Moving your business is a complex decision. You must consider the costs, legal entity changes, and possible relocation of employees - and yourself! Moving a business to a new state involves more than the usual changes.
Here is a checklist of all the changes you may have to make to your business with any move, even if it's just the street!
Business Legal Changes for Business Moves
First and most important, your business move to another state affects your legal status with both the old and new state. For most business types, the business must be registered with one or more states. A limited liability company (LLC), for example, must apply for registration by filing Articles of Organization with a state.
A sole proprietorship doesn't have to register the business with a state, so there are no state registration issues in moving to a new state.
Moving Your Sole Proprietor Business to Another State
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 a business to another state, the owner simply informs the IRS of the move.
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.
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.
Options for Moving an LLC to Another State
As an example, here are some options for dealing with the state registration issues for an LLC moving to another state.
- Continue the LLC in your old state and also set up as a foreign LLC in the new state.
- Liquidate (close) the old LLC in the former state and set up a new LLC in the new state.
- 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.
Changes for Legal Documents for a State-to-State Move
A move to a new state means new legal documents for your business because each state has specific requirements for these documents. Two kinds of documents need to be changed:
Formation documents. These are the documents you file to register with a state. Each state has different requirements for Articles of Incorporation (for corporations), partnership registration documents, or Articles of Organization (for LLCs).
Governing documents. You will also need to change the governing documents (bylaws for a corporation, operating agreement for an LLC, or partnership agreement for a partnership. These documents will need to be rewritten to meet the requirements of new state laws.
Go to your state's Secretary of State website for detailed information on the requirements for formation documents. You'll need to consult an attorney in that state for the requirements for governing documents.
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.
Don't forget to keep track of all expenses for your business move. Then check this article for information on what's deductible on your business tax return.
Begin discussions with your attorney and your tax professional about the effects on your business before moving your business to another state, particularly in the case of multiple-owner businesses and public companies. As you can see, there are several issues involved, and a discussion with your advisors before the move could save you a lot of time, harassment, money, and taxes.