Whether a general partnership, LLC, S Corp or C Corp many business owners have to move an existing business from one state to state. Reasons range from need for lower business cost, or need to increase revenue through more pro business states like Delaware, Wyoming, and Nevada, tax haven states . Whatever the reason, here's how to move a business from one state to another and things to consider when moving.
Once you decide to move, realize you'll be handling multiple tasks such as finding new office space or a reputable registered agent to send and receive legal or official paperwork. You must also deal with informing your customers of the move, and acquire new business licenses if required.
Moving a Partnership or Sole proprietorship The move is quite easy for both these business entities in terms of paperwork. You simply move and register to do business in that state by filing a DBA (Doing Business As). The business from the previous state will be dissolved eventually.
Moving a C corporation and S Corporation Moving a corporation requires more paperwork for tax purposes. When redomiciling your corporation to another state, you can choose one of three alternatives:
Keep the current business as is, including it's tax id, and expand it to another state by filing as a foreign entity (foreign meaning out of state). Dissolve the corporation in the current state and register as a whole new corporation in the new state using a new tax id. Do a reorganization by registering the same name corporation in the new state and merging the old corporation into it.
Detailed explanation on moving a corporation
Continuation of old state fees. Having your business registered in two states means you'll pay multiple fees to file annual reports and franchise taxes. One in the old state and one in the new. For out of state business owners who are registered in the tax haven states of Delaware, Wyoming, or Nevada, you're already considered a foreign entity since you actually live in another state. In this case you don't have to dissolve your business registration in those states, but simply register your new state location as the current foreign entity's mailing address. All official documents from your registered agent will then be forwarded to your new physical business location.
Taxes owed to the Federal Government. If you bring your C corporation to an end, better known as liquidation, you must redistribute the assets of that corporation to each person who owns a percent stake in that company, your shareholders. If those assets appreciated upon liquidation, each shareholder might be required to pay income taxes on them. However, S corporations are “pass-through” entities, and might not be required to pay income tax on assets given to shareholders.
Reorganization by merger. When a C corporation reorganizes, it merges the new corporation with the old one. There are no tax penalties during this process. Since the old and new business are simply becoming one, the federal government treats it as though there had been no change and charge no tax for the reorganization. The new business absorbs the old one, which will no longer exist in the previous state.
Cost to Dissolve a corporation. If you dissolve your C or S corporation to merge or register in a new location, you must dissolve the old one because it remains an active business. Dissolution differ from state to state, but usually require a fee to be paid for dissolution papers or forms to be filled out with the old state. You're also responsible for any outstanding taxes and fees to the old state.
If you're unsure about any of the procedures above for moving your corporation, it's highly recommended you contact a corporate lawyer who's very familiar with the process.
Moving an LLC (Limited Liability Company) to another state Limited liability companies have to make some of the same decisions as Corporations when moving to a new state, but they have other favorable alternatives for handling paperwork and tying up loose ends with state fees or federal taxes.
Here are the options for moving an LLC:
1. Keep the LLC in your old state and expand it to the new state by registering it as a foreign entity. You'll have to pay duplicate annual report and/or franchise tax fees. This also creates more end of year tax filing paperwork for each member of the LLC.
2. Dissolve the LLC in the old state and register a new LLC in the new state with new tax id. There are no federal tax penalties when dissolving your old LLC. Limited Liability Companies are pass-through entities and are not required to report any gains from dissolution.
3. Register a new LLC in the new state and have each member transfer their membership interest (percent ownership) from the old LLC to the new LLC in the new state.
4. Register a new LLC in the new state and merge the old LLC into it. In a merger the old LLC tax id will be kept and continued to be used for the merged entities, so no new federal EIN is required. There are also no immediate tax penalties during or after the merger only if LLC members from the company in the old state continue to hold at least a 50% ownership in the assets and profits of the LLC in the new state.