question, I created a similar corporate entity for a similar low to no revenue business venture — and absolutely would not recommend doing so without very specific purpose.
As smart as you might be, the tax/codes/law/system are designed to need/require expert navigation of this intentionally-complex legal system we choose to allow.
1. Delaware is business-owner friendly.
2. It’s favorable to buy shares as investors.
3. You’ll save a ton of money on taxes.
But when it works, it works. Imagine you dropship a faulty part to someone, so that there's no negligence by the sole owner. You'd much rather have the lawsuit go:
Plaintiff vs. Your LLC & Vendor Co.
than
Plaintiff vs. You & Vendor Co.
My VC buddy calls all this (Business Cards etc.) start-up porn because in the end it is not important. He wants to start a open source project. Nobody is going to sue him in Taiwan as long he does no crazy things (e.g. open an auction site ibay ) or something.
And honestly, a Delaware C corp would be "playing house." The hard work is finding customers/users not filling out forms and writing checks.
Good luck.
The only good reason for a Delaware C Corp is because an investor requires it…in other words, the only good reason is because someone else is willing to pay for it.
But yes, an LLC can be a reasonable option, but a sole proprietorship is the simplest thing that might work. And it requires no work beyond business records and tax reporting…and then only if you are making revenue.
Until then, it is a multiplication problem with one or more factors being zero.
An LLC won’t protect you when you work with customers you can’t trust.
An LLC won’t make finding good customers any easier either.
And it won’t save you any legal fees if you get sued or make collecting what you are due when someone doesn’t pay any more likely.
But sure an LLC is easier than finding customers and then you can set up bank accounts and design a website and avoid the hard problem with those too.
It seems like what Paul Graham called “playing house.” Forming an LLC feels like progress but it’s not.
http://www.paulgraham.com/before.html
What I mean is as I have been thinking about my opinion today I think my opinion comes from a deeper intuition developed over the years.
The standard arguments for forming an LLC are not based on better meeting the needs of actual or potential customers.
Even worse I think is that the standard argument is based on assumptions that the relationship is adversarial, arms length, and short term.
Good customer relations are way more valuable than limited liability because problems tend to be worked out before lawyers get involved.
It probably doesn't really matter for small-time stuff. It may also be worth spending a small amount of money in advance to put some structure in place. I agree that involving lawyers and thousands of dollars in advance a lot of the time is probably not worth it in many/most cases.
If you have cash in hand, you can form an LLC if one is needed.
If an LLC is not needed, the cash in hand can be spent on something that is needed.
https://www.incfile.com/blog/cheapest-states-to-form-an-llc
Find it's informing.
Also to considering is the tax.
which is here:
https://taxfoundation.org/publications/state-business-tax-cl...
Is incorporating outside the US not an option at all and if so I'm curious to know why.
As someone else noted, Taiwan-based company. If you must have a US entity, LLC is the best for a one-person company. If you do raise funding or become big, it's trivial to convert to a C-Corp.
Also setting up a company in another country than the one you live in, compliantly, introduces a world of bureaucratic hurt. If you have a good reason to set up a company, far easier to set up a local one.
Not a lawyer/accountant.
the reality is that there are 49 other states, half a dozen territories, and hundreds of semi-autonomous reservations a handful of which are also known to have their incorporation statutes
they haven't all stayed still over the past 30 years while Delaware’s marketing engine keeps going, they compete directly
anybody with reading comprehension can find one more favorable and cheaper than Delaware
some even have “chancery courts” just like Delaware
there are even currently obscure entity types that Delaware doesn't have, which may be more favorable. there is more than a C-Corp and an LLC out there
the same is true all around the world, all you need is incorporation cheaply and quickly, and access to domestic and international banking in the company’s name cheaply and quickly, which isn’t necessarily tied to the country your business is in.
there are infinite permutations. it is true that there are only a couple jurisdictions that excel on the cheaply and quickly part.
your real question is a lot more loaded, as you dont know what entity type you want, and dont know what state you want or why
I personally dont use Delaware, most of the time. If I am selling shares to VCs I will create a Delaware C-Corp. but even then I’ll start with an LLC somewhere else and just reincorporate when the VC is serious
I personally find Wyoming to be better faster and cheaper than Delaware, for an LLC. it depends on which registered agent you use though.
I hear that some states (or all?) require you to have someone physically in the state (and naturally some companies offer this as a service, and charge). Is that right? or are there some states without this requirement?
it is not complicated or presumptive of anything like the another reply suggested.
every state has many service providers that compete with the national ones.
Is the above worth the costs? I cannot answer that. There are many it depends. however everyone should be aware that Delaware provides a lot of value for the money, and a lot of that is hidden second order things. Those things may or may not matter.
But I think you - and most others that repeat that cookie cutter advice - are still missing the opportunity. Being able to get a competent court trial for something weird is absolutely valuable, but if you don't like the case law in Delaware you can literally argue for the opposite result in another state. Calculate the risk (and be good at math)
To me, that's a really fine reason to not use Delaware, for a fresh slate. You can shape the world, or craft a slice of it that suits you.
I agree with you that there are less service providers in other states. And they don't get as much action and have less reason to be competent too. My primary point still stands, most people don't need Delaware, most people never need those other service providers, never need a state court. If they ever get big and complex they're still most likely going to be in federal jurisdiction anyway - or have the option of moving a case to federal jurisdiction. Random entrepreneurs and placeholder company creators need a registered agent and that's it.
Relatedly, can anyone say if it's better to file with clerky instead of a registered agent?
Even for incorporation itself, if you do it on your own or work with a registered agent, it's likely that you'll end up needing to at least amend your certificate of incorporation later. Most of the self-help / registered agent resources out there are for regular small businesses, not startups, so the guidance is not really what startups need. Some people like referring to every new business as a startup, I think because it sounds sexier to be working on a startup than a regular small business.
However, if you're starting a regular small business — i.e. not a startup — then I would say using Clerky is not a good idea. We're really purpose-built for startups and don't attempt or purport to serve regular small businesses. Whether you should use a registered agent alone is another question. At a minimum, if you have business partners you're starting the business with, I would say you probably should talk to a business attorney rather than trying to go on your own. On the other hand, if you just need an entity just for the sake of having an entity, and don't really care about whether the paperwork is done correctly or not, then just working with a registered agent directly could suffice.
Sometimes founders and investors have more real life horror stories than attorneys because we pay the bills.
Very few software licenses accept liability, including open source software licenses. Is that conscionable? Service Level Agreements (99% uptime and ZenDesk email-in customer support or better etc) cost money.
E.g. LegalZoom (no affiliation) has affiliate attorneys in many states, including Delaware.
It may or may not be common for open source software projects to register their trademark and/or DBA (Doing Business As) in each state: of operation, of labor law applicability (especially if there are remote workers).
GitHub (now Microsoft owned) supports FUNDING.yml files to display sponsor buttons for projects: https://docs.github.com/en/repositories/managing-your-reposi...
"Sponsors is expanding" (2023-10) https://github.blog/2023-10-03-sponsors-is-expanding/ :
> GitHub Sponsors now supports 103 regions!
E.g. WebMonetization.org supports the W3C Interledger spec (ILP Protocol), which can connect traditional and digital asset ledgers. GitHub supports a number of ~payments/donations providers but not yet any w/ Interledger FWICS?
> Did you know? We recently launched the ability for self-serve enterprise customers to allow member organizations to easily create sponsorships. Today, more than nine in 10 companies use open source software in at least some capacity. Knowing this, we enhanced our invoice process for organizations, making it easier for organizations to sign up and request invoicing as a payment method for sponsorships.
> Additionally, we are making it easier for self-serve enterprise customers to grant their member organization permission to create sponsorships
From the GH Sponsors FAQ re a Matching Fund https://github.blog/2019-06-12-faq-with-the-github-sponsors-... :
> Can’t people just steal money from the matching fund?: We have a rigorous vetting process for the sponsored developers who receive the match. If you happened to see the application form at github.com/sponsors, you’ll notice we ask a lot of questions that support this process. We’re also introducing more measures—including an extensive identity verification and antifraud program in partnership with Stripe—as we grow the program this summer.
Once you have more than one client willing to spend $x,xxx for your services, you’ll know where to best incorporate and the best structure for you.
My pet open source project is the RefPerSys open source inference engine (for future expert systems). See amateur website http://refpersys.org/ and serious C++ code (GPLv3+ for Linux, still buggy in mid-november 2023) on https://github.com/RefPerSys/RefPerSys/
I am seeking applications and contributors for it.
If interested by RefPerSys, contact me (Basile Starynkevitch, in France near Paris) by email to basile@starynkevitch.net or by SMS or whatsapp to +33 6 8501 2359