Comment by ronyeh | Hacker News Reader

Comment by ronyeh | Hacker News Reader

One suggestion: for the majority of startups (based in California) that will use your service, it might be easier to register as a California C Corp.

I can't imagine any VC denying you funding because you are not a DE corp. Plus, you save ~$400 per year in Delaware Franchise Fees. Even if you are a DE corp, you'd need to file paperwork to qualify to operate in CA. You also need to pay taxes in CA, even if you are a DE corp.

If you do a search on http://kepler.sos.ca.gov/ you'll see that Google started out as a CA corp.

    C2119530   09/04/1998   MERGED OUT   GOOGLE TECHNOLOGY INC.   DAVID C DRUMMOND

Once you get your series A/B and get big... I'm sure it's relatively easy to convert your corp to a DE corp.

Since you are charging $100 / $300, you probably want to target as wide a customer base as possible. By concentrating only on DE C Corps, you are limiting yourselves to the Dropbox/AirBnB style startups. What about all the potential S-Corps / LLCs that could benefit from your service?

I run an S-Corp, and would have easily paid you $500 to get all the paperwork (correctly) filed for me in CA.

Yea, I haven't seen any VC deny funding based on that - though they almost always make you convert into a DE C-corp (which introduces some delay and thus deal risk into the process).

But we totally agree with your general point - we're definitely going to be looking into how we can serve other types of companies! (it's in our FAQ but not apparent from the homepage)

Why would you benefit from being a CA vrs DE corp? Are their any inherent benefits? Cost?

If you are a small team (e.g., 1-2 people) already based in CA, it's less hassle (and slightly cheaper) in the first several years.

Once you have gained traction and secured VC backing, it is possible that they will ask you to convert to a DE corp. So basically, you are just delaying the hassle of dealing with DE (admittedly, it is only a small hassle).

If you end up bootstrapping and becoming a lifestyle business where you can fund your small team without ever getting VC funding, there is no great reason to be a DE corp (if your team is based in CA).

It's a long discussion, but the basics are that if you ever go public / get major VC funding you will have to switch to a Delaware C-corp because that's where all the major corporate litigation takes place and thus the law that big corporate lawyers are familiar with.

In the meanwhile though it can be considerably cheaper to file locally. It will cost more to change later, but you are going to have a lot more resources if you are in the situation of needing to convert.

So if you are looking to get funding right away your best bet is Delaware C-corp, if you are going the "lean" route then you should probably do whatever is quickest and cheapest (usually, but not always, a local LLC).

We found getting a DE LLC to be pretty much trivial; on the other hand, getting a local LLC (for us: NYC) appeared a lot less trivial, and involved things like running an ad in a newspaper. I'm still not clear on what the advantage is to getting an LLC anywhere but DE. I'm sure there are venues that are cheaper, but DE is so cheap that unless you're incorporating a whole bunch of companies at once it's hard to see why it would matter.

Did you have to register as a foreign corporation in NY after you created your DE corp?

IANAL, but for North Carolina if you have an employee in the state you must register as a foreign corporation and pay whatever fees are associated with it. It also seemed like you had to do double the paperwork each year once for DE and once for NC.

There is a trick to the advertising requirement. Since advertising in NYC is so expensive, you register in Albany and then 6 months later move the registration to NYC.

I agree though that NY LLC is not the easiest process in the world, but then again neither is NY foreign corporation registration.

Does foreign corp registration (a) not apply to LLCs, (b) normally just get handled by your accountants, or (c) actually turn out to be a detail that is trivially handled in 15 minutes? Because I don't remember this being a particularly dramatic problem for us.

To be frank I've never seen someone do an out of state LLC, it seems like the choices tend to be Delaware (or Nevada) C-corp, or local LLC/S-Corp.

Maybe I'll look into it next time it comes up.

Cheers.

I'm not 100% sure, but my lawyers told be that if you're in CA and you have DE corp - you have to pay state taxes in BOTH CA and DE. Again, not 100%. I ended up with CA S-corp.

Not sure how important it is for others, but I was surprised by the lengthy wait time to form an LLC in California. I filed for formation at the beginning of February and it still has not gone through. If you take a look at http://www.sos.ca.gov/business/be/processing-times.htm you'll see there is an almost two month wait time for new formations. This prevents me from opening up a business bank account and cashing checks, amongst other things.

Quick note of terminology: LLC is a limited liability "company", but not a corporation. "Incorporation" implies forming a C or S corp, etc. Corporations can issue shares, be taxed as their own entities etc. Quite a bit more paperwork and expense required, but this is what you'd want for venture funding. (IANAL, but this is from my experience).

Noted. I've reworded my original comment to remove "incorporation".

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