Revisiting “Should I Incorporate my Canadian Startup in Delaware?”
It seems Canadians are still wrestling with whether to incorporate their startup in Delaware. I wrote about this question back in September 2014 and since then the post has racked up over 1,000 views. Back then, I concluded with this piece of advice, which I still stand by:
Don’t lock yourself into Delaware before you know where your investment comes from. Based upon the cost and complexity of operating a Delaware startup from Canada, I recommend that you incorporate in Canada at the start. Where a future U.S. investor requires you to incorporate in Delaware (or another state) your legal advisors can assist with this transition. Conversely, Canadian investors may prefer to invest in a Canadian company!
Tip: your product/service is important, not the place of incorporation.
In addition to the legal, accounting and immigration reasons I raised in support of initially incorporating in Canada, I wanted to revisit this question and point out the various incentive programs only available to Canadian companies:
1. BC EBC Tax Credit. This tax credit grants investors in eligible business corporations (EBC) a 30% refundable tax credit for their investment (up to $60,000 annually). This program is only available to BC or federally incorporated companies. BC angel investors quite like this program and it can often serve as an incentive for investment – an incentive that is lost should you incorporate in Delaware.
2. Industrial Research Assistance Program. Otherwise known as IRAP, the program provides companies with non-refundable funding under 4 different arms, including grants that can cover substantial portions of your company’s labour or R&D costs. This program is only available to provincial or federally incorporated companies. Again, if you incorporate in Delaware you lose access to IRAP funding.
The above are two examples among many programs, both federal and provincial, that require recipients to be Canadian companies. When choosing where to incorporate, consider the benefits that are available to Canadian companies that are lost if you incorporate a Delaware company. While I’m not averse to incorporating in Delaware, I am averse to incorporating in Delaware for the sake of emulating other successful U.S. startups without considering the costs/benefits of this decision.
As I concluded two years ago: incorporate in Canada first. If your jurisdiction of incorporation needs to change this can be easily accommodated in the future.