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Covering entrepreneurship and business start up questions for non-residents and US citizens.

 

Dec 16 2019

Favorite State of the Union 2020: Part 1

by John Gordon | 20:12 GMT

#FavoriteStateOfTheUnion2020 – The Criteria For Choosing A State In Which To Set Up A Successful US Business As A Non-US Resident

 

“In the Middle East, the business capital of the world is the US, and the business capital of the US is New York. This is why I chose New York to set up my business.”

Emad A., one of our long-time clients

When a US resident plans to set up a new business, they have the luxury of setting up where they live. The non-resident planning to set up a US business has the luxury of being able to set up a business in any state they desire. Often we are asked, “What is your favorite state?” or the related question, “Which state should I incorporate in?”

Each year, the US president starts make a speech called “The State of the Union,” in which he highlights the conditions of the country and takes credit for things going well. This year, we are using the opportunity to pick out a US state as our favorite “state of the union.”

Choosing a state in which to start can be complicated. There is no requirement to incorporate in the same state in which the business is located. If the laws, procedures and requirements of incorporation are too onerous, the business can set incorporated under the laws of a different state then registered to do business in the state where the business is located. Wherever the business is located, it must be registered to do business there or potentially face penalties. No matter what state you select,  you are subject to federal laws. States cannot override federal law.

When people refer to the United States of America, they mainly refer to the 50 States, plus the District of Columbia. For an entrepreneur or business coming to the US, it is best to think in terms of states, since to set up a business here you must choose a state in which to set up the business, and a state in which to incorporate the company. The states are quite a mix, ranging in size from tiny Rhode Island to massive Alaska, in population from California (highest, with almost 40,000,000) to Wyoming (smallest, with less than 600,000).

The strength of the US, and the source of its success, is its diversity. The country is not a one uniform blend of people and places. The people and the regions are very diverse.

So which State is best for the non-resident to set up in?

To us, a state is a favorite of ours when it lets a foreign-owned business grow and thrive. It must be easily accessible from outside the US, be a great springboard to other states, have low administrative and tax burdens and have a population that a business can draw from. To be honest, just because a state is not one of our favorites doesn’t mean you can’t be successful. Certain industries can do very well in states that are at the bottom of the list. Mining industries, for example, are best located in areas away from large populations.

So let’s see. What are the must-haves to be a favorite state to set up a business?

#1: Easy access to international flights

#2: Healthy market for expansion (population, education levels, access to capital, infrastructure)

#3  Innovation and business birth rate/lack of entrenched economic dominance

#3: Incorporation fees are low to moderate, fast set up, minimal information requirements

#4: Administrative burdens are relatively low

The most important must-have is direct international access. If you can’t get there, the rest is irrelevant. The Top 40 airports in the US are concentrated in just 25 states. Locating your business in a state with easy access to such an airport will be very important to you, especially if you need to return home frequently.

Second, if nobody lives there, and the few who live there lack education and practical skills, the ability of your company to grow will be limited. A high population with a great university system cranking out educated grads that can provide your management and specialized labor base is a must. Being in a media center doesn’t hurt either, or an area with many banks who want businesses to succeed, and are not wedded to the existing entrenched power structure.

The third and fourth points are because we have to explain to our customers what their requirements are to set up and maintain their companies, and this is easier to do for some states than for others. Each state makes up its own laws, procedures and fees for setting up and maintaining companies. Some states keep it fairly easy, while others impose quirky rules and extra requirements. Some states set up companies quickly and inexpensively, while others are slower and/or charge high fees. Many states have multiple levels of annual requirements, with franchise tax or corporate income tax returns on top of annual filings listing officers and directors. Thankfully, most states have already or soon will provide online filing options to avoid having to file paper returns.

What features prevent a state from being a favorite?

  • Poor infrastructure
  • Excessive cost of living
  • Poor environment
  • Historical Baggage
  • Anti-Immigrant bias

If a state (or locality) is burdened with any of these features, it is not likely to be springboard to your business’ success. The more of these factors in a state, the more difficult it will be to succeed.

Next Posting: How a “Favorite State” fits with our process of setting up a successful business as a non-resident.

 

John Gordon John Gordon

Founder, President & CEO of USA Corporate Services Inc., a New York City-based incorporation and company management firm. He is a graduate of the Global Executive MBA program from Columbia Business School and London Business School.

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