23 May Launch A Kickstarter Project Outside The US
Kickstarter Project Outside the US
One of the biggest problems with Kickstarter is that many of the entrepreneurs who want to launch campaigns are outside of the United States, and Kickstarter does not permit them to launch campaigns without complying with the rather strict requirements for creators, which include the following:
– Be 18 years of age or older;
– Be a permanent US resident with a social security number (or EIN / Federal tax identification number);
– Have a US address, US bank account, and US state-issued ID (driver’s license); and
– Have a major credit or debit card.
Foreign entrepreneurs, whether or not they already own a business in their home country, often do not have US addresses, bank accounts, US state-issued IDs or social security or employment identification numbers. So, the key to launching a successful Kickstarter campaign in the US is to find and appoint someone in the US (we’ll call this person the “US team member”) who can provide these credentials, and serve as the project creator.
This article will explain how this problem can attempt to be solved by appointing, and working with, a US team member, and what sort of legal issues to be aware of when attempting this solution.
Step 1: Form a Company (a C Corporation) in the United States
If you already have a company in your home country — hopefully you do, if you’re considering funding your business idea — then you will want to set up a wholly-owned subsidiary C corporation in the United States. You probably will want to incorporate the US company in the state where your US team member is located because, regardless of which state you choose to incorporate in, you’ll have to register in the state where your US team member is located.
This becomes an issue, for instance, if you choose to incorporate the company as a Delaware C corporation — Delaware C corporations are extremely popular, but often for the wrong reasons — and your US team member is actually located in another state. In that example, you’ll need to first incorporate in Delaware, and then register as a foreign corporation doing business in whichever state your US team member is located. For this reason, unless you have a compelling reason to set up a Delaware C corporation, you might want to consider simply incorporating the US company in the state where your US team member is located.
Do not set up a limited liability company in the US. There is a lot of misleading information out there about this subject. You won’t want to set up a limited liability company because this type of entity will be considered a “permanent establishment,” which may cause adverse tax consequences for your foreign parent company.
After you incorporate the company, you will want to document the corporate structure properly, as you would with any new corporation, by drafting the proper bylaws, minutes, resolutions, consents and subscription agreements while also applying for a federal tax identification number (EIN).
Since the corporation will be a wholly-owned subsidiary of the foreign parent company, all shares will be need to be issued to the parent company.
Step 2: Set Up a US Bank Account
In order to allow your US team member to set up the US bank account in the name of the US subsidiary company, the US team member will need to be appointed as an officer of the company (likely, the president and/or secretary). In my experience, this is first time when you’ll start questioning just how much control you’re willing to give up to your US team member.
The reason is the following: the bank will not allow you to be named as an officer in the company, because, if you are, it will require that you travel to the US and complete paperwork at the bank. Since you will not be an officer, the US team member will likely be the sole officer in the company, and have all executive powers, which can be a scary thought, especially since he or she will be the sole signatory on the bank account, and therefore will have access to all of the funds in that account, which will hopefully be a lot of money if your campaign is successful.
However, there are some ways to alleviate the anxiety you’ll experience at this point and ensure that you still have some control over the bank account. The first is to name yourself as the sole director in the company bylaws. Directors elect, and fire, officers, and therefore you could theoretically fire the US team member as an officer, if need be. You might also want to consider stating in the relevant corporate documents that the US team member / officer cannot make any transactions in the bank account without first obtaining consent of the sole director. Last, most banks will allow you to have web access to your accounts even if you are not an officer. With that access, you could still easily withdraw or deposit funds in the account without being any officer.
You will want to select a larger bank with an international presence — preferably with retail branches in your home country — and it is a good idea to select a bank with which your US team member already has a good relationship. The paperwork to set up the bank will include the Articles of Incorporation (or Certificate of Incorporation, in some states) and a valid EIN number. Some banks may require additional documentation.
Once the bank account is set up, funds should be deposited into the account by the foreign parent company, in order to adequately capitalize the US subsidiary company in exchange for the issuance of shares to the foreign parent company.
Step 3: Consider, and Address, Tax Issues
As with all startups, you’ll want to consult with an accountant before starting the US subsidiary to ensure that all necessary tax issues are addressed from the outset. One particular tax issue to keep in mind is how to get the income from the Kickstarter campaign back to the foreign parent company with as little tax consequences in the US as possible.
One way to accomplish this is to establish a contract between the parent company and the subsidiary company under which the parent company agrees to hire the subsidiary company to manage the Kickstarter campaign. Under that contract, all earnings from the Kickstarter campaign will belong to the parent company and the parent company will pay the subsidiary a management fee for its services in managing the campaign and then delivering the funds to the parent company. Just like all of the other steps above, you definitely will want to work with a lawyer and accountant to ensure that you paper this transaction properly, since, if you do not, you may have a huge tax bill to pay in the US if your campaign is successful.
Step 4: Register With Kickstarter and Authorize Amazon Payments
After you have all of that other background legal and accounting work addressed, then you’ll need to register with Kickstarter and have your US team member complete the telephone verification process. The US team member should also create an Amazon payments account under his or her personal name.
Once those steps are all done, then you should be ready to get started in running your actual campaign.
Other Miscellaneous Considerations:
– Do not allow the US team member to back the Kickstarter project by financially contributing to the campaign.
– The US subsidiary company must file Form BE-605 with the US Department of Commerce. This has nothing to do with launching a Kickstarter campaign, but Form BE-605 is required from every US business enterprise in which a foreign entity has a direct and/or indirect ownership interest of 10 percent or more of the voting stock. Many foreign companies that set up US subsidiaries miss this filing requirement altogether, and there are significant penalties for failing to make this filing.
– After the Kickstarter campaign is completed, the funds are transferred to the parent company, and tax issues are properly addressed, you’ll probably want to dissolve the US subsidiary company unless the foreign parent company intends to have a continuing presence in the US through that entity. If your US subsidiary company is an Oregon corporation, you can follow these steps to dissolve the corporation. If it’s in another state, the steps may be similar, but you should ensure that you complete the dissolution process properly.
Author: Andrew Harris
To continue reading more about the laws that might affect your business, please see the Articles page, or to simply see a list of helpful legal resources for startups and businesses, particularly in Oregon, please see the Legal Resources page.
If you need assistance with a particular legal issue affecting your business, particularly assistance in launching a Kickstarter project outside the US, please contact us and we will get back to you as quickly as possible.