How Do I Move My Business to Another State?
Moving your business is a complex decision. You must consider the costs, legal entity changes, and possible relocation of employees - and yourself! The legal type of your business will dictate how you make this change. We'll take the different legal types and look at some decisions that need to be made.
Business Type and States
Except for a sole proprietor business, your business type is formally organized under the laws of a specific state. If your business moves to another state, you have several options for moving the business to that state. This article discusses the business legal types (sole proprietorship, corporation, LLC, and partnership) and some options for changing your business type when you move to a new state.
Moving a Sole Proprietorship
A sole proprietorship business is considered the same legally as the business owner. A sole proprietorship files taxes under the owner's personal tax return, using Schedule C to calculate the business tax amount. Since the business and owner are the same entity, if the owner moves to another state, the owner simply informs the IRS of the move. There is no separate paperwork necessary to move a sole proprietorship to another state. William Perez, Guide to Tax Planning, has some tips on how to notify the IRS of your move.
When you move your sole proprietorship, whether it's to another state or another location outside your county but within your state, you will need to contact the county where you are moving and register your fictitious name/DBA with your new location.
Domestic and Foreign LLCs
A domestic LLC is registered in the state in which the LLC operates and has its primary location. The domestic LLC is the "default" status for an LLC. An LLC may also be registered in one or more other states in which it does business, as a foreign LLC. The regulations for domestic and foreign LLCs vary by state.
Options for Moving an LLC to Another State
Options for dealing with an LLC after a move to another state include:
- Continue the LLC in your old state and also set up as a foreign LLC in the new state
- Liquidate (close out) the old LLC in the former state and set up a new LLC in the new state.
- If your LLC has several members, you might want to form a new LLC in the new state and merge the previous LLC into it.
- Another option for multiple-member LLCs might be to register a new LLC in your new state and have members transfer their percentage of ownership from the old LLC to the new one.
Adding a Business Location
A major factor in your decision on how to deal with the move of your business entity should be whether your company will continue "doing business" in the former state. The concept of "doing business" relates to whether you are operating in that state, have locations in the state, or have a tax presence or tax nexus in a state. If you continue to do business in the old state, you might want to continue the LLC as a domestic LLC in the old state, and in addition, set up a foreign LLC in the new state.
You may want to continue your current Employer ID number, in which case you would need to continue the old LLC, possibly by merging the new LLC into the previous one. Read more about when you need a new Employer ID number,
As you can see from the options above, moving a multiple-member LLC is more complicated than moving a single-member LLC, because there are agreements and percentages of ownership involved. Keeping things simple may not be an option.
There may be tax consequences involved with moving a multiple-member LLC to a new state. For example, business income taxes will vary from state to state, so check with the revenue department or taxing authority of the new state or discuss the question with your tax advisor.
Your LLC operating agreement should probably be amended to include information about the new business location.
Partnerships and Corporations
Partnerships, like LLCs, have multiple parties (partners, in this case) whose interests would have to be considered in setting up a new partnership in another state. Likewise, moving a corporation to another state would be a complicated process.
IMPORTANT: It is best to begin discussions with your attorney before moving your business to another state, particularly in the case of multiple owner businesses, because, as you can see, there are several issues involved, and a discussion prior to the move could save you a lot of money and taxes.