The company’s home state is considered that of its creation. Nevertheless, as the LLC grows or due to some external circumstances, the owner may decide to relocate the business to another state. In this article, we’ll take a short look at the basic ways to transfer an LLC to another state, the forms needed for that, and some practical nuances.
Why Would a Business Want to Redomesticate?
During the development of an LLC, its goals and needs often change. For this reason, the owner can decide to temporarily or permanently change the state where the company is registered. The grounds for this may be very different. The most common ones are as follows:
- Changes in the industry state regulations, which have led to a greater number of legal requirements for conducting business;
- Another state offers a wider target audience base, which opens up new opportunities for the company’s future growth;
- The increased cost of renting and buying real estate adversely affects LLC profits and reduces the efficiency of its operations;
- The state has lost its allure for running a business due to additional corporate taxes or increased tax rates;
- A different state has tax benefits, which will favorably impact the company’s revenues;
- Relocation will improve the comfort level of the company owner and his/her family members thanks to having access to the best hospitals, schools, etc.;
- The availability of a vast labor market in another state, which will allow you to reduce the cost of hiring employees.
Options For the Process of Transferring an LLC to Another State
If you have decided to move your business to another state, you should consider all the factors to choose the best option. There are several ways, each of them has its pros and cons. Let’s go into this question in a little more detail.
Closing the original LLC and setting up a new business in another state
Once you feel confident that you no longer want to actively pursue your current LLC, it should be formally dissolved before creating a new one. The procedures and requirements for the voluntary closing process may vary from state to state. Nonetheless, the basic steps are usually universal.
Above all, you will need to study the formation documents or an Operating Agreement to determine the procedure for winding up. After that, you have to vote to decide whether or not to close the business and notify the creditors.
The central phase of closure involves the preparation and submitting of the documents to the state. The date of their approval serves as the firm’s official closing date. Thereafter, it operates only to pay off debts and distribute the remaining funds to the members.
After the formalities of the LLC dissolution are left behind, you can proceed with the establishment of a new business in your chosen state. This is an efficient way not to waste a lot of time and money on maintaining two active LLCs at the same time.
Setting up a new LLC without dissolving an existing entity
In case you want to operate in another state, but you don’t plan to cancel your already existing LLC, there is a convenient option. Just register your new venture in the state you want as a foreign LLC. As with the formation of a domestic business, you have to file the paperwork and pay the mandatory fee to obtain the foreign qualification. This title document allows the business to legally commence business. Furthermore, do not forget about securing all necessary licenses and registration to pay taxes.
As for the principal firm, you’ll also need to meet some state requirements to maintain its good reputation. These include maintaining a current registered agent, submitting regular annual reports, and paying taxes.
Provided that state legislation approves such processes, a merger may be the most feasible method.
Typically, you need to incorporate a new company and draft a written merger plan, ensuring that it is agreed upon by all members of an LLC. After a vote and approval, you should file a request for a merger with the Secretary of State in your desired state. Don’t forget to include a Certificate of Good Standing of your former entity with the paperwork.
As a result of the merger, the original business ceases to exist. However, you may continue to use your previous EIN and bank account, as well as maintain your existing business relationships and credit history. The new enterprise will inherit all the debts and liabilities of its predecessor.
What to Remember When Moving your Business?
Moving an enterprise is a huge decision. To ensure that everything goes smoothly, understanding the specifics of the process and its consequences is essential. We have prepared a shortlist of considerations to keep in mind if you intend to relocate your LLC.
- Follow all the stages of the procedure consistently.
Consider carefully the pros and cons of relocating your business to make sure it is truly the best solution. Make a plan and don’t rush to close your company before another state approves the new business registration or merger.
- Learn the rules regarding transferring an LLC in the state of your choice.
The laws of each state differ. Not all of them allow mergers. Some states will require you to first close your original LLC before you incorporate a new one.
Fortunately, most states support mergers, saving you time and money. You can take advantage of this if you plan to establish a company in one of the states listed below:
- District of Columbia;
- New Hampshire;
- New Jersey;
- South Carolina;
- South Dakota;
Knowing the requirements of a particular state in advance will help you choose the most effective course of action.
- Make sure you understand all the implications of the merger.
Getting a foreign qualification or starting a new business is not the same thing as a merger.
A foreign qualification stands for a way of expanding the business by creating a new LLC in another state in addition to the main venture. On the other hand, with a merger, the original company stops existing. However, its debts and liabilities do not disappear, passing down “by inheritance” to the new LLC.
- Check the state’s current licenses and permits.
Although licensing is not a prerequisite for launching a business, it is still relevant to most companies. The number and class of licenses are based on the industry and the location of the enterprise, thus you should thoroughly look into this issue.
Please remember that trying to run a business without licenses or permits puts your LLC at risk.
- Comply with current state requirements.
To get started, you will probably need to register for taxes. The most common ones include income tax, sales tax, and unemployment insurance tax.
- Secure a commercial bank account.
To maintain limited liability, the assets of the LLC should be segregated from the owner’s personal funds. If you don’t have a business checking account opened in a national bank, you will probably need to choose a different bank in the new state.
- Notify the IRS.
For the state to have up-to-date information, inform the IRS of your LLC’s address change. It will indicate the correct business location for the EIN and other taxpayer identification numbers.