FAQ

Got questions? Start here.

We've got answers. Lots of people are confused when setting up their company, but you don't have to be. Read up, we'll do the work for you.

Basics

Can I switch to a corporation if I already own a Delaware LLC ?

Sure. Please reach out to our in-house lawyer at lawyer@stellarformation.com, who can set up the conversion documents for you.

I am forming a business on my own, do I need an EIN ?

Most businesses need EIN’s - all corporations (C-Corps), the standard vehicle for Tech Startups, and all LLC’s with more than one member (i.e. anything classified as a “partnership). However, if you have a single member LLC, the IRS advises that you do not need one. Just use your own tax-payer identification number. If you do not have one, when you incorporate your company with Stellar Formation, we will take care of this for you!

 

What is a signature block ?

 A signature block is pretty simple. It’s where you sign on the dotted line, and includes the text surrounding the signature. On our documents, this generally means your name, your title, and the company name. Also the date!

 

How can I check if a Name is available for my Company?

Please head to the State of Delaware’s website to do a corporation entity search. Simply type in the name you would like and see what comes up. If a corporation or an LLC with your name is already listed, it’s probably better to chose another name.

 

What type of intellectual property protection do I need for my business name and logo?

With Stellar Formation, you will automatically have basic protection for the intellectual property of your company. Our setup documents formation documents ensure that the company’s owns all the intellectual property created by the founders for the company. With our documents, you can rest easy knowing that your IP is secure and the chain of ownership is crystal clear.

Additionally, we would recommend federally trademarking the name of your company, and of any of your products that are different from your company name. There’s nothing worse than creating a brand or a logo and finding out later that someone else has trademarked it. Please reach out to our inhouse lawyer at lawyer@stellarformation.com for guidance on setting up a trademark.

What information do I need to provide to form a company?

Here is the information that we will need to form your company with Stellar Formation:

Why should I even form a company?

Well, it depends. 

If you're a tech startup with multiple founders, then it's a no brainer. You need a company to split up shares between founders, take in investment and protect your intellectual property.

The same is true for a traditional business with multiple founders who decide to go down the LLC route. Teamwork makes dreamwork, but you have to split up the company somehow, and the company has to own the products and ideas, and not the people. 

But what if you're a single founder with a traditional business? Well. then the big answer is LIMITED LIABILITY. Let's say the business goes sour. Do you want the creditors coming after you personally or after your bankrupt LLC? We think the answer is clear. 

Well what about if the business is going great, but something happens? America is a litigious society. Protect your yourself and your personal belongings by putting your business in a company form.

Finally, customers, business partners, and investors take you more seriously if you've formed a company. They know you're ready for business and serious about your project.

Let us help you get ready!

When should I set up my company?

Starting a business takes time, and you can start doing a lot before you officially form your company. However, you need a company in order to carry out certain important actions for your business. Here are some examples below. If you need to do any of these, it’s probably a good time to set up your company:

What is an LLC?

A Limited Liability Company (or LLC) is a flexible structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of the corporation.

We normally recommend LLC’s for companies who sell more traditional products and expect to grow organically and not seek fundraising to scale.

What is a Corporation?

A Corporation (or INC) is a type of business entity that is considered separate and distinct from its owners, and protects them through limited liability. If someone sues the company, the owners are safe.

Nearly all major companies are corporations. Its great advantage is that the owners of a corporation can passively own their ownership percentage of the corporation, known as a “share” or “share in the company”. That means you can own part of a company without getting involved in the day-to-day management of it.

We normally recommend Corporations for companies who expect to look for investors to scale up and go through several rounds of financing; i.e the traditional startup model.

 

What do you offer?

We offer our clients the ability to incorporate either Delaware LLCs, Delaware Corporations or New York LLCs. We work with you to determine which type of company better suits your business needs.
 

Why Delaware?

More companies are incorporated in Delaware than in any other state in the US. That’s because the state has tax and legal codes that are very conducive to young companies and their investors. In fact, it is our experience that investors often specifically ask for a Delaware incorporation.

 

Should I choose an LLC or a Corporation?

This is the #1 question most people ask. Here’s the short version: We normally recommend Corporations for companies who expect to look for investors to scale up and go through several rounds of financing; i.e. the traditional startup model. We normally recommend LLC’s for companies who sell more traditional products and expect to grow organically and not seek fundraising to scale.`

Here’s more:

LLC’s are simpler and cheaper structures for taxation purposes.  
They are known as pass through entities, which means their earnings just pass through to the personal income taxes of their members. This means accountants don’t have to file a separate tax form for the company which also saves on costs.
The downsides of LLC’s are that many investors don’t want to invest in them, because they become Members and will have to pay taxes on the Company earnings. There are also many institutional investors that are prohibited from investing in LLC’s. LLC’s tend to be more suitable for traditional businesses that are looking to sell products and grow organically without taking in investment.

Corporations are better for investors, because investors can passively hold shares without having to worry about tax consequences until they sell them again sometime down the road.  This means that most Tech Startups choose to form Corporations!
The downside of corporations are that they are taxed at a higher rate than LLC’s and they require separate filings with the IRS, which means added accountant bills. However, they are the gold standard. 95% of Companies in the United States are Delaware Corporations.


Still need help? Contact our lawyer who will answer your questions.

What do I need to form a company?

Here is information you will need at your disposable to be able to form your company with Stellar Formation:

If you don’t have all of the information with you immediately, don’t worry! You can always start the process on stellarformation.com/start and log back in later to complete the process. Everything will be saved.

What does a registered agent do?

In order to create a company in Delaware, and if you are based outside of the State of Delaware (which is the case for most people), then you will need something called a Registered Agent. We provide this as part of the Stellar Formation package so you don’t have to worry about it.

The role of the registered agent is to receive and scan court filings in the unlikely event that someone ever sues your business.

The registered agent will also send out reminders to pay your Delaware Franchise Tax and make your annual Delaware filing. They will offer to do this for you as a service, but to be honest, so long as your finances are not very complicated you can handle this yourself on the Delaware website.

 

Let's Talk about Vesting

What is vesting?

Ok. Let’s talk about vesting. Every sophisticated startup subjects the shares it issues to vesting. This is a situation in which you and your other founders receive all your shares upfront - or, if you are in an LLC, your units. This means you can vote the shares/units and manage the company as you need.

However, for a period of time, the company has a right to repurchase these shares/units for $1. Over time, this right to repurchase diminishes. After 3 months the company can only repurchase 90% of the shares, after 6 months 80%, etc.

 After three years (which is the amount of time we recommend for founders) all the shares/units have vested and the holder owns them fully and outright.

Why do we do this?

So why do we do this? Look, sometimes things don’t work out, for good reasons and for bad. You start a company with a great co-founder, and then the cofounder gets an amazing job offer from Google, or runs off to become a surf instructor in Bali, or you realize after a while that you’re not a good fit.

 One of the founders leaves, and the other founder or founders are left holding the ball. What’s worse, you have to find a new co-founder. But what are you going to if you don’t have any shares to offer the new cofounder because the old cofounder left with them? This is where the repurchase right comes in. The Company can claw back the shares that haven’t vested and can offer them to someone new to carry the torch. Vesting protects co-founders from both good and bad situations. 

What is the standard vesting schedule that you recommend?

We recommend a three year vesting schedule for all founders with a six month cliff. This means that no stock vests for 6 months, at which point 1/6th of your shares vest. After that, the shares vest monthly for the next 24 months until everything is vested. We think this is enough. When you receive your first major round of investment any sophisticated investor will require that the founders re-start their vesting, so this should be more than enough to get you there.

What is a cliff?

 Basically, none of your shares/units vest for the first 6 months. We think this is fair, because it takes about six months to get everything started and to make sure all the founders are committed to the project. After six months, you get all six months of vesting at once. If someone leaves before the first six months, they don’t leave with any shares/units. This saves you from losing shares/units to someone who’s not really up to the task!

I heard 4 years is standard? Why 3 years?

We think this is enough. When you receive your first major round of investment any sophisticated investor can require that the founders re-start their vesting, so this should be more than enough to get you there.

Can I set up a company if I am a non U.S. citizen?

Non-US Citizens can form companies without any problem using Stellar Formation. Legally speaking, non-US citizens are allowed to form and be shareholders in US companies.

The only thing to watch out for, is that it may be difficult to open a bank account in the United States without a permanent address in the U.S. However contact us and we can help you with that by putting you in contact with trusted partner bankers at J.P. Morgan Chase. 

If you cannot visit the United States, we recommend that you look at TransferWise Borderless Accounts to see if they will work for you: https://transferwise.com/us/borderless

Borderless Accounts are the same as any other US bank account and you can link them to Stripe! 

We help entrepreneurs from different parts of the world daily!

Read More: Do I need to live in the U.S. to set up a company? How do I open a bank account?

Do I need to live in the US to set up a company?

Non-US Residents (people who live outside of the US) can form companies without any problem using Stellar Formation.  Legally speaking, non-US residents are allowed to form and be shareholders in US companies.

The only thing to watch out for, is that it may be difficult to open a bank account in the United States without a permanent address in the U.S. However contact us and we can help you with that. 

If you cannot visit the United States, we recommend that you look at TransferWise Borderless Accounts to see if they will work for you: https://transferwise.com/us/borderless

Borderless Accounts are the same as any other US bank account and you can link them to Stripe! 

We help entrepreneurs from different parts of the world daily!

Read More : Can I open set up a company if I am a non U.S. citizen ? How do I open a bank account ? 


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