This article is based on the story shared with me by Marius Chis, Co-founder and CFO for Hack a Server – Crowd Source Audit Platform for Manual Web Security Testing.
In July 2012, HackaServer had a product ready to meet its market. The link between had to be made through payments, which led the team to an interesting process of legal establishment of the company. As in many other startups, the founders take a good care of the product and other business elements, but the administrative aspects should not be underestimated. Below you can find useful information on several places well-known in the world for great conditions to legally establish a company. Beware of the hidden side that HackaServer reveals for you!
“Like in any IT business, the possibility to have online payments is essential. PayPal seemed to be the ideal solution. We made a personal PayPal account, we implemented their API on our platform, but…we actually needed a business account. Which meant having a bank account registered for a business profile. Which meant having a legally established company, even if at this moment we only wanted to test the market and we had scarce resources.”
So where to establish the company in order to benefit from best conditions while also not compromising your image? In the United States, in the UK, in Ireland? These places are full of tech startups, so it seems that they must be good options.
“The United States sounds excellent, especially if you are pursuing local investments. But after digging in their legislation, we found out that in the US we have the Non-Resident Alien status (foreigners that in the past 3 years did not live a minimum of 183 days in the US). This status implied that we could not register our company there.”
They checked other places as well, places that seemed really promising in terms of costs. However, after proper checking, they noticed there are lots of hidden mandatory costs (like those with local address, local bank account, and local accountancy). “In the end, it was like 10 times more expensive than the initial information we had about Ireland. There are lots of hidden costs there. And if Ireland is like that, we thought the UK has to be even more expensive and we quit checking it.”
“We searched all over the internet for cheap and simple conditions, for small budgets. We just wanted to start something with minimum costs, to see how it goes. Lots of places like Belize and Seychelles promote that you only need 800 dollars for registrations and 700 dollars annual costs, without other obligations. But this kind of places for a company registration may harm your credibility in front of clients.”
After searching on their own for a few weeks, the team decided to call for professional help. This took another few weeks to find someone and they had to give away some equity in return for the help.
“He recommended us British Virgin Islands – a trustful place with simple conditions. The costs were under 2000 dollars for registration and 1000 dollars annual administrative fees. We prepared the papers (which took us two weeks). In the meantime we found out that PayPal has hidden costs and we decided to change it with Braintree. All good, except that Braintree does not accept companies registered outside EU, the US and Canada. So we could not register anymore in British Virgin Islands.”
As time was passing, the pressure became even bigger.
“Another stop was Cyprus. We found out then that besides the 2750 euro costs for registration, we need to pay 11000 euro per year for administrative fees for an estimation of 100-200 annual transactions and 100K-200K euro turnover. This means that about 10% of our revenues would go only on that, so it was way too expensive. ”
After four months spent in this process of finding the best place to legally register the company, HackaServer decided to finally establish in their home country, Romania. “In Romania you can register your company with less than 200 euro and for 500 euro per year you have a decent accountant. The tax for profit is 16%. But the downside is the bureaucracy and administrative problems.”
What is your experience with company registration? Would be great to share here your knowledge on the topic and tips and tricks with other founders that might need it.
