According to a recent survey of CEOs, if you’re trying to decide which state to start or expand a business, California is rated as having the worst business climate in the U.S. due to factors such as business regulations, tax policies, cost of doing business and workforce quality. Texas was rated as the #1 state in the U.S. for doing business,due to its perceptions as a business friendly state with low costs of doing business, ease of regulations and low taxes.
There are many factors that go into determining whether a state is “good for business” or “bad for business,” and the full truth is more complicated than any single list or survey. I’ve lived in California most of my life, and my husband Phil and I have started two businesses here – and we’ve helped thousands of other California entrepreneurs start a business with our online incorporation services.
Even though this survey of CEOs says that California is the “worst” and Texas is “best,” every individual entrepreneur needs to decide for themselves which state is the best place to incorporate and start a business.
Every state has its advantages and its disadvantages to any small business owner setting up a business, and I don’t think there is anyone state that is the absolute “best” place for all types of businesses and all circumstances. If you are a small business owner, chances are that you do not have as much flexibility and discretion in deciding where to set up your new business. When you run a small business, it’s not like being the CEO of a big company where you have to decide where to locate hundreds or thousands of jobs (and it’s not like you have to deal with the bigger regulatory complexities that go with being a bigger company).
With respect to California, if you’re a small business owner with a physical presence in California and running your business operations in the state of California, then it’s best to incorporate in California. Even though this CEO survey is critical of California’s business climate, California is still a big, wealthy, highly entrepreneurial state with a lot of opportunities.
As far as advantages of incorporating in California, the state provides the small business owner with various choices of how to set up and get their business legal and in my opinion the Secretary of State’s office and other regulatory authorities are very flexible about helping entrepreneurs get established.
The one thing that I would most like to change about California’s business climate is the franchise tax fees, which are higher in California than in many states. Currently, if you are setting up a corporation or LLC in California, you are bound to pay an $800 franchise tax fee each year. This can be a hardship for some new businesses that are just starting out – and I think California could help encourage new business formation by reducing or waiving that $800 fee, at least for the first year or two.
Regardless of which state you’re in, the most important factors in the success of your small business are your own hustle, dedication, energy, ingenuity and love for your customers and your industry. The most important business climate is inside of you.