
Ask HN: Canadian and American starting an online business? - pgg
I&#x27;m Canadian and am starting an online business with an American co-founder. Those titles are mostly meaningless, each of us will own 50%. We&#x27;re not sure which country to incorporate in and what the best way to go about it is, and I&#x27;ve found surprisingly little information online. IANAL aside, does anyone have any experience with this and can point me in the right direction?
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cik
Your location matters significantly more than your nationality - ultimately
it's a tax problem. For example: if you're in Canada and the business is US
domiciled (and you own 50%), then decision making for that business and your
share will be taxed in Canada. This is simplified - but you get the gist.

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pgg
Thanks. I should have clarified we’ll remain located in our home countries,
working remotely.

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lfx
Justin Jackson (CA) started start-up with American co-founder. He podcasts and
is active on social media. I think he may have some pointers if you reach out.

* [https://justinjackson.ca/](https://justinjackson.ca/)

* [https://transistor.fm/](https://transistor.fm/)

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adventured
There are some other details that need filled in.

Is it intended to be a permanently small'ish business or will it plausibly
become a medium to large business if it's successful?

Will you be pursuing traditional venture capital and or any outside investors?

If things go well will you be hiring locally (such that you'll need office
space) or do you aim to keep everything remote for the early going?

Which of the two partners is better qualified to handle the legal requirements
& complexities of maintaining an incorporated entity, whether in the US or
Canada?

Does one partner have a desire (more so than the other partner) to move to the
other country if the business is successful?

Both have arguments in their favor depending on those answers.

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hluska
Do you have any interest in finding investors or selling the company to a
major tech behemoth? If so, incorporating in the U.S. (particularly Delaware)
will save some headaches.

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pgg
Thank you everybody for the help!

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pcc
Hi pgg; fellow Canadian here, have been in somewhat similar position; feel
free to reach out (email is in profile).

Will this be a services business (e.g. consulting/work for hire) or selling of
products/services?

There are many factors involved in the decision, e.g.:

\- If you incorporate in Canada, you may find you need to open a USD-
denominated account with your bank here to avoid currency losses. You would
probably also need a CAD account, and for selling in Canada you would need to
account for GST and possibly provincial tax, depending on where you're based,
since you would have a presence here. You could elect with CRA that your books
are denominated in USD -- but be aware that multi currency accounting adds an
extra layer of complexity to your life. With 50% shareholding defined up
front, the bank here is probably going to want to have signatures from both
shareholders to set up an account.

\- If you are soliciting sales in the US, you may be considered to have
"nexus" in the US, probably based on the state of your co-founder (at least
initially). That may mean reporting/filing obligations in that state,
particularly if your sales go over a certain level. There are also obligations
regarding tax filings in other states if you or co-founder travel there enough
and sales there are high enough. Certain states are actively going after
Canadian companies for these filings with heavy penalties. There comes a point
where, to trade in the US, it is arguably just simpler to be incorporated in
the US for those transactions. It is relatively easy to incorporate in the US
(recommend Delaware) but the corporation will still need to be aware of its
tax filing obligations in other states, particularly in the state your co-
founder is based.

\- Depending on how you're planning on taking payments, it may be useful to
know that e.g. Stripe will allow you to bill in USD and settle into a USD-
denominated account in Canada (or in CAD/USD and settle into a CAD-denominated
account with conversion as needed). But you should know that settlement times
are different if you are settling to an account in Canada, vs an account in
the US. IIRC Stripe starts out as taking 7 days to settle to an account in
Canada, the shortest we've been able to get that to was 4 days after we built
up some history. By contrast, we get our charges to US-based bank account
settled in 2 days.

\- If you would be eligible to claim R&D tax credits, my sense is that (at
least at present) the Canadian SR&ED scheme is easier/better than the US
equivalent, both in terms of what you can get back and the amount of
effort/time it takes. In either case, claiming an R&D credit would typically
be dependent on being incorporated and running payroll in that country.

\- Your Canadian customers are probably going to expect/prefer to be dealing
in CAD (with proper GST/HST/PST etc) with a Canadian company and bank. Your US
customers are probably going to expect to be dealing in USD with a US-based
company and bank. If you are physically shipping products, know that US
customers in particular don't like cross-border shipments for several reasons
(including that they are more expensive).

\- It can be helpful to have separate CAD and USD credit cards.

\- There are certain kinds of financing that are way easier to access when
incorporated in the US. And others that are easier when incorporated in
Canada.

So really what you are doing is optimizing for complexity, taxes, movement of
currency, cash flow, filing overheads etc over all those factors.

While it really needs more info about your specific opportunity, one thought
is to consider incorporating separately in both countries (eventually as the
business grows, it may well end up there anyway). You could even start by you
owing 100% of the Canadian company, your co-founder 100% of the US company,
and having a simple business agreement between the two companies regarding how
the name is controlled/shared/owned, and how profit is shared (e.g. on the
basis of royalties) etc. Of course you could also set it up as one being
subsidiary of another, but not doing that at the outset, will probably make it
easier for you to start out.

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hnnh44
Canadian operating a digital business here as well. Most of the above points
are accurate.

One point I'll disagree with is the viability of s SRED. It's a documentation
nightmare and hiring a consultant to file for you is basically mandatory -
they take 25% of your return. IMO, not worth the distraction in general, and
definitely not if you're questionably eligible due to u.s. status cofounder.

Canadian banks, even with USD accounts, are handicapped. ACH for example, is a
non existent term at Canadian banks.

Canadian customers are fine paying USD, if your business is USD based. All
your expenses/providers will be, so it only makes sense to bill in USD.

Nexus is a serious issue. Hire an accountant who is familiar with this. I
learned for example, that _where your website is hosted_ is factored into the
decision. You can claim to be Canadian, but offering services/downloads to
u.s. customers served from a u.s. server counts as 100% u.s. As mentioned
above, % of sales is another big factor. If you trip 51% (and you will, Canada
is too small a market), you risk being assessed.

Incorporating and filing taxes will work out roughly the same in either
country. I'd need the recommendation to incorporate in Delaware, and just file
as a u.s. company.

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pcc
Canadian customers paying in USD: I think it depends on the type of market and
product. We've found competitive advantage in offering CAD pricing stability
to our Canadian customers (B2B, both services and physical goods).

SR&ED: We've used it to great effect, and have never used a consultant. The
rules are actually not that complicated; CRA presents seminars on how to
determine what is eligible, as well as on how to complete the T661. It's a
small time investment to attend those to determine if&how SR&ED can work for
you. Documentation, it depends: lab notebooks and a spreadsheet of hours can
go pretty far. They've tightened up process on first time claimants (all go
through review now afaik), but at the same time they've introduced programs
for first timers where you can get an opinion on eligibility ahead of time and
can then check in with them periodically during the first period for their
ongoing evaluation and comment, in which case they guarantee no surprises
during the review. As always YMMV: for us SR&ED had the same effect as
outsourcing our dev to a far lower cost country, but effectiveness is reduced
if largely doing things like crud apps, or with single employees who are also
substantial shareholders.

