Ask an Investor: Where is the best place to register my startup?

paperwork

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Seriously, as an entrepreneur who has incorporated businesses in Alberta, California, Delaware, Ontario and federally (I’ve also dealt with drop-down LLCs and a bunch of other funky tax planning vehicles), the best advice I can give you is kept is simple.

Register in the province or state you are in. KISS. Keep it simple silly. That goes for anything in your company that is non-core to your business. Your incorporation location is seriously non-core.

Early-stage Canadian startups should think twice about incorporating south of the border.

For early-stage startups, if you are incorporating — you probably are — don’t over-optimize for incorporation location. The headache of trying to deal with registrars in other states and tax filings in other jurisdictions is a total pain and a distraction. A pain and distraction you don’t need in the early year or hyper-startup growth.

Answering as an investor (since this is Ask an Investor), registration location can always be changed later. Registration locations change if and when it becomes a business prerogative to do so. The most common example is a Delaware business registration when venture capital money comes in from the US. Why Delaware? Because Delaware has the most comprehensive set of business laws — laws that generally protect companies and board members from shareholders and customers. Hence why those laws are attractive to investors, like VCs, who come in and take a minority position and a board seat.

In Canada, we don’t really have a similar arrangement with any one province. BC has some advantages for BC-based businesses with Angel Tax Credits for BC angel investors (why don’t we have this in other provinces? Good question). Federal incorporation has the dubious honour of protecting your name in all provinces. Dubious, because it costs more, requires more annual paperwork and name protection for early-stage tech startups is hardly a thing.

Lastly, early-stage Canadian startups should think twice about incorporating south of the border. Early-stage US investors don’t generally require US registration anymore, and the dual tax status will quickly become an annoying headache. While I’m not a fan of our SR&ED tax credit system, US registration may very well jeopardize your access to these Canadian tax credits.

KISS. Incorporate locally.


Sarah’s take

Sarah Marion

On the other end of the “simplicity spectrum,” I’ve recently seen more companies take a dual-incorporation structure. This constitutes establishing two sister companies that are owned by the same shareholders, one in Canada and one in the US (typically Delaware, for the reasons Christian outlined above).

The Canadian corporation typically owns the IP, maximizing SR&ED credits, IRAP funding, and CCPC status. The US corporation enables access to certain incubators that require US incorporation, coverage by Delaware’s comprehensive business laws, and less friction around recruiting US management talent (as well as sponsoring Canadian workers for US visas).

Again, this is the opposite end of the simplicity spectrum, so you’ll want extensive legal counsel before making this decision. Your life will get a bit harder – think reconciling your financials at the end of the quarter across both companies, dual tax filings, and many other financial complexities. But a dual-corporation structure might allow you to take advantage of benefits on both sides of the border.

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Photo via Unsplash

Christian Lassonde

Christian Lassonde

Christian Lassonde is the founder and managing partner of Impression Ventures, a venture capital firm focused on investing and leading deals in FinTech companies raising late seed to early Series A rounds. Her is a former founder, having built and sold Virtual Greats, a luxury online IP rights broker, and Millions of Us, a digital agency. Christian spent a decade in San Francisco building software for Second Life, LucasArts and Electronic Arts and selling solutions to Sony, Nike, Warner Brothers, General Motors, Coke, Intel and many more Fortune 500 companies. You can follow Christian on Twitter at @classonde