In real estate, the rule for successful acquisition and development is humorously stated in three identical terms: “Location. Location. Location.” In early stage strategizing, the same three terms apply. Since emerging growth companies (abbreviated as “EGCs”) are often virtual companies in whole or in part, the founders can often, within limits, pick and choose the location of the principal place of business. The trick is to do that right.
An intelligent choice is based on a thorough search of a variety of potential locations. The issue is not propinquity to rail terminals, airports, and interstate highways nor, for EGCs typically, the local tax rates on EGC profits. Rather, one needs to research the level and availability of governmental and non-governmental assistance … typically, but by no means exclusively, tax credits. In that regard, the question is whether (a) the credit is applicable to and only to the EGC in question … a trivial benefit unless the EGC is likely to enjoy taxable income in its embryonic stages; or (b) whether, as in Louisiana respecting digital IT companies, the tax credits are transferable, meaning they can be sold off to, say, a domestic insurance company for, say, 85% (+/-) of the credit’s stated value.
The benefits can vary from jurisdiction to jurisdiction or within a specific jurisdiction. A client of mine elected to move its headquarters out of Third Avenue in New York City because the rent was too high. As luck would have it, reasonably affordable space was located in Queens. After the move was accomplished, and I am not sure management and/or counsel were aware of the benefit in advance, a check from New York City arrived in six figures: The reason … a company departing from one borough in New York and electing to relocate not outside the city but rather to another borough triggered a six figure reward.
Obviously, sourcing the location of the EGC entails a number of other factors beyond support from government agencies and proxies for those agencies, the latter consisting of not-for-profit organizations focused on economic development in low income areas. But, the first step is to put the required elbow grease into canvassing the market and, in the process, separating out the real from the trivial … “strategic” advice vs. cash on the barrelhead. In fact, some of the benefits require considerable amount of time and effort (and time is usually a luxury the founder does not enjoy) to get the job done.
There are providers which will help EGCs through these processes; but they often cost money. Again, the challenge to the founder is to understand what these programs entail and, when selecting the EGC’s law and accounting firms, pick those which can help in that regard. Certain other benefits are also in the mix … SBIRs for example … which are not dependent on location. That said, the homework assignment is to look into all of them.
Joseph W. Bartlett, Special Counsel, McCarter & English, LLP