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What’s the best tool to form an LLC or S-corp for your eCommerce business?
Incfile vs Doola vs Stripe Atlas vs LegalZoom vs ZenBusiness vs Clerky vs Gust vs Northwest Registered Agent
Incfile is our recommended tool for incorporating your business. It was founded in Houston, in 2004, by an odd couple: Nick Siha, a firefighter, and Dustin Ray, a music industry exec. Incfile started as a side hustle of a side hustle. Nick, the firefighter, was trying to form an LLC for another side hustle and was frustrated by how difficult and expensive the process was. He partnered with Dustin to form Incfile to make it easier for entrepreneurs to incorporate their business. The company has grown a ton since 2004 and has now helped over one million people form businesses. We think it beats filing yourself or hiring a lawyer to file for you and handles all the essentials you need to get your business incorporated. We love solutions like this which focus on one thing and do it extremely well.
Incfile offers great service at an affordable price. It lets you quickly and easily form a legal business entity. This lets you focus more time on the things that matter and less time on admin tasks like business formation.
We did a month's worth of research for this guide. It was a tough one to write. For whatever reason it seems that this category is more divisive than others. Reddit had tons of mixed messages on all of the companies in this guide. The same tool was either the ‘best ever’ or ‘COMPLETE CROOKS’ (why are negative reviews always in all caps?). There was no nuance for incorporation services.
TrustPilot was the same way. Reviews were either 5-stars and glowing or 1-star with scathing commentary. We usually don’t rely very heavily on TrustPilot and other review sites (**cough Capterra, cough G2**), but for this category, many of the options have thousands of reviews on TrustPilot, and the process for incorporating is typically very standardized. This increased our trust in their ratings, and the ‘wisdom of the crowd’, so we’ve taken them into account in our recommendations, but with one big caveat. As we dug into the TrustPilot scores, we noticed some discrepancies. One tool had one 5-star review, but their Trustpilot rating was 3.7. How could this be? When we did the weighted average of positive and negative reviews for another tool, their weighted average score was 4.4, but their TrustPilot score was 4.7. We found that the TrustPilot score takes other factors into account like the age of the company and responding to negative reviews. We’ve calculated the TrustPilot score based on a simple weighted average and not taken the headline TrustPilot score. As with all our guides, we’ve tried to be guided by the data.
Pricing for these tools was another nightmare. Many of them will hide fees for things that other tools include standard. We’ve tried to account for the pricing of what an average company will need to run their business and compared based on that.
It also seems that this category was worse than others in that for every iteration of Company X vs Company Y, there was a purpose built landing page from the companies themselves and SEO optimized websites. Our SEO skills are average at best, so if you’ve found this guide we hope you appreciate the work that went into it.
So without further ado, let's dive in.
Note: We’re not lawyers or accountants and don’t pretend to be. What follows is not legal or tax advice and is for educational purposes only. As with all things, talk with your lawyer and accountant before taking any action.
Why do you need to form an LLC or S Corp?
There are several reasons why you should consider incorporating.
The main benefit of incorporating is the legal liability protection it provides to your assets. If you don’t decide to incorporate, you will by default be operating a sole proprietorship. This can leave you personally liable for lawsuits. Let's say you launch an eCommerce business selling homemade lotions on Etsy as a sole proprietor. One batch of lotions is contaminated and causes horrible rashes for your customers. If you are sued as a sole proprietor, all of your assets (home, car, savings etc.) could be at risk in a judgment against you. With an LLC or an S corp, the liability would be limited to the assets of the business (inventory, trademark etc.) Now incorporating isn’t bulletproof protection, and there are cases in which the ‘corporate veil’ is pierced, and your assets could be at risk. But for the most part, incorporating prevents this from happening.
Aside from the asset protection, there are a couple of other benefits to incorporating. Many lenders and investors won't fund sole proprietorships, so if you’re looking for funding, you will need to incorporate. Incorporating will also make it easier to bring in co founders and split equity. Finally, there could be meaningful tax savings for incorporating vs operating as a sole proprietorship.
When should you form an LLC or S Corp?
We hear mixed advice on this one. Some say you should just let it rip and get sales first and form an LLC later, and others say you should always have an LLC first.
We think, for most people, it makes sense to incorporate right away. With todays’ filing tools, it shouldn’t take too long to form, it isn’t that expensive, and you can always file a DBA (doing business as) if your business name changes in the future. However, don’t confuse forming an LLC with launching a business. It’s easy to get sidelined and focus on everything outside of actually selling products to customers. Don’t let this be you.
If the fees to form an LLC are too much, then you probably don’t have a ton of assets to protect, and launching without an LLC might make sense. However, we think most eCommerce businesses should incorporate before launching.
LLC vs S corp vs C corp? What is the difference between them?And which one should you form?
LLCs, S corps, C corps, lions, and tigers oh my. These acronyms can get confusing quickly. We’ll try to keep this high level and useful.
Our mental model is this. There are three general types of business formation from least advanced to most advanced: sole proprietorship, LLC, and corporation. From a legal perspective, an LLC is a hybrid between a sole proprietorship and a corporation. Easy enough. Where it gets more confusing is that an LLC can elect to be taxed in one of three ways: sole proprietorship, S corp, or C corp.
From a tax perspective, there are generally two types of entities: flow through entities and tax paying entities. Flow through entities don’t pay taxes. They pass the income (and tax obligation) to the owners. Tax paying entities pay taxes at the corporate level and the owners are not responsible for the taxes owed.
Sole proprietorships and S corps are both pass through entities. A C corp is a tax paying entity. By default LLCs are taxed like sole proprietorships. However, LLCs can elect to be taxed as an S Corp or C corp.
Our simplistic view is that most eCommerce companies should form a plain vanilla LLC, and be taxed as a sole proprietorship. Once your business scales, you can elect to be taxed as an S corp. If you decide to raise outside capital, then you can consider becoming a C corp. There are a million one off situations where this might not be the best advice, but that's when you should bring in a lawyer and accountant.
Why? LLCs have less administrative work. No need for annual meetings or meeting minutes. This generally means it will be cheaper and easier to maintain an LLC. This is great for businesses that are just starting out. Our philosophy is to start with the simplest thing and move to more complex options as your business grows, and the benefits will be worthwhile.
In which state should you incorporate?
We recommend forming your LLC in Delaware. Why? There’s a reason that 68% of the Fortune 500 is incorporated in Delaware and 79% of 2022 IPOs were incorporated in Delaware. Typically, we don’t recommend things because the big guys do it, but we do think you should incorporate in Delaware.
Incorporating in Delaware has lots of benefits. It has a long history of corporate law (dating back to the early 1800s) and business friendly practices which gives your business a stable legal framework to operate in and gives investors confidence. Because of this well understood legal framework, many potential investors will only invest in businesses that are incorporated in Delaware. Delaware also has a low corporate tax rate (8.7%) and doesn’t tax companies that don’t conduct business in the state. We’ll cover sales tax in another guide, but this is great for eCommerce businesses.
Why use an incorporation service?
There are generally three ways you could incorporate: you could incorporate yourself, you could use a lawyer, or you could use an incorporation service. We recommend using an incorporation service. Yes, you could save some money by doing it yourself, but the savings aren't huge (a couple of hundred dollars), and the risk that you make a mistake in the filing process could create expensive headaches down the road. We think it’s like picking up pennies in front of a bulldozer. If you’re the type that likes to DIY and loves to file your own taxes, then by all means file yourself, but we think for the simplicity and peace of mind, it's better to file with an incorporation service. You could also find a lawyer to incorporate, but for most eCommerce businesses the process is standard enough that it will be easier and cheaper to form your business with an incorporation service.
What we like about Incfile:
Excellent Core Service
Incfile’s incorporating process is quick and painless. They will walk you through every step in the process. What you want from an incorporation service is something easy to use and inexpensive. The less time and brainpower you spend on admin tasks like incorporating, the more time you can focus on the core of your business that will actually move the needle. This is all Incfile does, so they’re laser focused on making the process as seamless as possible. We love tools like this that do one thing really well.
Incfile offers awesome pricing. They have a great service with some of the least expensive pricing of the competitors we reviewed. Their Silver package offers $0 filing (plus state filing fees), but we recommend their Gold package ($199 + state filing fees) which includes everything you will need to get your business up and running. We think the combination of great service and wonderful pricing is tough to beat.
When it comes to comparing prices, you should be aware of two aspects: the cost to file your business, and the cost to maintain your business (Registered Agent fees). Incfile has some of the least expensive pricing for both.
The charts below compare the price of Incfile against the competition for first year costs and ongoing costs. We’ve included the price for everything we view as essential to incorporate your business (core filing plus Operating Agreement, EIN, and Registered Agent service).
Incfile’s Gold package includes everything you need to incorporate your business.
An Operating Agreement
An EIN from the IRS
One year of Registered Agent service
Lifetime reminders (when filings are due etc.)
Other competitors will upsell you these things that we view as essential, and you will end up paying more for using them.
In both conversations with founders and on public review websites, Incfile has received strong reviews. Typically, we put less emphasis on public review sites, but forming a company is typically a very standardized process, and we weigh the wisdom of the crowd more heavily in this category. Incfile has over 12,000 5-star reviews on Trustpilot. Below is a chart where we compare the Trustpilot scores of Incfile and competitors. One note on this chart: when we dug into the Trustpilot data, we noticed discrepancies. One tool had one 5-star review and a Trustpilot rating of 3.7. We found that Trustpilot takes other factors into account when calculating their score (e.g., how quickly a company responds to negative reviews and how long a company has been around for). So instead of taking the headline Trustpilot score, we’ve calculated our own which is simply a weighted average of all of the companies reviews.
Support for Non-US Residents
Not a US resident? No social security number? No worries with Incfile. They have helped thousands of International founders form US businesses. As a founder living outside of the US, it can be a challenge to navigate US bureaucracy. Incfile has plenty of experience helping non-US residents and will guide you through every step of the process.
Quick Turnaround Time
Incfile has some of the fastest turn around times in the industry. They will file your paperwork within one business day of you filling out the necessary paperwork (at no extra cost). With other competitors you might wait 2+ weeks for them to file for you. When you’re starting a business, you don’t want to wait on a slow incorporating service. You want to get your company incorporated to focus on other more important things (selling your product).
What we don’t like about Incfile:
Limits to Customization Ability
For those looking for non-standard business formations (e.g., introducing special provisions in the various formation documents), we don’t recommend Incfile. Incorporation services thrive on by-the-book formations that are standardized. If you are trying to form an entity that isn’t standard, we recommend working with a lawyer and paying more to incorporate with them.
Money Back Guarantee
Other competitors offer 60 day money back guarantees, but Incfile only offers your money back (less state filing fee and $30 charge) before the paperwork is filed with the state. Because they file paperwork so quickly (within one business day), it is virtually impossible to get money back. If you’re going through the headache of filing a business, we don't think you should have second thoughts, but it’s something to keep in mind.
We’ve generally found the support to be very responsive and helpful. However, we have heard some customers complain about the support. These issues typically arise in two cases. The first is when the founder is trying to incorporate something other than a plain vanilla LLC or S corp. We recommend those founders instead use a lawyer for the incorporation process. The second case for complaints typically arises from people who make mistakes when entering the company info and are forced to remedy post filing. Our advice is to triple check everything before submitting it to avoid these situations.
Incfile offers three pricing tiers. Their most basic plan is called the Silver package and offers $0 State filing (just pay the State filing fee). This comes with the filing itself (preparing and filing the articles of incorporation), unlimited name searches (to make sure your company name is available), and one year of free Registered Agent services. This is a great deal, but we recommend the Gold package as it includes everything in the Silver package as well as an EIN from the IRS, an Operating Agreement, and lifetime company filing alerts. This is everything you will need to incorporate your business and will cost $199 plus the State filing fee. The Platinum package includes everything in Gold in addition to business contract templates, free next day filing, and a domain name and business email and costs $299 plus the State filing fee. We think you can pass on this and be fine with the Gold package.
Incfile’s Registered Agent service after the first free year will cost $120 / year. This is something that you’re required to have, and Incfile’s pricing is cheaper than most competitors.
Doola – Doola (formerly known as StartPack) is a YC backed company founded in 2020. They have great reviews and will provide more support post launch than other competitors. They also include a virtual address and mailbox as part of their offerings, but we view this as a nice to have rather than essential. Their first year fees and especially their ongoing fees will be more expensive than our recommended tool Incfile.
Stripe Atlas – Stripe Atlas is Stripe’s incorporation service. It isn’t their core offering and seems instead designed to get merchants on their Stripe platform. The fact that it isn’t their core offering shows up in different ways: documents are occasionally hard to find on the Stripe dashboard and filing reminders can fall through the cracks. Additionally, Stripe Atlas will only file your company in Delaware. While Delaware is our recommended state to incorporate in, if you have decided to file in another state for whatever reason, this won't be possible with Stripe Atlas.
LegalZoom – Founded in 2001, LegalZoom is the largest of all the competitors we reviewed. They offer a host of legal services in addition to incorporation services. They advertise a $0 filing service (only pay state filing fees), however, once you pay for an EIN, Operating Agreement, and for their Registered Agent service, you will end up paying more for your business registration. We don’t recommend them because of these fees which will cost you more than using Incfile and their customer service is worse.
ZenBusiness – With Mark Cuban as their spokesperson, ZenBusiness has grown in popularity recently. They have strong reviews and also offer a $0 filing service (only pay state filing fees), but similar to LegalZoom you will be charged for an EIN, operating agreement, and your first year’s Registered Agent service and end up paying more for the service than with Incfile.
Clerky – Clerky was founded with a focus on high growth tech startups. Unfortunately, because of this focus, the only formation type they support is a Delaware C corp which we don’t recommend for most new eCommerce companies, so we don’t recommend them.
Gust – Similar to Clerky, Gust was founded with a focus on high growth tech startups. Unfortunately, they will only help you to file a Delaware C corp, so if you’re looking to start an LLC, which we recommend, this service won't be for you.
Northwest Registered Agent – Northwest Registered Agent has some of the lowest prices of the tools we reviewed, however, it also has the lowest average review rating. Unfortunately, you get what you pay for with this company, and we don’t recommend it.
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