By Lior Leser
Every journey, even an entrepreneurial one, starts with a first step. Every new product, innovative service or groundbreaking technology starts with the formation of a company. Forming a company, forces us to move beyond the theoretical, the idea. It enables us to create a concrete vehicle in which to form, crystalize and enable our dreams. More so, forming a company, provides the us with many important legal benefits; chief among these are (1) limited liability (2) tax benefits and (3) deduction of expenses. But where should you form the company?
Most entrepreneurs know that they need to form an entity. What few understand is in what state should they form their next tech startup? Many are advised to incorporate in Delaware. Others are intrigued by having a California or New York company. Most are surprised to find out that Florida is one of the best and most popular states in which to incorporate tech startups.
Technologies startups are unlike startups in most other industries. The tech industry is unique in allowing successive failures and missteps to grow into tremendous successes. In many industries failure can be hard to overcome. Failure brands the individual and makes him less likely to attract talent and funds in the future. Not so in technology. One of the keys to success in technology is the ability to innovate, execute and most importantly pivot.
Entrepreneurs are continuously challenged to develop new and innovative products and services with full knowledge than many, if not most, will fail to gain market traction. What professional investors backing these startups are looking for in entrepreneurs is the ability to execute, learn and where necessary change. The ability to realize as quickly as possible where failure lies can often be the key to future success.
In a few states, Florida included, the legal environment supports this unique take on corporate evolution and growth. In these states, forming a corporate entity is (1) inexpensive (2) quick (preferably online)(3) and can easily be accomplished by the entrepreneurs themselves.
The reality is that across the 50 states, Florida stands among only a handful of states that enable tech entrepreneurs to quickly, easily and inexpensively form companies. Today, California claims it takes about a week to form a company. In my experience, it can take as long as a couple of months. In comparison, in Florida you form a company immediately and receive a confirmation by email the next business day.
In Delaware and California, all company formations are submitted in writing. Legal documents together with a cover letter must be typed, submitted by mail and use explicit formatting styles delineated by the state. In comparison, in Florida company formation can be done online using a simple fill in the blank format. No complicated legal forms need to be drafted.
In Florida, entity formation fees are straightforward. Forming a corporation costs $70 and forming a limited liability company (LLC) costs $125. In California, in comparison, forming a corporation costs $100. When forming an LLC in California, you pay $70 at the time of formation but are also likely to face a minimum tax of $800 a year. In NY corporate formation costs $125 and an LLC costs $200 for formation and an extra $50 for a required newspaper publication. In Florida the process is just simpler, faster and cheaper.
It is important to accept the possibility that the company you form today is not likely to be the one where all your dreams are realized. Spending weeks on forming the company, expending resources on drafting legal documents is likely to result in wasted efforts. You can imagine that if you had to do this multiple times, the legal process is even worse.
Everyday I speak with tech entrepreneurs struggling to get their next big idea off the ground. When they ask about where to form their next venture, I always recommend Florida. We are lucky to live in a state that long ago invested in the tools needed to enable quick and inexpensive corporate formations. The unintended consequence of this was that Florida has quickly become one of the best places to form new tech startups. Add to that the state’s favorable tax code and one of the strongest corporate shield laws protecting your personal assets, and it is easy to see why entrepreneurs across the US flock to Florida to form their new companies.
So head out to www.sunbiz.org. Start a new company and execute on your great idea. If you need to pivot or close down an entity as a stepping stone to the next idea, feel assured that forming the next company will be just as easy, quick and inexpensive. And when the day comes when ideas, execution and opportunity converge and a venture capital firm is ready for a multimillion dollar round, rest assured that, if needed, you can move your company to another jurisdiction, like Delaware.
Lior Leser is an attorney trained at Stanford Law School and licensed in Florida and California. He works predominately with technology startups. If you have any questions about this or any other tech startup topic, feel free to reach out at lior@lwesq.com.