Unfortunately, a lot of first-time entrepreneurs don't know these things and register wherever they live. And even if you register in another state, you still have to abide by NYS/NYC rules if you operate in those regions.
Read the fine print. Not only are there the below requirements but there is also debate on whether or not the agency running the program has the ability (due to poorly worded rules) to kick a business out of it for no reason at all.
A Start up...
Start ups must locate on college campuses. (Renting unused office space or vacant land.)
MUST BE NEW to New York State, recently graduated from a state-recognized incubator, be returning to the state, or be an existing business that's starting a new operation.
ORGANIZED as a corporation, partnership, limited liability company or sole proprietorship.
IN COMPLIANCE with worker protection and environmental regulations
ALIGNED with the interests of the hosting university.
BE ABLE to create jobs in the first year.
BE A STARTUP business or in biotechnology, information technology, remanufacturing, advanced materials, processing, engineering, electronic technology products or other high-tech industries.
CANNOT BE AN accountant, business services company, law firm, medical office, hotel, financial services firm, personal care business, Realtor, restaurant, retailer, utility or wholesaler.
Do you have links to the forms that your founders fill out, online? It sometimes can be difficult to wade through all the third-party service providers that want you to use their service instead of going directly to the state.
Forgive me if I am asking so many questions, but I know it might seem trivial to you guys, because you do it so much, but when I was investigating it for myself I was confronted with the question of having an agent based in Delaware. Do I want a local agent? If so, who do I use? Why do I want an agent? Does everybody that registers in Delaware require an agent? Am I better off contacting an attorney in Delaware that can act like an agent for me? What will an agent do? Do I need them to do anything specific, like file yearly returns for me (or is that just an 'upsell')?
I know it might be asking much, but perhaps if you could just spell it out (as dumb as it may sound to you) exactly how your founders setup their companies (and the reasoning behind it), it would help clear up a lot of questions I (and am sure many others) have.
I understand about the merchant account and anything you don't handle. Just curious about what you guys do handle.
> A company being registered somewhere is no more than a PO Box and some paperwork
Quite, which is why it seems so odd for any company to even consider skipping these steps [EDIT: or not wanting to share that they've been done]. Isn't this the kind of basic stuff that founders do in the first week of starting a business?
Yea, we try to make that clear with a notice at the top of every page. Sorry for the disappointment there. I sympathize — there are a lot of great startups and founders outside of the U.S. Unfortunately, the U.S. is the only place that has enough critical mass in terms of a startup ecosystem for the kind of standardization and resources you see here.
And yes, you are completely correct that taxation is a concern. Our advice to founders from outside of the U.S. is always to consult an attorney. I understand why that's not what people want to hear, but the reality is that's just what it takes to do it correctly. Anything else is just wishful thinking. Kudos to you for realizing what a lot of others don't!
To cross all the t's and dot all the i's, you might be able to join a friends-and-family round under Rule 504, but your founder friend should still do the due diligence to ensure the participating friends and family investors reside in states where such an offering is exempt from registration/qualification under state blue-sky laws[1].
IANAL. Hopefully your founder friend will have had a startup attorney to ask about all of this.
i think most entrepreneurs in SV do not think of regulations when starting a company. for example, there aren't any tax laws to my knowledge that makes me go, "ah gotta take care of that before i can code."
of course, there will be an impact if a company wants to IPO, but that comes much later on. However, even in that case, it's more about revenue/income generation.
i'm interested in seeing what's going to be the liquidation route for startups now since the M&A market is quiet now.
1) In the US, for a pre-employee startup, you actually don't need to do anything at all to start a company initially. Especially if you're a solo founder (sole proprietor.) Just register your domain, develop your prototype and start marketing and selling.
Your bank will let you deposit one or 2 checks into your personal account regardless if it's to your company name.
2) If you later want a bank account with a company name, you need to:
- first register a DBA (doing business as) name locally
- create a bank account in that name.
Note that banks generally don't enforce 2-owner accounts, so if any founder has a check, they can draw on the company account themself. (The bank officialese is, "that should be defined in your articles of incorporation.") Also, I haven't seen any advantages with SVB, so just use a bank you're familiar with.
3) For taxes, as a sole proprietor, if you want to add a Schedule C for that company name on your personal tax forms, you can do that (just use separate personal and company receipts and ensure revenue is greater than expenses if you want to deduct the expenses.) But I'd recommend just keeping expense spending to a minimal amount and not bothering with the Schedule C for the first year or two.
4) If you want to incorporate, use Stripe. There's no reason to do so before you get investors, so don't. They will probably make you change your paperwork anyway later. You're not shielded from liability except under strict conditions.
5) For your first "employees", make them contractors. You will have to 1099 them if over $600/year. So for small stuff, keep that under $600/year.
Some clients will require a DUNS number.
Some clients will ask for permission to debit your account to clawback invoice payments. Don't allow that.
If you want to hire employees, that's more complicated, but you can use Gusto or whatever HR/Payroll cloud service these days. However, it's unlikely an early startup can afford even one employee. (YC likes multiple founders because they're free staff.) The only thing you can do very wrong legally is to fail to pay employee witholding deductions.
6) The parent poster mentioned a lot of overhead activities. If you're a new businessperson and don't see red flags with that, have somebody explain what "overhead" means.
7) If you have recvenue and want to hire a CPA or bookkeeper, the one question you can ask to see how competent they are is, "So how do R&D tax credits work with software development?"
8) I discussed US, and Canada is similar. Europe is very different and requires things like advance pension payments of around a million euros, so YMMV.
9) If you need affordable web design or QA, let me know and I'll share my contacts.
Ahh, so these startups are not totally accepted, they're just the ones to get through the first part of the process. Sorry I misunderstood. Thanks for answering.
I'm always amazed by the number of new entrepreneurs who have no understanding of the legal risks when they start their company, especially with co-founders. You need an enforceable agreement in place, and yes, it should not cost $9,000.
Those who know me know that I started offering an equivalent online agreement (the fancy term is "virtual incorporation"), which you can check out at http://foundrs.com
I continue to recommend it to all new developers who can't go straight to a Delaware C Corp.
I agree this seems too be missing the largest percentage of startups who are no less deserving for this kind of help. Many good startups could use this help. It's not hard to figure out if it's a legitimate startup. Just make sure they're registered to do business (i.e., FEIN, tax ID, state license, etc.).
U.S. only. Changing your legal structure for one person is a wild misallocation for a pre-seed start-up, and a stain not easily remedied down the road.
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