Sometimes a company decides to move to another state to reduce the cost of doing business or offer a superior quality of life for employees. There are a number of tasks that go into moving a business. These tasks include finding a new facility, coordinating staff, notifying customers, obtaining business licenses, applying for taxes and other incentives, and making the physical move. During this complex process, don’t forget to relocate your formal business entity.
Sole proprietorships and partnerships simply file a DBA after moving to register their businesses. If you are an S corporation, a C corporation, or a limited liability company (LLC), the moving process is a little more involved. Your business entity and the associated costs, benefits, and taxes will influence your decisions during this process.
Moving a corporation to another state
When you move your business to a new state, you must choose one of the following options.
Continue as a corporation in the old state and register as a foreign corporation while conducting business in the new state. This choice involves obtaining foreign qualification in the new state
End the corporation in the old state and create a corporation in the new state.
Complete a reorganization in which a corporation is created in the new state and the old corporation is then merged into the new corporation.
As you weigh your options for moving a corporation, take the following factors into consideration.
Ongoing state fees
When you maintain a corporation in the old state and register as a foreign corporation in the new state, you’ll be responsible for duplicate annual report and/or franchise taxes. When you are moving from Delaware or Nevada, most likely you already had foreign qualification in that state. If this is the case, you can register as a foreign corporation in the new state and end your foreign corporation status in the old state.
Federal tax issues
When you liquidate a business, the corporation and its shareholders may be responsible for income taxes. For example, when a C corporation with valued assets liquidates, it must report the earnings. If shareholders have stock that has appreciated and consequently, receive assets when the business liquidates, they must also report the income. S corporations are considered “pass-through” articles, which means that the corporation and its shareholders may not face any immediate expenses.
C corporations may face completely tax free reorganization, as there is no tax on merging an old corporation into a new corporation. For federal tax purposes, there has been no change in the business. However, after the merger, the merged corporation no longer exists in the old state.
When you dissolve a C or S corporation and create a new one or merge it into a new corporation, you must complete the formal process of ending the old one. This process varies from state to state. Typically, you must prepare dissolution papers or forms, file them with the old state, and pay any outstanding taxes and dissolution fees.
Moving an LLC to another state
Limited liability companies face similar options as corporations when they move, but have more choices for the organization of the handling. These choices are as follows.
Continue the LCC in the old state and register as a foreign LLC in the new state. This choice involves duplicate annual report and/or franchise tax fees. This decision may also make the process of tax filing and reporting for the LLC and its members more complex.
Liquidate the LLC in the old state and create an LLC in the new state. There are no federal tax penalties for liquidating an LLC. As an LLC is a pass-through article, it doesn’t report any liquidation gain.
Form an LLC in the new state and have owners or members pay membership interests from the old LLC.
Form an LLC in the new state and merge the old LLC into the new LLC. This process is considered a continuation of the old LLC. As such, it doesn’t require a new federal EIN. As long as LLC members from the old state still own a minimum 50 percent interest in the capital and profits of the LLC in the new state, there are no immediate tax penalties.
La Junta Economic Development (LJED) provides support during a business expansion or relocation. Situated in the wide open, great plains of Southeastern, Colorado, this town is in the heart of the Arkansas River Valley. We are focused on building a healthy, thriving business climate and social community in the area. As such, we strive to help people who want to come live in and contribute to our city. If you have any questions about moving your business, give us a call today at (719) 384-6965. You can also Contact Us via email.