Business Law

Where Should You Open Your Small Business?

Now that you've made the tough decision to open your own small business, you've probably already considered what type of business form you want to use, like a partnership or limited liability company (LLC), as well as how you're going to finance the business and how you're going to sell your idea. But, have you considered an equally important question: where should you locate or open your small business?

You have some options, namely opening your business in the state in which you live, or some other state. Each state has its own laws and regulations on opening a small business, so be certain to check the laws of the state where you think you might open your business, or seek the advice of an experienced business law attorney before you decide where to locate your business.

In Your Home State

The first thing that probably comes to mind when you consider where to locate your small business is, "I'll open my business in the state where I live, of course." In many cases, this common sense answer is the best solution. The odds are that your small business will do all or most of its business within your home state, and you're not completely barred from doing business outside of your home state, so long as your careful.

Many small businesses must have licenses to conduct certain types of work, such as electrical or plumbing work, as well as various permits, such as a sales tax permit and a permit to operate a business. These licenses and permits are controlled by state and local laws, so be certain to check those laws before you open up for business.

If you open your business in your home state but think you might end up doing some business in another state, such as a neighboring state, you need to make sure that you have the proper licenses and permits to do the work in the other state. For example, a small heating and air conditioning business with employees licensed in one state are not necessarily licensed to do the same work in a neighboring state.

Outside Your Home State

Sometimes, it's not beneficial to open your small business in your home state. For example, if your profession or occupation requires a specific license that is governed by state law, such as licenses for attorneys and cosmetologists, your license, in most cases, is not good in other states. So, if you're a cosmetologist with a license issued by the State of Ohio, it makes a lot more sense to open your business in Ohio than it does to start a salon in the neighboring state of Indiana.

Setting It Up

Most small business are opened as a:

These types of businesses are created by filing certain forms with the appropriate state office or official in the state where the business will be located, and it's usually the secretary of state. Different rules apply to corporations, which are seldom used for small businesses.

Location, Location, Location

Once you've decided in which state to open your business, you need to consider where exactly your office or building will be. The actual location of your office can have a huge impact on the success of your small business. There are dozens of factors that you need to consider before choosing the site for your business, such as:

  • Zoning regulations, that is, are you allowed to conduct your type of business at the location you're considering? For example, you normally can't run a commercial business in an area that is zoned as "residential."
  • Is there street traffic that will make you business visible and accessible by the public, that is, your customers?
  • Are there other businesses nearby that offer the same products or services that you're going to sell?
  • Are you leasing property, and if so, how much is the rent? Have you reviewed all terms of the lease and considered whether the lease will suit your needs over time?
  • Is there room for your business to expand, or will you have to move if your business grows?
  • What kind of neighborhood is the property in? What are the demographics of the area in which you plan to locate your business? Will you rely on the local population to be your customer base?

Questions for Your Attorney

  • What can happen if I let my plumbers do work in a state where they're not licensed?
  • Can I open a small business in my home state and a second location or branch of the business in another state, all at the same time?
  • If my small business is not in my home state, to which state will I owe income and other taxes?
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