Over the past few years, many business owners have moved away from the state where they started their companies. For some companies, this arrangement doesn't affect how they do business as they provide goods or services nationwide. In fact, many businesses will utilize the corporate law of a different state when forming their companies to take advantage of certain provisions of that other state's laws that would be helpful to them. Traditionally, this is when you run into companies that are formed in states like Delaware, South Dakota, Wyoming, Nevada, and New Mexico, even though the company has no real connection to those states. If your business has gone this route, then moving your company to a new state may not be on your radar.
However, for other businesses that were formed in the state where they started, moving to a new state can often provide an opportunity. One of the most common opportunities my clients encounter can be the tax system in the new state is more favorable to your business (and you individually) than your old state. In that situation, your first call should be to your accountant to make sure you understand the tax advantages or disadvantages to moving your company to the new state. If your accountant is on board, then the next step is to make sure you follow the legal process to move your business to the new state, which is called domestication.
Domestication of a business entity is a legal process that allows a company to change its state of incorporation while maintaining its legal identity. This process involves officially dissolving the business in one state and domiciling it elsewhere, subjecting the company to the laws, regulations, and compliance requirements of its new home state.
Is Domestication the Right Choice for Your Company?
Before you begin the domestication process, you need to determine whether this is the right choice for your company. A domestication is only an option in about half of the US states.
Domestication is a viable option for companies that want to move their headquarters or primary operations to another state. This process can help companies reduce costs, take advantage of tax incentives, or access new markets. Additionally, domestication can help companies comply with the laws and regulations of their new state, reducing the risk of legal disputes. Using the process, you won't need to get a new Tax ID from the IRS, you'll be able to continue using the one assigned to your business.
However, domestication may not be the best option for all companies. Domestication can be a complex and time-consuming process, involving legal and regulatory requirements that vary by state. Additionally, domestication can be costly, involving fees for legal, accounting, and regulatory services. Therefore, before you begin the domestication process, consult with legal and financial experts to determine whether this is the best option for your company.
The Domestication Process
Once you have determined that domestication is the best option for your company, you need to follow the domestication process. The following steps will guide you through the process:
Step 1: Research Your New State's Laws and Regulations
Before you begin the domestication process, you need to research the laws and regulations of your new state. Each state has different requirements for domestication, so it is crucial to ensure that you comply with all the legal and regulatory requirements. Additionally, you need to research the tax laws of your new state to determine whether this move will result in any tax benefits or obligations.
Step 2: Obtain Approval from Your Current State
Once you have researched your new state's laws and regulations, you need to obtain approval from your current state to domestic your business entity. This process may involve filing articles of domestication with your current state's secretary of state and paying fees. Additionally, you may need to obtain approval from any creditors or shareholders who have a stake in your business.
Step 3: File Articles of Domestication with Your New State
After obtaining approval from your current state, you need to file articles of domestication with your new state's secretary of state. These articles should include information about your company's name, address, and other relevant details. Additionally, you need to pay fees and comply with any additional legal and regulatory requirements of your new state.
Step 4: Update Your Business Records and Documents
Once you have filed articles of domestication with your new state, you need to update your business records and other documents with your current state.
How Do I Get Started?
The first place to start in this process is to make sure that your current state and the new state will allow for the domestication of your business. If they will not allow it, you'll need to alter your approach and will likely need to open a new company in the new state and then close down your company in your current state. You'll want to make sure you are working with professionals so that you can get these steps correct.
One simple mistake you don't want to make is to shut down your company in the current state before your new company is open in the new state. Doing so creates a window of problems that you don't want to expose yourself to.
Do I Need a Business Attorney?
If you or your business needs help with the domestication process, it's important that you talk to a business attorney. Let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.