As a EU citizen, I opened a company in Delaware. Here's why. (And how)
Summary
TLDRIn this video, Tomas from Slovenia shares the unexpected success of raising $300,000 for his high-end router project, including a significant investment from a UK-based company. He explains the strategic decision to incorporate in Delaware for legal and tax benefits, despite misconceptions about tax havens. Tomas details the incorporation process, the importance of legal documents, and the involvement of an accountant for tax compliance, aiming to have the first router prototypes by mid-2024.
Takeaways
- 😀 The speaker initially announced a $200,000 funding round but later revealed they actually raised $300,000 for their custom high-end router project.
- 📧 A significant investment came from a UK-based individual named Mike, who expressed interest in the project and eventually invested £100,000 Sterling.
- ✈️ Mike and his CFO visited the speaker in Slovenia, leading to a successful meeting and the signing of a safe agreement within 14 days.
- 🌍 The speaker, Tomas, is from Slovenia and is developing a high-end router with a team that includes a co-founder in Eindhoven, Netherlands, and multiple investors.
- 🏢 The company, Mono Technologies Incorporated, chose to incorporate in Delaware for its business-friendly legal environment, not primarily for tax benefits.
- 🤔 Tomas dismissed the idea that incorporating in Delaware was solely for tax haven purposes, emphasizing the legal simplicity and benefits of doing so.
- 📝 The process of incorporating in the US was described as straightforward, requiring less physical presence and offering more flexibility in share issuance compared to European regulations.
- 📈 The company's main activity is the development of networking equipment, and the incorporation process was completed with the help of a US-based attorney team.
- 📑 Key documents for incorporation included the Articles of Incorporation, Bylaws, Shareholders Agreement, and various IRS forms, such as the SS-4 for an EIN.
- 💼 The company also engaged an accountant to handle financial matters and to file a Section 83(b) election for tax purposes on stock issuance.
- 💰 The entire incorporation process took approximately three months and cost around $7,000, with the newly incorporated company footing the bill.
Q & A
How much money was initially announced to be raised for the high-end router project?
-Initially, it was announced that almost $200,000 was raised for the high-end router project.
What was the actual amount raised for the high-end router project?
-The actual amount raised was $300,000.
Who was Mike and what was his role in the project?
-Mike was a representative of a UK-based company who expressed interest in investing in the router project, offering to initially invest £100,000 Sterling.
Why was the name changed from Mike to a pseudonym in the script?
-The name was changed to a pseudonym for privacy reasons.
What was the reason for choosing Delaware for incorporation?
-Delaware was chosen for incorporation due to its favorable legal environment for businesses, including the ease of setting up a company and the legal knowhow available.
What is the name of the newly incorporated company?
-The newly incorporated company is called Mono Technologies Incorporated.
What is the role of a registered agent in the context of incorporating a company in Delaware?
-A registered agent is responsible for managing legal documents and government correspondence to ensure compliance with state regulations.
What is an EIN and why is it important for the company?
-An EIN, or Employer Identification Number, is the company's tax number. It is important because without it, the company cannot open a bank account, which is necessary for investors to wire money.
Outlines
😀 Unexpected Investment Boost
The narrator, Tomas, reveals that they initially announced raising $200,000 for their high-end router project but actually raised $300,000. This was due to an unsolicited email from 'Mike,' a UK-based company owner interested in investing £100,000. Despite initial skepticism, Mike visited Slovenia for a meeting and the investment was secured. Tomas introduces himself and Alash, the co-founder based in Eindhoven, Netherlands, and mentions the team of investors and supporters involved in the project. The video is set to discuss the reasons for incorporating their company in Delaware.
🏢 Incorporation in Delaware: The Why and How
Tomas addresses the decision to incorporate their company, Mono Technologies Incorporated, in Delaware, dismissing the idea that it was for tax haven benefits. He explains that incorporating in Delaware is common due to its legal simplicity and the ease of setting up a company remotely. Tomas emphasizes that the choice was strategic, not for tax evasion, and shares the process of incorporation, which involved selecting a company name, choosing a registered agent, deciding on share amounts and par value, and applying for an Employer Identification Number (EIN). He also discusses the challenges of obtaining the EIN and the importance of having a bank account for investment transactions.
📑 Navigating Formation Documents and Legalities
The video script outlines the various formation documents required for the company's incorporation. These include the Articles of Incorporation, bylaws, and minutes of the board of directors, which establish the company's internal rules and governance structure. Tomas also discusses the importance of the shareholders agreement for protecting the interests of founders and investors in the event of disputes or unforeseen circumstances. He mentions the role of an accountant in filing Section 83(b) elections to determine the tax treatment of stock grants and the need to comply with the Corporate Transparency Act by disclosing beneficial ownership information to the US government.
📈 Financial and Temporal Overview of Incorporation Process
Tomas concludes the script by summarizing the timeline and costs associated with the incorporation process. From the initial pitch to investors in late 2023 to the completion of incorporation in early 2024, the process took approximately three months and cost around $7,000. He acknowledges the necessity of these foundational steps for the long-term success of the company and expresses his eagerness to return to the creative development of their high-end router, with a goal to have prototypes ready by the mid-year 2024. Tomas thanks the viewers for their interest and promises to continue sharing the company's journey.
Mindmap
Keywords
💡Fundraising
💡Investor
💡Incorporation
💡Delaware
💡Venture Capital
💡Legal Jurisdiction
💡Par Value
💡Employer Identification Number (EIN)
💡Bylaws
💡Shareholders Agreement
💡Corporate Transparency Act (CTA)
💡SAFE Financing
Highlights
The speaker initially announced raising $200,000 but later revealed they actually raised $300,000 for their custom high-end router project.
A UK-based company, represented by 'Mike', expressed interest in investing £100,000 in the project and eventually signed a deal.
The speaker, Tomas, is from Slovenia and is developing a high-end router with a co-founder in Eindhoven, Netherlands, and support from investors and a team.
The company chose to incorporate in Delaware for its favorable legal and tax environment, despite misconceptions about tax havens.
Incorporating in Delaware was influenced by investor preferences for legal familiarity and the state's straightforward incorporation process.
The process of incorporating in the US was simpler than in the EU, requiring less initial capital and offering more flexibility in share issuance.
Tomas emphasized the importance of choosing a state with lower taxes for business incorporation, even if other factors are equal.
The company, Mono Technologies Incorporated, was successfully incorporated in Delaware with the help of a US-based attorney.
The formation process involved deciding on the company name, registered agent, share amount, par value, and obtaining an EIN.
A delay in receiving the EIN from the IRS was overcome by a proactive call, highlighting the importance of persistence in business processes.
The company opened a bank account with Mercury.com shortly after receiving their EIN, facilitating future investment transactions.
Formation documents included the Articles of Incorporation, Bylaws, and Shareholders Agreement, defining the company's legal structure and operations.
The Shareholders Agreement is crucial for protecting the interests of founders and investors in the event of disputes or unforeseen circumstances.
An accountant was engaged to handle the company's financial records and to file a Section 83(b) election for tax purposes.
The Corporate Transparency Act (CTA) compliance was addressed by submitting beneficial ownership information to the US Treasury.
The incorporation process took approximately three months and cost around $7,000, with all parties invoicing the new company post-funding.
Tomas concluded by expressing his eagerness to focus on developing the high-end router and sharing the journey with the audience.
Transcripts
a couple of weeks ago I announced that
we successfully raised almost $200,000
to develop our own custom high-end
router well I lied because we raised
$300,000 so how did that happen well
after publishing that video I received
an email that literally said the
following my name is Mike and I run a
company based in the UK I have been
watching your progress with regard to
your router project and I would like to
invest I would like to be a founding
investor and I would like to initially
invest £
100,000 Sterling into the project I
would love to visit you guys to discuss
your ideas please advise now obviously
when an email like that comes out of the
blue spidey sense start tingling but
after exchanging a couple of emails in
the following days Mike and no that is
not his real name just changing it for
the Privacy sake actually flew to
Slovenia with his CFO and we had an
amazing meeting in the offices of one of
the other investors and about 14 days
later the safe was signed for those of
you who haven't been following the story
so far hi welcome to the channel my name
is Tomas and I come from Slovenia which
is a tiny but gorgeous country in the
heart of Europe I'm also developing my
own high-end router completely from
scratch or should I say we are
developing our own high-end router
completely from scratch that's because
I'm not alone in in this I do have a
co-founder alash who lives in einhoven
Netherlands and at this point 10
investors and a bunch of other great
people that help us out with the project
that's all I'm going to share at this
point just to give you some context but
if you want to learn more I suggest you
start with my intro video which I'll
leave to up here and in the description
down below now let's first address the
main topic of this video and that is why
we incorporated in Delaware when I made
the announcement that we're working on
incorporating the company some of you
have cynically pointed out that we've
chosen Delaware solely because it's a
tax Haven uh to which I'll reply embrace
yourself I have no idea what Texas look
like in Delaware and at this very point
or to this very point I haven't even
bothered to check I realized some of you
might be surprised to hear that so let
me explain the decision making here with
a story you've got this incredible idea
for a game-changing invention you're
pumped because you know it could make
life better for heaps of people Plus if
it takes off you won't have to worry
about punching the clock every day or
scraping to pay bills but here's the
kicker bringing your dream to life means
needing a boatload of cash like hundreds
of thousands or even millions of dollars
even if you saved way a sum like that
sinking all of it into your start start
into your startup would be risky and
that's where Venture Capital comes in so
armed with your killer concept you start
pitching to investors and VC funds sure
plenty of them shrug off your vision but
that's to be expected but then
eventually you find an investor who is
totally on board they're ready to pour
some serious cash into your project but
there's a catch they want you to set up
shop on their legal Turf so to speak why
well because if hits the fan
they've got the legal knowhow to come
out on top in a manner of speaking so
what would you do in a case like this
would you give up your dreams because
you're uncomfort of incorporating
halfway across the world or would you
pursue them regardless if some trolls on
YouTube accuse you of picking a tax
Haven for the state of incorporation for
me I hope it's obvious by now I have
absolutely no problems of incorporating
in the United States and we've done just
that the company is called Mono
Technologies Incorporated and yes we're
a Delaware company whose main activity
is developing networking equipment and
no the investor didn't say I have to
incorporate there I was also given the
UK as another suggestion but why not
Europe you say well the answer to that
is actually quite simple because the EU
despite all its legislative benefits
also comes with a few drawbacks and one
of them is over complicating things you
see in order to incorporate in the US I
didn't even have to physically go there
I simply authorized the lawyer to do it
for me not to mention that the
conditions to incorporate in the US are
also much more simple and strict so to
speak for example here in Slovenia in
order to incorporate a single share
can't be worth less than € Euro and you
can't have less than €25,000 worth of
initial stock on the other hand in
Delaware you're free to choose your own
number both for the par value of the
share and the amount of stock you want
to issue when incorporating if you don't
know what these mean don't worry we'll
get there by the way at this point I
actually have to give a huge shout out
to nlaw uh my team of attorneys that
helped me with this whole process and
patiently responded to all my dumb
questions even when I would send them on
a Saturday evening if you're in the
European Union and need help with
incorporating in the US reach out tell
them I sent you they might even give you
a discount when we had our first meeting
in their office in lublana you know what
my first question was why Delaware and
you know what they said it's a habit
because incorporating in Delaware is
something pretty much everyone does
everything is already prepared from
legal perspective that is the lawyers
already have all the papers ready it's
just a matter of filling out the blanks
in all the contracts and forms we'll go
over in this video this in turn also
make it much cheaper for me the founder
because the lawyers don't have to
prepare anything special they just take
say your standard shareholders agreement
which is a 25-page long document by the
way put your name in and send it via
docu sign so that you can sign it
digitally imagine how many hours it
would take them if they had to write
this document completely from scratch
then multiply it by I don't know $200 to
$400 which is how much a turn is usually
cost per hour and it will become pretty
clear very fast as to why you do want
this cookie cutter approach I mean yes
obviously favorable taxes are the
underlying reason for why 2third of the
Fortune 500 companies are Incorporated
in Delaware but let me ask you this if
you were given instructions or simply
wanted to to incorporate in the US and
all other things being equal would you
choose a state with lower taxes or one
with higher I don't think I need to give
you any pause to think about it right so
don't judge me every good business owner
will always strive to do what's best for
their business in in my case
incorporating in Delaware was best for
my business period now let's go over all
the steps we needed to take in order to
incorporate and all the papers we needed
to sign or file with the US authorities
we'll also cover how long each step took
and how much it all cost and I will
explain it in the same way as Katya our
us-based attorney explained it to me and
that is in three steps the first step is
called the formation in which we needed
to decide upon four things first
obviously was the name of the company so
I've sent a couple of suggestions in
order from the one I like best and
luckily for me that one was not
registered yet so we went with mono
Technologies the Second Step was
choosing a registered agent a registered
agent can be any person over 18 years
old who is located at the address
provided during normal business hours in
the state of Delaware however there are
plenty of thirdparty providers that
provide this kind of services and they
cost roughly $100 per year despite the
somewhat fancy name a registered agent
is an individual or an organization that
is responsible for managing legal
document and government correspondence
to ensure liance with state regulations
now because we're a corporation and not
an LLC we also had to decide on the
amount of shares and their par value
which basically means how much each
share is worth we went with 10 million
shares and the par value of
0.00001 so that the initial cost of all
the shares amounted to
$1,000 now compare that with Slovenian
$225,000 The Next Step was then applying
for the Ein which is short for employer
identification number which is basically
the company Tax number here in Europe we
call it vat in order for us to be able
to get it we needed the following first
we needed the principal office address
which is basically just an address for
your regular mail since we're not
physically present in Delaware we chose
an online provider for this as well they
have a list of possible addresses that
you can choose from to become your
principal office address once you do and
a physical mail arrives to that address
they open it scan it then upload it to
their web app so you can access it
online from pretty much anywhere and the
last bit of information we also had to
consider was a brief General description
of the nature of the business which in
our case is development of networking
equipment our lawyer Kya then took all
this information filed out an ss4 form
and sent it over to the IRS using a fax
machine Yes you heard that right a fact
machine now I'll give you a not so fun
fact we submitted this form to the IRS
on March 12th and to this day more than
3 months later we still haven't gotten
the I officially what I had to do about
a month or two ago when I ran out of
patience was call the IRS and ask for it
they did give it to me luckily but if my
impatience didn't get the better of me
and I didn't consult with our lawyers I
I would still be here waiting for this
number and you know why it's so
important because without it you cannot
open a bank account and without a bank
account it makes no sense to sign
investment papers because the investors
have nowhere to wire the money too so as
you might imagine it was a big
showstopper that was luckily resed with
a phone call and in case you're
wondering I opened the bank account with
mercury.com pretty much minutes after
learning our EIN number on a Friday
evening I think it was while we were
waiting for the I Katya presented the
next step in our papery journey called
formation documents now here's where
things start to look very differently
depending on what kind of business you
are whether there's any investment
planned or not how many Founders there
are etc etc in our case we ended up with
the following papers SL contracts the
first paper was called action by Soul
incorporator which Kya signed and then
resigned because in this very document I
was elected as the sole director of the
company basically she Incorporated the
company on her own then pass the torch
to me to run it then I had to sign two
additional documents one called first
minutes of board of directors and the
second one called bylaw bylaw is
basically an internal rule set of the
company legally binding of course and
talks about the directors and other
executive officers what their powers are
what their duties are what high level
meetings should take place and how often
how voting Works how dividend are paid
out what repercussions to violation of
the bylaws are and so on and so forth
honestly for a maker like me quite
boring actually but it has to be done so
that the company is legally protected
from a possible bad actor at any time in
the future the other document in this
step is the first minutes of board of
directors and is like a list of
decisions that was made in this
imaginary meeting decision decisions
decisions such as what the accounting
year for the company will be or first
steps that need to be taken for the
company such as applying for the Ein
opening a bank account and paying the
lawyers for incorporation of the company
since I'm the only director at this
point I had to sign this document myself
but if we appointed more then those
people would also have to sign the
document I'm saying this because
sometimes an investor insists that one
of their team members joins the board so
that they have more overview and some
decision-making power and yes I do
expect this to happen in the next round
of fundraising one last point I also
need to make when it comes to this
document is also the fact that it's here
where the amount of shares and their par
value is legally decided on which brings
me to the final document in this
formation dogs chapter and that is the
shareholders agreement agreement this
document I'd argue is the most important
one when there's more than just one
person owning the shares and in our case
there's me and my co-founder alash now
in an Ideal World everyone would respect
everybody else and stick to the rules
and everything would be hunky dory but
because we do not live in an ideal world
it's important that we protect Founders
both from one another and the itself
from the founders for example what
happens if something happens to me and I
can't make decisions for the company
either in good faith or at all or if I
get a divorce and my wife is legally
entitled to 50% of my shares or a
potential buyer wants to acquire the
company and I want to sell it but my
alash does not all these questions
regardless of how uncomfortable they are
they have to be addressed and
interestingly enough this document is
also very important to investment funds
because obviously they want to make sure
that their investment is in safe hands
even when and if things go wrong okay if
you're still here you're a
Legend because I bet this kind of
content isn't the most interesting to
watch or listen to so thank you click
that like button if you haven't yet all
right there's one more party involved in
this I haven't mentioned yet but is
equally important for the day-to-day
operations of the company of course and
that is the accountant we signed a
contract with a company that was
recommended and introduced to us by the
lawyers and the reason I'm mentioning
them is well obviously because we do
need someone to do the accounting but at
this stage more importantly to file what
is called a section 83b elections I
won't go into details but what this
document says is that we'd like our
stocks to be taxed at the time of
purchase so now rather than at the time
of vesting which will come later if you
recall the par value of our stock is
currently at
0.00 $1 per share but imagine that in a
couple of years it becomes worth a
dollar would you rather have it taxed
then or now I thought so the one
important thing when it comes to this
document is that it needs to be filed no
later than 30 days after the stock is
issued to the shareholders and now since
we use safe financing documents as our
choice of investment strategy no actual
shares were issued to the investors at
this point so the only two people that
needed to submit this election were me
and alash and one one final document in
this step that we also needed to submit
after incorporating is called a CTI comp
C CTA compliance CTA stands for
corporate transparency act and it
mandates that all corporations and ls's
submit their beneficial ownership
information to the US Treasury Financial
crimes enforcement Network or to put it
differently the US government doesn't
like money laundering so they want to
know who exactly owns more than 25% of
the shares of each company okay we're
now done with all the documents and I
bet at this point you're wondering two
things how long did all of this take and
maybe even more importantly how much did
it cost well I've given my first pitch
to an investment fund here in Slovenia
on November the 29th of
2023 and I've gotten or we've gotten
over
$200,000 on February 1st 2024 this is
also when we started the process of
incorpor ation that's now pretty much
done so let's say around 3 months it
cost us around
$7,000 but luckily for us all parties
involved were fine with invoicing the
newly Incorporated company after the
fact rather than me personally in
advance and the downsize of this process
well luckily for me I have been working
on this project way before I even
started pitching to the investors so a
lot of things have already been prepared
for alash to work on in the meanwhile
because on my part these these five
months were dedicated to fundraising and
incorporation almost exclusively believe
me I'd rather be doing something more
creative but if we want to have
successful company in the long run then
now is the time to lay the
foundations I think that's it we're now
a proper Delaware based company with
everything needed from the legal
perspective to properly run the business
and now I can finally focus on what
we've set out to do develop our own
high-end router and hopefully have the
first prototypes ready by early last
quarter of 2024 and of course share the
whole journey with all of you here on
YouTube in fact we already started but
I'll share that in another video to much
from Slovenia signing out
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