Over the past 10-years, there has been a drive towards innovation in the company formations space. Entrepreneurial operations like Legalzoom and Stripe Atlas have taken the process of remote company formation and made it a ubiquitous product offering like ordering at McDonald’s. However, despite the ease of use it could end up biting you in the long run and therefore I’ll Compare Legalzoom vs Stripe Atlas and see who comes out on top.
What Is Stripe Atlas and What Service Do They Provide?
Stripe Atlas is a service provided by the well-known merchant account provider, Stripe. It is primarily targeted at offshore entrepreneurs wanting to establish a US company whilst also including merchant account services. They effectively provide a turnkey service for US company formation, registered agent services, and a Stripe merchant account for offshore-based entrepreneurs.
Sounds great at first glance for someone looking to establish a foothold in the US e-commerce sector. However, they are primarily pushing the Delaware “C” corporation tied up with a Californian banking solution (Stripe itself). The above structure is really only good for one major sector and that is Silicon Valley startups who, eventually, will be looking to seek venture capital.
In short, Stripe Atlas appears to be selling the dream of a VC-funded startup to offshore entrepreneurs around the world. That’s fine for the ones with viable products, and actual sales, but for the vast majority of entrepreneurs it’s nothing but a pipe dream.
Unfortunately, from a pure offshore e-commerce play, an LLC likely makes better sense with profits effectively being split to the partners and being taxed at their effective marginal rates. Full “C” corporations are problematic for offshore-based citizens as simply having one pre-disposes you to US tax liability. This might be a shock to some, but Uncle Sam wants his cut of whatever you do through your “C” corp.
Subsequently, you will rapidly discover you are now firmly in the orbit of the IRS and will need to pay tax on your earnings BEFORE any distributions to shareholders are made. Additionally, you may quickly find out that, depending on where you are located, there is no tax treaty covering double taxation.
Subsequently, you could get hit twice with a tax bill!
Ultimately, Stripe Atlas is really set up for those offshore entrepreneurs who already have an operating business and are hoping for future venture capital from Silicon Valley. Otherwise, it makes little sense to burden yourself with a US “C” Corp structure.
Atlas Stripe Pro’s and Con’s 2022
|Standard Delaware Company Formation||No LLC formation options or any changes for that matter|
|Includes Filing Fees||Need to File Annual IRS Taxes|
|Includes your Registered Agent||No LLC Tax Splitting or Look Through|
|Includes IRS Filings for an EIN||Major Compliance Obligations|
|Your Annual Costs are Known||Could Make You Subject to FATCA Complications|
|Guarantees Stripe Account Access||Your Business Must be Stripe Friendly|
What is Legalzoom?
In contrast to Stripe Atlas, Legalzoom is simply an online service providing various legal filings and formations. They don’t push any specific legal structure and simply provide the standard LLC or “C” Corp filing packages. In addition, they also offer a range of trademark and intellectual property services that can be beneficial for offshore users. In short, Legalzoom is really just a company mill that incorporates as many businesses as possible and provides cookie-cutter company documents upon demand.
The cookie-cutter approach isn’t necessarily a bad thing if you know exactly what you are seeking to establish. However, there is little in the way of guidance and no scope for changing any of the standard provisions within the company or LLC structure.
Legalzoom Pro’s and Con’s 2022
|Cheap Company Formations||No Flexibility in Structural Changes|
|“C” Corp and LLC’s Available||No Tax Advice|
|Quick and Easy to Form||It’s Simply a Cookie-Cutter Templated Approach|
|EIN Applications Available||Masquerades as a Legal Service but provides no legal advice with the documents.|
Comparative Cost Breakdown – Legalzoom vs Stripe Atlas
To compare oranges with oranges, we will compare the cost of forming a Delaware-based “C” Corp as that’s all that Stripe Atlas will form for you.
Stripe Atlas charges approximately US$500 for this service and it includes the required filing fees, registration, EIN application, and the resident agent services.
In contrast, Legalzoom charges approximately $447 for essentially the same service which just nudges out Stripe. However, it should be noted that this doesn’t include a merchant or bank account, but you are free to open your own Stripe account at this point.
Overall, the prices are relatively similar and include all the basic services to get a corporation up and running.
Which Service Wins the Legalzoom vs Stripe Atlas Review
Overall, Legalzoom wins the overall review contest solely on the fact that you have some flexibility on what sort of structure, LLC or “C” Corp, you establish. The pricing remains very similar and, despite Legalzoom offering some attorney services, I’m left with the feel of solely dealing with a formation mill.
On the face of it, working with a company mill isn’t a bad thing as long as you know exactly what you are seeking. However, I doubt most offshore entrepreneurs have any idea about US compliance and taxes and probably fail to realize the trap they are falling into with these sorts of formation services.
Why You Would Be Crazy to Use Either Service
The worst thing you can ever do when forming a company is “cheap out” on the costs of the services. Do yourself a favor and get some expert advice so that you get a company, and constitution, that fits your specific circumstances. Otherwise, you are likely to face problems later when you are looking to sell or raise capital.
In short, get a professional on board to assist you in creating a company that serves your needs now and in the future. And, if you are not US-based, seriously consider whether you need a US entity to do business through. Trust me when I say that it is significantly easier to avoid basing your business, or your tax residency, within Uncle Sam’s hands.