Relocation of a company to another federal state

In this final post in the conversion series, we reveal what you need to know to help your clients relocate their businesses from one state to another.

Your customers can have many reasons for relocating their business to another state: better market opportunities, more potential customers or access to a more qualified workforce, just to name a few. Or your client may prefer the small business tax break or small business incentive in another state. The reasons for moving can be personal: closer to extended family, cheaper housing (or cost of living) or even a better climate.

Whatever the reason, your business client may not understand that the ease or complexity of moving their business to another state depends on the legal form of the business.

sole proprietorships and partnerships

Moving a business to another state is relatively easy for clients operating “non-entities” such as sole proprietorships and partnerships. Sole proprietorships and partnerships do not have to register with the state when they are founded. However, they must terminate all current local business licenses and permits and then apply for new ones in the new state and municipality to which they have moved. Your customers also have other business obligations to meet, such as: B. the payment of outstanding debts such as sales and payroll taxes.

If the sole proprietorship or partnership operates under an assumed name and does business as (DBA), the owner must withdraw the name from the Secretary of State’s office. If the business owners want to use the DBA in the new state, they must do a name search and reserve the name in the new state. If the company’s commercial bank does not have a branch in the new state, they will have to close their business accounts and find a new bank to open them again. Finally, the Internal Revenue Service (IRS) must be notified of the company’s relocation to ensure that the Federal Tax ID or Federal Employer Identification Number (EIN) on file reflects the updated business address. Customers should use Form 8822-B to report the change of address.

And if the move takes place in the middle of the year, your customer will of course have to file tax returns in both states.

Corporations and LLCs

Since corporations and limited liability companies (LLCs) must register in the state in which they are incorporated, the process is a bit more complicated. Once your clients decide to relocate their corporations or LLCs to a new state, they have two choices. They can either 1) dissolve the corporation in their old state and apply for reform in the new state, or 2) keep the original state as the corporation’s home state and apply for a foreign degree in the new state.

Applying for a foreign qualification makes sense if your client still plans to do business in both the state they left and the state they are relocating to. If this is the case, your client will need to contact the new state’s State Department to understand the correct foreign qualification process. Typically, your customers can register for a Certificate of Authority online or by mail and pay the appropriate fees. Some states require proof that the company is in good standing in its home state, which means it has complied with incorporation protocol and has paid its taxes.

Your customer must provide details about the company, such as the company name, a list of the company’s officers, the country of residence, stock information (e.g., number of shares authorized, etc.), local mailing address, and registered agent. Registered agents are persons or companies authorized to receive service of process (legal documents and regulatory notices) on behalf of a company.

However, if your client does not plan to conduct business in the original state, it makes more sense for them to permanently close the business there and then register a new corporation or LLC in their new state. Although protocols for closing a business vary from state to state, most states require the following:

  • All directors of a corporation or LLC must consent to the closure and relocate to another state. In addition, the agreement should be recorded in the minutes of the meeting and signed by all parties.
  • Incorporated companies are also required to submit a “Certificate of Termination” or “Certificate of Dissolution” to the Secretary of State. The same applies here: Before a state dissolves a company, the company must be sound.
  • The corporation or LLC must also pay all of the corporation’s debts and any remaining assets must be distributed to the members/owners. How the LLC files its taxes determines whether taxes are due on the distributed assets.

Once the business has closed permanently in the previous state, business owners must re-register in the new state by reserving a business name, filing a memorandum of association, and acquiring the necessary business licenses and permits.

Legal conversion or domestication

Another alternative to changing the status of a company’s incorporation is a legal transaction known as conversion or domestication; however, not all states offer this option.

Conversion/domestication (also known as redo-domestication) frees the company from having to start over and form a new LLC or corporation in its new state. After the entity has completed the conversion/domestication process, it no longer exists in the previous state.

In the states that allow redomestication, the process is straightforward. Companies apply for remodeling/domestication in the new state by submitting articles of domestication—or articles of continuation. As a rule, the company must submit a certificate of non-objection from the original status of incorporation and a copy of the liquidation form from the previous status. Once the relocation is approved by the new state, the corporation dissolves the corporation in the old state by filing an Article of Dissolution.

States that allow domestication include:

  • Arizona
  • California
  • Colorado
  • Delaware
  • District of Columbia
  • Florida
  • Idaho
  • Indiana
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts
  • Maine
  • Mississippi
  • Nebraska
  • New Hampshire
  • New Jersey
  • Nevada
  • Pennsylvania
  • South Carolina
  • South Dakota
  • Texas
  • Utah
  • Virginia
  • Washington
  • Wisconsin
  • Wyoming

Payroll requirements

In most cases, when a company employs workers in a state, the employer must register the company with that state’s Department of Treasury and Labor Office. Employers must comply with the rules and regulations that affect workers in any state where that worker makes money for the company, even if the company is not physically located in the state. Payroll tax responsibilities include reporting employee income taxes to the state and contributing to payroll taxes such as Social Security and Medicare. Each state also requires employers to contribute to the state Unemployment Insurance (UI) tax. UI is a federal, state-run program that provides temporary payments to unemployed workers whose employment status is not a result of their actions.

Some states have reciprocal agreements for employers in multiple states. In these states, taxpayers who live in one state and work in another can apply for a tax exemption exempting them from paying taxes in both states.

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Your customers need to carefully plan their business moves. You can help by educating them on the steps needed to get their businesses into a new state.Nellie Akalp is a passionate entrepreneur, small business expert and mother of four. She is the managing director of CorpNet.com, a trusted resource for corporate formation, LLC filing, and corporate compliance services in all 50 states. Nellie and her team recently launched an affiliate program for accountants, accountants, CPAs and other professionals to streamline the company formation and compliance processes

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