How To Incorporate A Business In A New State After A Move
Although this might seem overwhelming, with the right plan, you can do it. To help you create that plan, we’ll review how to incorporate a business in a new state.
When It’s Time To Move States
Despite the disruption and expense of moving, there are numerous reasons to make a move. New locations can provide strategic advantages such as lower costs, access to talent, proximity to profitable markets, and more.
Regardless of your motivation to move, though, the process requires planning. Depending on how you do it, incorporating a business can come with significant costs.
For example, if you dissolve your business without tax planning, you may be left with a big tax bill. You could also risk legal liability and penalties if you don’t dissolve your business according to state laws. Also, there are different ways to move your corporation or LLC to a new business.
Each method comes with different costs, benefits, and tax impacts. Plus, state regulations on how to incorporate a business vary widely. In some states, you can convert your corporation in the old state to a corporation in the new state. However, in other states, like California, this conversion isn’t allowed.
In short, business incorporation in a new state isn’t something to be taken lightly. There are important decisions you must make to set your business up for long-term success.
How To Move Corporations
Generally speaking, there are four ways to move a corporation. You can do it by:
- Filing your company as a foreign company in the new state.
- Forming a new company in the new state, acquiring your old company’s assets, and dissolving the old company.
- Forming a new company in the new state, acquiring your old company’s assets, and merging the two companies.
- Performing a foreign entity conversion (only available in some states).
Regardless of the option you choose, you’ll have to deal with similar issues. In the following sections, we’ll review what you need to plan for.
Dealing With Associated State Fees
There are a variety of state fees associated with incorporating a business in a new state. There are also fees for dissolving a business. You’ll need to be aware of these fees in both the state you’re moving from and the state you’re moving to.
There are also fees you must pay each year to maintain your corporation. This usually includes—at minimum—a franchise tax and an annual report filing fee.
Filing fees generally aren’t too expensive. However, franchise tax can range from a few hundred to a few thousand, so it’s important to understand what fees you’ll incur. Plus, there are fees you’ll need to pay in the future to maintain your corporation.
Issues Stemming From Federal Taxes
If you choose to create a new company and dissolve your old one, tax planning is critical. To dissolve your old company, you’ll need to acquire its assets with your new company. How you structure that acquisition will affect your taxes and your investors, if you have any.
Plus, federal tax implications are different for S corporations versus C-corporations. Put simply, federal tax issues can be a very big deal when moving your business. Therefore, it’ll be worth your time and money to consult with a business lawyer and tax advisor.
Only a trained professional can assess your situation and provide reliable advice.
The Need to Reorganize
If you abandon your old company and start a new one, you’ll lose your old company’s credit. However, by reorganizing, you can avoid this downside. It just means some extra steps.
To keep your old company’s credit, you must merge your old corporation into the new one. To do this, you’ll first need to establish a new corporation. Then, you must merge the old corporation into the new one.
In the state you merge your two companies, you’ll need to file Articles of Merger and pay a fee. When the merger is finished, your old company will no longer exist.
Costs Associated With Dissolution
Many business owners cease operations and believe that’s enough, which is a mistake. If you don’t dissolve your business properly, you leave yourself open to lawsuits, in addition to accumulating penalties and fines.
Of course, to formally dissolve your business, you’ll need to pay fees. The specific steps you must take vary by state, so make sure you research the process for your location.
However, regardless of the state, you’ll need to pay any outstanding tax bills. Otherwise, you’ll have issues formally dissolving your business. Moreover, if you’d like to merge your old company into the new one, the old company must be in good standing.
How To Move An LLC
If your business is structured as an LLC, the relocation process is similar. However, there’s more flexibility for reorganization. Regardless, you’ll want to plan carefully before making the move.
- Continue your LLC in the old state and do business as a foreign LLC in the new state.
- Form an LLC in the new state and liquidate the old one.
- Form an LLC in a new state and liquidate and merge the old one into it.
In the following sections, we’ll review each one of these options in more detail.
Option 1: Continuing Your LLC
If you’d like to continue your original LLC, your options are limited. To move your LLC to a new state without dissolving it, you’ll need to register it as a foreign LLC.
The rules for doing this will vary by state, so this page, which provides requirements for all 50 states, is a good place to start your research.
Regardless of which state you register in, though, you’ll have to pay annual fees and file a form. You’ll also need to pay any applicable state taxes. In addition to those fees and taxes, you’ll still need to pay taxes in your original state.
Option 2: Liquidating Your LLC
Rather than continue your LLC, you can choose to liquidate it. Once you’ve done that, you have two options: dissolve the LLC or merge it into the new one.
When you merge a liquidated LLC into a new one, you effectively dissolve it. The only difference between merging versus dissolving an LLC is the process.
With a merger, you must create a written plan of merger and get it approved by the LLC members. You’ll also need to file Articles of Merger.
Dissolving an LLC without the merger also requires member approval. Though the exact process for dissolution varies by state.
Forming A New LLC Post-Liquidation
After you’ve liquidated and dissolved your old LLC, you’ll need to form a new one. As mentioned, the process for establishing an LLC varies by state. Due to this, you’ll need to research the specific requirements for the state you’re forming an LLC in.
However, since you’ve already set up an LLC, the process should be generally familiar. You’ll need to:
- Choose a name.
- File Articles of Organization.
- Select a registered agent.
- Choose a management structure.
- Comply with state-specific tax and legal requirements.
- File annual reports and pay a filing fee.
Forming In A New State, Merging An Existing LLC
As we mentioned earlier, you can merge your existing LLC into a new one in a new state. In a merger, your old LLC will cease to exist and its debts and liabilities will transfer to the new one. By doing this, you can retain your company’s federal Employee Identification Number (EIN).
It’s also important to note that the merger will be tax-free, with one critical caveat. The old LLC’s members must retain at least a 50 percent interest in the new LLC’s capital and profits. Otherwise, you may have to deal with tax expenses.
Additional Tips And Pointers
- Talk to an expert
There are too many variables to create a universal, step-by-step guide to moving your business entity to a new state. Moreover, depending on how you do it, there can be significant tax and liability issues associated with a move.
With so much at stake, working with an expert is worth the expense. While their fees will pile on to other costs associated with your move, you’ll save money in the long term.
- Don’t skip steps
There’s no getting around it—moving a corporation or LLC to a new state is an administrative burden. Combined with the many other hassles of moving, this can make it tempting to skip steps.
However, the potential penalties and risks make skipping any step a bad decision. Without fail, you’ll end up worse off in the long run.
- Understand your options
Whether you work with an expert or not, it’s critical that you—as the owner—understand your options. Make sure you do the research and ask the questions you need to make smart, strategic decisions.
Plus, since you’ll need the approval of stakeholders in your business, understanding the options will help you communicate the plan.
When it comes to business incorporation in a new state, your most powerful tool is preparedness. The process isn’t always straightforward and there are multiple options. Complicating matters is that those options vary depending on your situation.
Choosing the best path forward requires an educated point of view and a long-term perspective. From there, it’s a simple matter of working your plan and completing the necessary steps.
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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.