Formation - Location

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One of the earliest decisions an entrepreneur has to make is formation location. Formation location is simply the jurisdiction wherein the entity is formed or incorporated. For most start-ups, this is a simple choice: the entity will be formed under the laws of whatever state the entity will be doing business in.

If the business will be functioning across state lines, will have facilities in several states, or is starting out as a larger operation, a choice will have to be made. 

This choice should be guided by, among other things, tax structures, ease of incorporation, reporting requirements, and convenience.  Incorporation in one state usually will not preclude doing business in another, although there will be registration and licensing requirements in other states. Usually, the location of formation will not require the “home office” to be in that state. If there is not an actual physical location in the formation state, a resident registered agent may be required.

Because different states do have different tax corporate tax structures, care should be taken to find the most favorable for the entity and its owners. Many venture capitalists, or incubators will have solid advice and suggestions as to what is best.  In making the selection, it is well worth seeking advice from a good accounting firm.

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