What is the best state to set-up your company?
This question is essential. It must arise from the beginning of your project. The success of your company may depend on that. Making the right choices upstream can save you a lot of trouble!
There are many variables to take into consideration, among which it is possible to list:
Tax aspects
Legal aspects
Costs of living
Economic factors
Quality of recruitment
Geographical distance from French company
Time differences
The costs of setting up companies in each state can also be considered, but they are generally insignificant, especially compared to the challenges caused by the factors mentioned above.
Please note that the incorporation/formation of the company in a state does not entail the obligation to carry on business in that state. All you have to do is apply to be authorized to do business in the desired state.
The State of Delaware and its legal attractions
Most foreign companies are incorporated in the state of Delaware because its law is considered to be the most liberal of the United States. Cases relating to corporate law are quickly resolved by a competent judge and not by juries.
In addition, most American investors are familiar with the laws of that state and are more inclined to invest in a company incorporated in the state of Delaware. Knowing that corporate law is governed by each state, it is important to take this factor into consideration.
California and Silicon Valley
Ease of recruitment is essential for a growing company. Silicon Valley is known to have a talent pool in science and technology sectors.
In addition, the largest digital companies and the largest investment funds operate from Silicon Valley.
Also, many French start-ups have chosen to set up in Silicon Valley, which makes the French community important there. This network can facilitate integration and access to a professional network.
However, the cost of living is remarkably high there, which means that you must pay your employees accordingly. The price of office space is also important, especially since the Sales Tax is not deductible in the United States and is added to the cost of all purchases. In California, it is 7.25% while some states do not impose it.
Finally, we must consider the time difference with France which is important since it is nine hours, and also the flight time of a direct Paris - San Francisco which is about eleven hours.
New-York and its many advantages
Life is not cheaper there than in California. Rents, hiring and sales tax (8.875% in New York City) are very high. Recruitment is also easy and the French community large.
However, the main advantages compared to California are the time difference with France which is less important (six hours) and the duration of a direct flight Paris - New York which is about eight hours only. Flights are also very frequent, and many low-cost airlines have recently developed.
Being able to facilitate communication and exchanges with the French company is essential in order to be able to respond quickly to any issues that may arise.
Focus on state taxation
Tax law depends on the laws of each state and can be a criterion in the choice of the state where the company should form/incorporate itself.
Six states do not levy corporate taxes: Nevada, Ohio, South Dakota, Texas, Washington and Wyoming. Among these, Nevada, South Dakota, and Wyoming also do not levy personal income tax. Only Federal tax is then due.
But be careful, it is not because you create a company in one of that states that it will not pay taxes! Since the company will be subject to the legislation of each state in which it operates, it will have to pay taxes in the states where it achieves a certain turnover, has employees, fixed assets or offices for example.
Do not get yourself wrong because the advantages represented by the tax law of certain States are often misleading. By incorporating your company in a state in which no operations are conducted, your company may find itself paying taxes that it could have avoided paying.
Tax amounts should not be the primary factor of choice for a company that is conducive to multi-state development. A good short-term solution can turn out to be bad in the long run. If there was a tax aspect to consider, it would probably be the Sales Tax because this can play a role in the final price. Sales Tax generally varies between 0% and 10% depending on the states and cities.
Conclusion
In sum, there is obviously no miracle solution to the choice of the state, which would be suitable for all situations. It is up to the entrepreneur to think about his/her priorities and communicate his/her wishes to his/her CPA so that he/she can guide him/her in his/her choice as best as possible. Of course, care must be taken to lower costs in all areas because competition is very stiff in the United States, but this should in no way slow down the expansion of the company. The choice of the city of establishment must be made according to the activity carried out and / or the service sold and staff requirements.
