Launching a new venture presents a host of challenges to entrepreneurs – from drafting agreements to creating prototypes and writing code. In the hustle and bustle of starting a business, it is wise that entrepreneurs take a step back and ask themselves: ‘where’ is the best place to establish this venture? It is important to identify the state or location that best matches your new venture and provides you with the most advantages not just in the short-term but in the long-term as well. With so many possibilities to choose from, how does one decide? The following list highlights some points that you should consider before proceeding down the path to registration.
Costs Up Front: As expected, the cost of registering a business (excluding name registration, IP protection, copyrights, etc.) varies across states. These filing fees range from a low of $50 to over $600 depending on the state. There are even additional costs such as California’s roughly $800 franchise fee which is due 75 days after formation. Some of these costs may seem trivial compared to the other costs you might face such as patenting costs. It is important to remember that investors tend to look at such things as your spending habits, and may even question your choice in paying high registration fees when there are certainly low-cost alternatives available – make sure you have some justification for your choice.
Taxes: Tax considerations often play a major role in deciding where to establish your new business. Most entrepreneurs look to Delaware for registering new ventures as a result of their favorable tax rates for various forms of businesses. However, while Delaware serves as a good default, as an entrepreneur you should check out other alternatives before making your decision since other states offer various incentives newly established businesses. Take New York State for instance: according to an article released this summer, the state recently implemented legislation designed to spur growth in the Solar PV industry. You can also check the recent state tax index publoshed by the Tax Foundation for more insight.
Growth: While it is tempting to think of growth in terms of sales/revenues, at this point you should think of growth in terms of your number of employees. Depending on the nature of your new venture you might wish to locate near invaluable sources of human capital. This may be one of the reasons that so many tech start-ups choose Silicon Valley to launce their businesses – there is always someone who knows how to write code nearby. Also, when thinking about growth Terry Brown, Executive Director of the Falcone Center for Entrepreneurship, says attention should be paid to your access to capital markets, since your ability to meet with and engage financiers conveniently can significantly affect your new ventures growth.
Access to Suppliers/Natural Resources/Technology: Depending on the nature of your new venture, it would be wise to consider what key inputs would be needed and how to best source those inputs. For instance, if your new venture involves a manufacturing process using lots of water, it may not be wise to set up operation in New Mexico or another overly dry location. It is for this same reason that we have seen many start-ups remaining close to colleges and universities that are pioneering new technologies so that they can not only be involved in the development, but gain an unfair advantage over competitors since they are more familiar with the technology and its applications. The same may hold true for suppliers, since it may be more costly for you to have materials shipped to one state versus another.
Not only can these considerations help develop advantages that can be beneficial in the future but they also help highlight important legal and operational aspects of the business that may have been overlooked. As such, it is important for aspiring entrepreneurs to not only consider these factors but discuss them in depth with legal mentors and advisors as well.