Delaware corporation formation with Stripe

Online merchant processor Stripe is testing a new way to form Delaware companies and open US bank accounts. But is it right for location independent entrepreneurs?

Dateline: Kuala Lumpur, Malaysia

The internet has revolutionized everything from food delivery to dry cleaning. And it’s no wonder that the concept of forming a company has gotten easier, as well.

Several years ago, we discussed how Chile became one of the easiest places on earth to set up a corporation. The South American country decided to let folks incorporate there for free, and the process was super fast.

More recently, companies have jumped on the bandwagon in countries like Estonia, where the growing e-residency program has made it easy for any entrepreneur or investor to conduct remote corporate and banking transactions… or even file their taxes in mere minutes.

Now, a new service that allows entrepreneurs to form US companies is about to launch, and there is a lot of buzz about it.

Stripe, the online credit card processor that has made strong inroads against traditional banks in providing merchant account services, is launching a new service called “Stripe Atlas” that allows anyone to form a Delaware corporation, get a bank account, and start filing taxes without ever visiting the United States.

Stripe promises to roll out the service to entrepreneurs anywhere, making the already easy process of starting a Delaware corporation even easier, especially for non-resident foreigners.

This is the kind of innovation I love to see. Traditional banks have made getting a merchant account difficult for a long time. In fact, the United States is far and away the easiest place on earth to get a merchant account, which puts US citizens and corporate shareholders at a distinct advantage in that area when running e-commerce businesses.

It’s high time someone decided to shake up the market.

However, I can’t go so far as to recommend that you use Stripe Atlas. Here’s why…

Why say no to a Delaware corporation and Stripe Atlas?

While I love to see innovation in this space, what Stripe is doing isn’t exactly revolutionary. Forming a Delaware corporation isn’t very hard to begin with. Why do you think everyone from corrupt politicians to New York land barons to, well…me have a Delaware corporation?

Delaware has made the process of not only forming an LLC or C corporation so easy and attractive that there are already a large number of attractively priced service providers.

Stripe’s added value is to bring everything you need under one roof, allowing you to remotely open a US bank account and process accounting online. However, I handle my Delaware corporation’s accounting in less than an hour each year, and for a nominal fee compared to what I pay in other jurisdictions.

The value proposition of Stripe Atlas is remote bank account opening. However, if you’re a US citizen, that’s not really a big deal. Any US citizen can open a bank account for their US company. All you have to do is turn up in person at any bank.

Now, I realize that traveling to the United States isn’t exactly pleasant. However, most US-born digital nomads I know do make several trips back to the home country each year. In fact, I know few people who understand my serious distaste for returning.

That means that the real value proposition for Stripe Atlas, in my opinion, is for non-US citizens who want to start US companies.

What market would this serve? Well, it could serve Amazon sellers, app developers, and other small businesses that need to get paid by large companies in a “first world” bank.

However, having a US company may be the worst thing a non-US citizen could do for their business (or, in some cases, it might be an OK thing to do).

Better choices for location independent entrepreneurs

The challenge I have with services like Stripe Atlas is that it encourages entrepreneurs to chase the latest “shiny object” being promoted in a flashy way.

In my opinion, entrepreneurs shouldn’t be saying “what’s the coolest way to get a US company set up?”, but rather be taking a step back and asking “what is the best jurisdiction for my company?”

The United States is not the only jurisdiction companies like Amazon will accept. For US citizens, a US structure can make sense when set up properly, but for non-US citizens, I often recommend other jurisdictions in Europe or Asia.

For most of the global entrepreneurs I’ve spoken to over the years, it’s possible for even the most rigorous of companies like Amazon to pay them in more friendly locales.

The challenge of Stripe is that their $500 service provides basic connection to “tax advisors”, but that price wouldn’t cover an hour of personal time with the Big Four accounting firm they partnered with.

That means that it’s possible entrepreneurs will set up companies that are poorly structured and may end up incurring US tax obligations.

I’m sure Stripe has taken some of this into account, but taxes aren’t something that you can give blanket advice on. Every business is different, and when thousands or even millions of dollars are on the line, the latest piece of software isn’t good enough for me.

Far too many entrepreneurs hop on the “me too” bandwagon and adopt the same corporate strategies their friends do. Or, even worse, read far too many blog posts offering conflicting information before making a decision.

If you’re a location independent entrepreneur setting up a company — whether it’s in the US or offshore — you probably need some help deciding what kind of structure to create.

Assuming that Stripe picked the best place for your company is silly; they picked a place that would have lots of demand.

I’m not saying you should never “do it yourself”. I started multiple companies in the United States and often filled out my own LLC documents. The process was so easy, precisely because I lived in the US and spent my teens in “wantrepreneur” mode, learning all about how to fill out corporate forms and hire $49 registered agents before I actually did it.

If I were to start a US business today, however, I’d call my US lawyer and pay his overly reasonable $275 per hour rate to do the heavy lifting for me. Now that I’m established, the peace of mind and ease of having it done for me is worth the nominal expense… and it’s not much more than I’d pay Stripe.

To be honest, Stripe Atlas is far less revolutionary for corporate setups than Stripe itself is for merchant accounts. Stripe made merchant processing stupidly easy, not to mention relatively cheap, for anyone starting up a business of any size.

Personally, I don’t like Stripe’s increasing bureaucracy, but I do respect their innovation. When it comes to setting up a company for a location independent business, however, I’d get a little advice before you sign up for the latest splashy software offering for incorporation.

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Andrew Henderson

Andrew Henderson is the world's most sought-after consultant on legal offshore tax reduction, investment immigration, and global citizenship. He works exclusively with six- and seven-figure entrepreneurs and investors who want to "go where they're treated best". He has been researching and actually doing this stuff personally since 2007.
Andrew Henderson
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