• October 2018
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Which is the best country to incorporate a tech start-up?

If you ultimately are going to seek funding from angel investors and / or venture capitalists then you’ll want to incorporate as a Delaware C-Corp.

Why Delaware?

The state has a well-developed corporate law and judges/former corporate lawyers in the Court of Chancery who understand business disputes really well. So investors really like that and have pretty much made that the standard state to incorporate in if you’re starting a high-growth tech startup.

The Advantages of a C Corp

  1. Shields entrepreneurs from personal liability
  2. VCs don’t generally invest in “pass-through entities” such as LLCs or S-Corps for tax purposes
  3. Cheaper to set up than an LLC in states that require publication fees for LLC’s.
  4. Flexible stock structure/easy to issue different classes of stock, also easy for investors to use different financial documents (like convertible notes, SAFES, warrants, subordinated debt)
  5. Best structure to raise equity capital through crowdfunding sites like Kickstarter
  6. Maximize medical coverage tax deductions
  7. Easier to get foreign investors (S corporations, by definition, cannot have any nonresident alien shareholders.)
  8. Minimize employment taxes.- shareholder-employees of S and C corporations pay FICA (Social Security and Medicare) taxes only on wages they receive.

The Disadvantages of a C corp

  1. Can potentially be expensive (if the corporation is doing business in a state different from the state of incorporation)
  2. A lot of corporate formalities/record keeping requirements, compared to an LLC, which is contract based.
  3. Double-taxation (corporate and personal income tax), since a C-Corp isn’t a “pass-through entity”, like an LLC or a S-Corp.

If you’re interested in incorporating as a C-Corp in the U.S. then I invite you to stop by LawTrades. We’ve helped connect many foreign based companies with American business attorneys to complete their legal needs. We offer free initial consults & affordable flat-fee pricing. Good luck!

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