Inquisition's Journey with Delaware C-Corp Incorporation

Hey everyone Harry here! Today's issue will be simple - we'll go over Inquisition's journey with incorporation in Delaware as a recently formed C-Corp.

Disclaimer: This article is written for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. It is purely based on our experience with incorporating a C-Corp in Delaware. We will not be responsible for any loss caused by the advice presented here. We are not affiliated with, nor were we compensated to present our views on, any of the services mentioned in this post.

Incorporation, especially as a foreign founder, can be daunting and stressful. We decided to use the semi-self incorporation method, utilizing Stripe Atlas for incorporation, Stable for our company address, OpenPhone for a valid US phone number, and Mercury as our banking partner.

This post will cover the steps that Inquisition recently took (from March 2024 to May 2024) in its incorporation journey. I hope this will help both US and international founders who are considering incorporating their company as a C-Corp in Delaware.

However, the tax aspects of Delaware and C-Corporations will not be covered in this post. I will create an updated version including the tax-related aspects for newly formed C-Corporations in the future.

Common Questions + Research from Harry before Incorporation:

Below are the common questions I asked myself during the initial stages of the research process.

Q.1) Why Delaware and why a C-Corp?

If you're unaware, Delaware is considered one of the best places for founders, both domestic and international, to incorporate for the following reasons:

1. Business-Friendly Tax Rate and Corporation Policies.

2. More than 66% of Fortune 500 companies are registered in Delaware.

3. You can incorporate in Delaware while having your office in another state.

4. Most startup companies choose to register in Delaware as a C-Corp due to the nature of investors heavily investing into Delaware - registered C - Corp. (Delaware isn’t the cheapest state for franchise tax, so if you are certain that you will bootstrap your company, you should also consider states like Wyoming)

Q.2) Can foreigners incorporate in Delaware as a C-Corp?

Yes - 100%!

For more details, check the official Stripe documentation.

Q.3) Can founders from outside of the US create a US Business Bank Account?

Yes, and you have two choices:

1.) Go with a fintech company with FDIC Insurance (e.g., Mercury)

2.) Go to the US in person and try to open a bank account with major banks such as JP Morgan Chase, Bank of America, Wells Fargo, etc.

However, it was surprisingly easy and fast to open a bank account with Mercury. Due to the partnership between Stripe Atlas and Mercury, it was very quick and easy to open from outside of the US and online.

There are a lot of fintech options out there such as Mercury, Brex, Ramp, Wise, etc.

Pre-Incorporation: What to know, do, etc.

When researching incorporation in the United States, you'll need to ask yourselves a lot of questions and conduct research. Some of the questions and topics to research include:

1. Which incorporation service provider should I choose? (There are many companies that provide incorporation services - shoutout to Stripe Atlas, Clerky, Doola, Firebase, and self-incorporation directly from the state website)

2. Which virtual address service should I use? (e.g., Stable, Earth Mail (Now Legal Zoom Virtual Mail), Virtual Mail Post, etc.)

3. Do I need a US Phone Number?

This post will cover everything you need to know about the research aspect, as I've already conducted the research myself a couple of months ago before incorporating Inquisition.

Incorporation Services: Which One to Choose?

Currently, the top two main companies that offer incorporation services are Clerky and Stripe Atlas.

Clerky:

Pros:

• Incorporation and post-incorporation services.

• Customizable templates that can be easily tailored by your lawyer to suit your specific needs.

• Direct filing of your BOI Report through Clerky, a report required by FINCEN (an organization under the US Treasury) for corporate transparency.

Cons:

• Pricing: $427 - $819 (The Pay Per Use package does not include post-incorporation services).

• Not as many perks and benefits compared to Stripe Atlas.

Stripe Atlas:

Pros:

• $500 for everything included, from incorporation to post-incorporation. (Pro-Tip: You can receive a 50% discount on Stripe Atlas by using Stable).

• Strong perks and benefits offered through a partnership with Stripe Atlas.

Cons:

• Limited services after incorporation - services like fundraising, NDA templates, etc., compared to Clerky.

Harry’s Takeaway: Clerky is best for those who want software that offers more than just incorporation and minimal post-incorporation services. It can also issue SAFEs, convertible notes, and other fundraising tools, which is beneficial for founders actively raising funds right after incorporation.

Meanwhile, Stripe Atlas is ideal for those who simply need to incorporate a company in Delaware and require basic post-incorporation services (e.g., bylaws, issuing equity, etc.).

Which Virtual Address Service will be the best for my company?

After extensive research, the top three main services with the ultimate positive user experience were: Stable, Legal Zoom Virtual Mail (Formerly: Earth Class Mail), and Virtual Mail Service. All three software options are good choices for those who need to use a virtual mailing address for their business.

Below is a detailed comparison of the three services:

Stable:

Pros:

• Real street addresses that can be used for anything, from IRS to banking (not a Post Office (P.O) box address).

• In-house notary service for USPS 1583 Verification.

• Unlimited mails.

• Easy onboarding experience from Stable.

• Easy-to-navigate dashboard on the Stable platform.

• Very easy to forward mails to other places/countries from your specific company address.

Cons:

• Expensive at $49/month (Stable is definitely more expensive compared to its competitors).

Legal Zoom Virtual Mail (Fm: Earth Class Mail)

Pros:

• Cheaper pricing compared to its competitors ($29/month).

• Easy-to-navigate and use platform.

Cons:

• Limitation: The mails are limited to 5 mails per month, and $39/month for 25 mails per month.

  Notary services are not in-house; they are outsourced.

Virtual Post Mail:

Pros:

• Real commercial address and not P.O. boxes.

• 60-day physical storage of mails regardless of the mails (Most competitors only store them for 30 days).

• Affordable pricing: $20/month for 25 mail scans.

Cons:

• Not in-house notary service - need to get verified from english — speaking notary nearby or online.

Harry’s Takeaway: If you anticipate receiving fewer than 5 mails and want to minimize costs, Legal Zoom Virtual Mail (Formerly: Earth Class Mail) at $20/Month is your best bet. However, if you expect to receive more than 5 mails per month and prefer longer mail storage, Virtual Post Mail would be the ideal choice.

For Inquisition, we chose Stable to avoid incurring additional costs for extra mail. The fast support from Stable was one of the main reasons for our decision. After several months of using Stable, its user-friendly dashboard and efficient mail forwarding have consistently impressed me and the team, prompting us to continue using Stable as our mailing address service provider.

Furthermore, Stable has partnered with Stripe Atlas, offering founders who use both services a 50% ($250) discount on incorporation fees.

If you are looking to save on incorporation costs and want to use a mail management service with fast support, Stable will be the right service.

Phone Services - Do I Need One, and If Yes, Which one?

Yes, because you never know when or why you'll need to call the IRS, bank, etc. Below are the phone services available for use from overseas that I researched:

• Google Voice

• OpenPhone

Google Voice:

Pros:

• Inexpensive at $10/month.

• Unlimited calling.

• Integrated within the Google Workspace ecosystem.

Cons:

• Lacks business hours setting.

• No desktop app available; only accessible through web browsers.

• Does not provide toll-free numbers.

OpenPhone:

Pros:

• Unlimited calling to US and Canadian numbers.

• Integration with Slack, Notion, etc.

• Offers business hours settings.

• Provides both mobile and desktop apps.

Cons:

• Expensive - Basic plan starts from $19/Month to $33/Month alongside with additional fees.

Harry’s Takeaway: We decided to go for OpenPhone for two reasons because it provides free 6 months due to the partnership they have with Stripe Atlas and the business hours feature is a must - have for me so that’s why I decided to go for OpenPhone as my US Phone service provider.

Incorporation - What to know, etc.

After deciding which service to go for, whether it's mail address provider or phone number provider, you should now start your incorporation journey!

Since I used Stripe Atlas to incorporate Inquisition, the below steps will be tailored towards Stripe Atlas users. I have created an application which can be used as a guide for those who want to navigate through the Stripe Atlas application!

Step #1

Below are the different types of structures you can use to incorporate your company. Now, Stripe Atlas also provides incorporation of LLC and Subsidiary for Foreign Entities.

For Inquisition, since we wanted to go for a C-Corp, we selected C-Corp.

Step #2

This is where you type your company name and decide if it is Corp. / Incorporated / etc… The something is an indication that your company is a corporation, and the name behind does not matter - only the name of your company matters.

Step #3

This part is where you write about your company and include the company website link or your personal social media link. I believe Stripe Atlas is asking because they want to verify that you are a real person.

Step #4

This section is where you will need to purchase your address and phone service provider subscription.

I personally recommend Stripe and OpenPhone since the product itself is really good, and the partnership with Stripe Atlas makes them really attractive. However, feel free to do your research and go for the one that you think is the best.

After you have your address and US phone number, go ahead and fill it out inside the box.

Step #5

This is the place to list legal information about yourself and your co-founder (e.g., Legal ID Full Name, date of birth, and home address).

If you have a co-founder, you will need to press the “Add a co-founder” button and add their information. If you don’t, you should just press the “Continue” button and proceed with your application.

Step #6

This part is the section that will show the ownership of your corporation. If you are a solo founder, you will own 100% (before reserving x amount for your future team), and if you have a co-founder, you will divide it as 51/49, 50/50, or etc.

If you are curious about how to divide equity among co-founders, check the following links below!

What is a vesting schedule?

Simplified Answer: Let’s say you and your friend have this crazy idea. It can’t be paused, so you decide to quit your jobs and go "All-In" on this idea. To ensure everyone stays committed, you agree that you'll each earn ownership of the company over time.

The vesting schedule is like a timeline showing when you "earn" that ownership. So, let's say you agree to a four-year vesting schedule. After the first year, you "vest," or earn, 25% of your ownership. Then, you earn more each month or year until you've earned it all after four years. It's a way to make sure everyone sticks around and earns their share of the company over time.

Remember: Every company has its own vesting schedule. However, in order to register through Stripe Atlas, you will need to follow a four-year vesting schedule with a one-year cliff, since Stripe does not allow you to change the specifics with ownership-related stuff.

Lastly, unfortunately, you cannot change the default share details. However, the method that Stripe Atlas follows is the industry-traditional method among startup companies.

Step #7

The “Role” section is where you decide who will be the CEO/President, Secretary (someone responsible for filing and reporting required regulatory files), and part of the board of directors (Board).

It's common for all founders to be part of the board, as both individuals usually own significant shares in the company.

Step #8

If you've reached the Tax ID section, you're almost done! For this part, if you don’t have a US Social Security Number (SSN), you just need to go for the Standard Option.

Our experience with obtaining the Employer Identification Number (EIN) was quite smooth. Below is the timeline of our incorporation process with Stripe Atlas:

• March 24th, 2024: Payment submitted for Stripe Atlas, and they initiated the incorporation process for us.

• March 26th, 2024: Inquisition was officially incorporated. We purchased equity via Stripe Atlas and filed an 83b election. Equity can be acquired either through Intellectual Property (IP) or cash.

• April 12th, 2024: Employer Identification Number (EIN) was issued!

Next, we proceeded to set up a US bank account. We had two options:

1. FDIC-insured fintech companies offering US bank accounts (e.g., Mercury, Brex, etc).

2. Traditional US banks (e.g., Bank of America, JP Morgan Chase, Wells Fargo, etc).

For Inquisition, we opted for Mercury for the following reasons:

• They have a partnership with Stripe Atlas, which streamlines the application process by pre-filling information based on your Stripe Atlas application.

• It's easier to open a US bank account as a foreigner compared to traditional US banks.

• Mercury is FDIC insured up to $5 million, offering protection for deposited funds.

For founders outside of the US, Mercury requires verification of your home address instead of the US business address. I was able to verify my home address using official government paperwork clearly displaying my address in English, which matched the address provided in the Mercury application. You can likely use similar documentation, such as a national ID card or other government-issued verification, for the verification of your primary residence, where your company operates from.

Mercury Banking Update:

As soon as we applied, we were approved in approximately three hours after the submission and are currently using Mercury as our banking partner for Inquisition.

Step #9/Final - Step

When you reach the end of your application, Stripe will show you a Summary Page that provides an overview of your entire application, including details about your company until the Tax ID option.

After reviewing the summary page, you will be required to sign all the documents by typing your full name. (You only need to sign once for all of the documents required by Stripe Atlas) Then, you will be redirected to the checkout page to pay the $500 fee!

Cap - Table Management Platform… Which one?

I researched two software options: Carta and Pulley. The good news is that both platforms integrate with Stripe Atlas, meaning that information about your company, including incorporation details, board of directors (co-founder information), EIN, etc., will all be automatically added once you create an account with the software for cap table management.

Currently, Inquisition is using Carta, but I've heard a lot of good things about Pulley, so it will be up to you to decide which software fits better for your company.

Another important aspect is the FinCEN BOI Report Filing for new and existing companies within the United States.

So, what exactly is FinCen BOI Report and why do you need to care about it?

The FinCEN BOI Report, or Bank Secrecy Act (BSA) e-filing, is a report required by the Financial Crimes Enforcement Network (FinCEN) for entities conducting certain financial transactions. It's used to fulfill regulatory obligations related to anti-money laundering (AML) and counter-terrorism financing (CTF) laws.

You need to care about it because failing to file the FinCEN BOI Report can lead to severe penalties, including fines and legal consequences. It's a crucial step in compliance for businesses operating in the United States, ensuring transparency and accountability in financial activities.

Here is the official website of the United States of Treasury explaining it in detail about the BOI Reporting.

Carta BOI Reporting Explanation.

Harry’s Takeaway: Starting from January 1st, 2024, Carta provides the BOI Reporting service for free for companies on the Carta Launch Plan. Clerky and Pulley offer the same service, and the US Treasury allows you to have a third-party service submit it on behalf of yourself and the company (Whoo!!), so you shouldn’t stress or worry about this. As soon as you finish the incorporation and post-incorporation for your company, just make sure to submit it before the end of the 90-day deadline for companies registered during 2024. After 2024, the deadline will be reduced to 30 days (?) so heads up for this!

Bookkeeping Softwares… Which one?

There are plenty of options for bookkeeping software/services, ranging from self-bookkeeping to monthly, somewhat approachable bookkeeping services for startups spending under $29,999.

For self-bookkeeping software, I've heard a lot of good things about QuickBooks, with many people recommending it as "possible to self-manage/file."

If you're interested in using an accounting service and anticipate spending less than ~$29,999/year as company expenses, you should probably check out Pilot. (If you use Stripe Atlas to incorporate, you get 20% off for Pilot Core and Select Plan). Pilot is a bookkeeping + tax + CFO service startup that primarily focuses on tech startups. (They also provide services for professional services such as consulting, law firms, etc.)

Harry’s Takeaway: No matter which software or service you choose, the ultimate end goal is the same. So, go with whichever option works best for you and your company, financially and non-financially. If you prefer not to deal with lots of bookkeeping and tax-related concerns, consider hiring your own accountant or using a service like Pilot or something similar.

Resources:

1. Guide from Stripe about Bookkeeping and Accounting.

2. Business Taxes Guide from PwC / Business Taxes Guide from Stripe.

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Thank you for reading, and I hope this newsletter issue was helpful! If you enjoyed it or found it useful, be sure to subscribe to the Deep Dive with Inquisition as we plan to share insights and our journey through this newsletter weekly. It would be amazing if you can share this newsletter to your friends, family and more!

-Harry