Imagine a scenario where you’ve got a cross-border team of founders considering setting up the business in either the US or Canada.  Why choose one over the other?

In a perfect world, you should register the business in the country where it provides you the most benefits including low taxes, access to government grants/loans, favorable corporate laws, and ease of activity.

The truth is, for a start-up business, you may be too early in your process to know where that place is. Therefore, I usually advise clients who are forming a new start-up business to register in their residential country. The reason is that if, at some point in the future after you are established, you wish to change locations, you can usually do. There will be some obstacles and costs to the switch, but if there are enough advantages, it can be done.

Couple points to consider when choosing between the US and Canada:

(1) VCs in Canada tend to prefer to invest in Canadian entities. Plus, oftentimes the investors in Canada will have some tax-reasoning for investing in a Canadian company. We have had to set up a US and Canadian sub to accomplish this. That said, there is more capital available in the US and US VCs most likely will only invest in a Delaware C-corporation (due to limitations in the types of entities they can invest in and their familiarity with Delaware corporate law).  So the short answer: If you are looking for US money, become a US company and if you wind up finding funding in Canada, set up the Canadian entity to make this funding work (this structure allows for funding from both US and Canadian VCs).

(2) If you are developing technology in the US, odds are that the most likely issue related to IP development will be had in the US. Therefore, most contracts that revolve around that IP (invention assignments, consulting agreements, etc.) will be done in the US and involve US law. Easiest not to hire both US and Canadian lawyers to review. Therefore, pick a US entity as your “base” since your technology would be developed there.  If you are developing technology in Canada and that will be the base of operations, then I would most likely advise the reverse.

(3)  If you are building a cross-border business, expect to have legal fees and expenses in each country where you operate. As a lawyer, I can’t make judgments on Canadian law nor could a Canadian lawyer make judgments on US law.  So be ready to deal with multiple lawyers if you operate in different jurisdictions.

Short answer here, unless you are planning on being a Canadian company — one that will raise fund in Canada (primarily) and operate a substantial chunk of its business in Canada, go with a Delaware c-corporation. Follow the money on this one. And, if things change, while it may not be simple, it isn’t impossible to switch or create a Canadian subsidiary for the business purposes.

Also, for a new start-up who isn’t certain to succeed or even know what it will do, go local which should be the cheapest and easiest option to consider. If you have a strategy in place for tax minimization or related to something similar, talk to your lawyer and accountant to make sure you set it up correctly. Either way, it will involve filings in both your residential and registration country — so be aware that it won’t be enough just to make an international filing — which means you’ll like have some filing due in both places.