

Ask HN: Does YC always uses US C-Corp for their funded company? - mattbell

We are based outside of the US and it doesn't make much sense for us to incorporate in the US because of tax implications it would create.<p>Is this flexible at all? In our case it would be favorable in regards of taxes for both Y Combinator and us to not have a US C-Corp.<p>We want to incorporate Singapore instead.
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faramarz
..but, are you looking for investments? C-Corp has an advantage that allows
you to have unlimited stakeholders. this can vary from individuals to Angels,
VC's and institutional investors.

You're basically getting rid of any friction for a potential outside
investment.

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mattbell
This can be done with an incorporation in Singapore as well. My concern with a
US C-Corp is that it will make the company liable for taxation in the US even
if we do not operate from there. There will also be additional tax withholding
when dividends are distributed to us (foreign founders).

Singapore has no tax withholding on dividends, so it doesn't change anything
for the US investors in that regard.

I'm curious as to what the YC-funded company with foreign founders ended up
doing.

We're interested to apply to be funded by YC and other US angels/VCs but
incorporating in the US just doesn't feel very appealing in regards of
taxation and additional paperwork.

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philiphodgen
I can't tell you about YC's preferences. And they come before everything I'm
about to tell you, because when Mama's happy, everybody's happy (for certain
financial values of Mama).

The comment about the business advantages of a corporation are spot on. Look
at large publicly traded companies. worldwide, not just USA. That is what they
are. If you have any other form of existence and you grow you will have to
morph into a corporation anyway. Avoid friction where possible and start as a
corporation.

Your concerns about taxation are also correct. Avoid the USA as much as
possible. Especially if you are developing IP. IP owned by a US corporation
and exploited outside the USA unnecessarily causes the "outside the USA"
profit to be taxed in the USA. And transfer of IP from a US owner to a non-US
owner is a deemed sale for tax, so exit from the USA can be expensive. At an
extreme consider a domain name around which you develop a business. Moral of
the story: you need some careful tax thinking while you're small and the
stakes are low (therefore tax mistakes are cheap).

But there is a third consideration. US investors (like a VC) in offshore
entities (like a Singapore corporation) face a shit-ton (that is a technical
term defined in the US tax laws) (I kid, I kid) of tax paperwork and potential
tax costs that can make them just say "Oh, fuck it. You want my money, play by
my rules."

As a matter of fact IAAITL (I am an international tax lawyer).

@philiphodgen

SAs a matter of fact, IAA

~~~
mattbell
I absolutely want to avoid having my IP in the US. It doesn't make sense to
us. I'd much rather have the IP owned by an offshore trust that licenses it to
my operating company in Singapore.

But if it prevents us from raising capital in the Valley well... that's a
problem. Especially if we are seeking small time investments at first where it
would create a shit-ton of compliance requirements for the US angels.

Oh well...

~~~
philiphodgen
Design your ideal business operation setup then reverse intothe tax
constraints. That is a much more efficient process at your stage. Pretend
paperwork and taxes don't exist for your Investors. You will manage that
later. Tax and paperwork are overhead costs to be controlled, not key
determinants for how you do business.

And don't use a trust to hold IP. There are exceptional use cases for trusts
in a business context. It is probable that they don't apply to you. Use
regular business entities. You are a business. Some day you will grow big and
go public or get sold. Build accordingly. Don't do stuff where people say "WTF
this is amateur hour" and start to doubt your judgment in other arenas.

~~~
mattbell
Good advice, thanks!

