As a EU citizen, I opened a company in Delaware. Here's why. (And how)

Summary

In 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

00:00

😀 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.

05:01

🏢 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.

10:02

📑 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.

15:02

📈 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.

Keywords

💡Fundraising

Fundraising is the process of collecting capital from various sources, typically for a specific project or cause. In the video, the speaker discusses the successful fundraising campaign that exceeded initial expectations, raising $300,000 instead of the announced $200,000, to develop a high-end router. This is a central theme of the video, illustrating the financial aspect of launching a new product.

💡Investor

An investor is a person or entity that commits money to a project or business with the expectation of obtaining a profit. The video script mentions an investor named Mike, who wishes to invest £100,000 in the router project, highlighting the importance of external financial support in the development process.

💡Incorporation

Incorporation refers to the process of forming a corporation, which is a separate legal entity from its owners. The video details the steps taken to incorporate the company Mono Technologies in Delaware, which is a significant action for establishing a legal and financial framework for the business.

💡Delaware

Delaware is a state in the United States known for its business-friendly laws and tax policies, making it a popular location for company incorporation. The video explains why the company chose to incorporate in Delaware, despite misconceptions about it being solely a tax haven, emphasizing the practical and strategic reasons.

💡Venture Capital

Venture capital is a form of financing that investors provide to startups and small companies perceived to have long-term growth potential. The script mentions venture capital as a source of funding for the high-end router project, indicating the reliance on financial backers to support innovative ideas.

💡Legal Jurisdiction

Legal jurisdiction refers to the geographical area within which a court has authority to hear and decide cases. The video discusses the strategic decision to incorporate in a specific jurisdiction (Delaware) based on the legal expertise and favorable conditions available there, which is crucial for protecting the interests of the company and its investors.

💡Par Value

Par value is the minimum price at which a stock can be issued. In the script, the company decided on a par value of $0.00001 for each of the 10 million shares, which sets the initial cost of all shares at $1,000, illustrating the financial planning involved in the incorporation process.

💡Employer Identification Number (EIN)

An EIN is a unique identifier assigned by the IRS to businesses for tax purposes. The video describes the process of applying for an EIN, which is essential for opening a bank account and conducting financial transactions, underlining its importance in the operational aspect of the company.

💡Bylaws

Bylaws are the rules and regulations established by a corporation to govern its operations. The script explains the creation of bylaws for Mono Technologies, which include details about the company's management structure and decision-making processes, emphasizing the importance of formal governance in a corporation.

💡Shareholders Agreement

A shareholders agreement is a legal contract between the shareholders of a company, outlining their rights and obligations. The video highlights the importance of this document in protecting the interests of the founders and investors, especially in scenarios where conflicts or changes in ownership may arise.

💡Corporate Transparency Act (CTA)

The CTA is a regulation that requires corporations and LLCs to disclose their beneficial ownership information to the US Treasury. The video mentions the necessity of complying with the CTA by submitting the required ownership information, demonstrating the company's commitment to transparency and legal compliance.

💡SAFE Financing

SAFE stands for Simple Agreement for Future Equity, a type of financing that offers the right to future equity in exchange for investment. The script refers to SAFE financing documents as the investment strategy chosen by the company, which indicates the innovative and flexible approach to securing funding.

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