Relocating a Company to a New State
Relocating your company? If you are moving to another state, you'll need to look into a few corporate structure issues before you relocate the business.
Relocating a company to another state sounds easy enough.
But, there are a number of corporate structure issues that you'll need to address before you bring in the moving trucks.
It's common for businesses to move from state to state to accommodate the owner's goals, reduce costs, or take advantage of a more favorable tax environment. Relocation is easiest for sole proprietorships and partnerships. Companies operating under these business structures only need to file a DBA in their new state.
Relocating a corporation, on the other hand, is a much trickier process. There are essentially three ways a corporation can relocate to a new state: (1) continue as a corporation in the original state and register as an outside corporation in the new state, (2) dissolve the corporation in the new state and reform as a new corporation in the new state, or (3) form a new corporation in the new state and merge the old corporation into it. Since each of these options has advantages and disadvantages, you'll need to carefully consider the possibilities before you make a decision.
Option 1: Register as an Outside (Foreign) Corporation
On the surface, maintaining the corporation in its original state and registering as a foreign corporation in the new state would seem to be the simplest option. But in fact, this form of relocation can be costly because you may be required to pay fees in both states. For example, if your corporation is a franchise, you will probably be required to pay franchise fees twice. You may also have to pay annual state fees in both locations and, even if you report no income in the original state, you will still have to file a return there. However, if your original incorporation is in a corporation-friendly state like Nevada or Delaware, there could also be advantages to maintaining your original incorporation.
Option 2: Dissolve & Reform the Corporation
Simply dissolving the existing corporation and creating a different one in the new state is attractive to many entrepreneurs because it represents a clean break. But unfortunately, the dissolution option can also have some devastating consequences. For starters, there could be significant tax consequences for owners and investors, especially if the business is a C corp. Since dissolution requires a formal process, there are also costs involved with preparing the appropriate forms and filings. Something else to consider is the impact dissolution could have on your employees benefits. Certain benefits (e.g. retirement plans) could be dealt a blow by dissolving and reforming in a new state.
Option 3: Merge the Old Corporation Into a New Corporation
There are a lot of reasons why many small- and mid-sized business owners elect to form a new corporation and merge the old one into it. Since the original corporation will ultimately cease to exist, the business can avoid paying fees in two states. Likewise, reorganizations (even in C corps) can be structured in a manner that is completely tax free. But no matter which option seems most appropriate for your business, it's always a good idea to consult a professional accountant or attorney for advice before you start the process.
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