How to move your business to another state

Businesses may decide to move between states for a wide range of reasons, from seeking new markets to finding more affordable real estate. The rise of remote work has made it easier for many businesses to operate with far-flung employees and customers.

Whether a business must uproot a massive operation or simply take a laptop to a new state, it needs to plan how the business entity can legally move between states. The business could dissolve in the original state and re-form elsewhere, or it may be able to transfer between states without dissolving. Let’s guide you through the process.

Reasons to Move a Corporation or LLC From One State to Another

Many businesses can operate in new states without needing to physically relocate. If you are considering moving your business to a new state, it is important to consider your reasons for doing so. The benefits of a physical move should outweigh the costs.

Common reasons for relocating a business to another state include:

• You and Your Family are Relocating: If you’re moving to a new state for personal reasons, it might make sense to move your business entity, too.
• New Markets: You might be pivoting your business to new markets that aren’t available in your current state.
• Better Business Opportunities: The market for your business might be slowing down in one state, but growing in another.
• Cheaper Real Estate: The allure of lower-cost land or office space can be a strong reason to move.
• Better Tax Laws: States often compete to attract businesses with favorable tax laws.
• More Suitable Workforce: You might need employees with certain skills, experience, or education. They may be more readily available in another state.

How to Do Business in Another State

It isn’t always necessary to move your business entity to another state, even if your operations move there. A corporation or LLC can do business in multiple states by registering as a foreign business in the new state. In this case, “foreign” means across state lines within the United States, not across international borders.

Registering as a foreign business in a new state can have some advantages over relocating the entire business:

• Maintain contact with the original state: Your business will still have a presence in the original state.
• Simpler transition: Moving an LLC or corporation between states can be complex. Foreign business registration is often much easier.

However, it can also have disadvantages, depending on your business goals:

• Compliance requirements in multiple states: Your business must file paperwork, pay franchise taxes, and maintain a registered agent in both states.
• Continued legal obligations in the original state: If you’re moving for better laws in the new state, foreign registration will still tie you to the original state’s rules.
• Potential legal complications: Different state laws may affect how you do business. It might be simpler to make a clean break and move your business entirely.

How to Move a Business to Another State

If, after careful consideration and consultation with a business attorney, you have decided to move your business to a new state, you may have several options. It will depend on the laws in both states and your specific situation.

Option 1: Dissolve and Reform the Business

The most thorough way to ensure that your business complies with the new state’s requirements is to form a completely new business there. You would then dissolve the original business. The main advantage is that you get a clean break from the original state’s laws and regulations. You’re essentially starting over in the new state.

This method has some disadvantages:

• Business dissolution: Dissolving the old business requires settling all debts, winding up operations, and distributing all assets to the business owners.
• Tax liability: You may need to pay taxes on valuable assets moved to your new business. For example, if your business bought something for $5,000 and it’s now worth $10,000, the $5,000 gain may be taxed.

Option 2: Reorganize and Merge the Business

Another option is to form a new business entity in the new state and merge the old one into it. The old entity’s assets, liabilities, and contracts can transfer to the new business.

You must follow the business merger laws in both states. This could create complications if the laws differ significantly.

Option 3: Convert or Domesticate the Business

The simplest option may be to transfer the business entity directly to the new state. This process is known as conversion in some states and domestication in others.

However, there is a major limitation: Not every state allows conversion or domestication. For it to work, both states must allow it. Currently, at least thirty-five states and the District of Columbia allow some form of this process. That leaves about fifteen states that do not.

Factors to Consider When Moving a Corporation or LLC to a New State

The following are some important factors to include in the decision to move a business entity between states:

• Name availability: Registering a business in a state only protects that name within that state. Another business could already be using the same name elsewhere. If another company is already using the business name in the new state, the business may need to modify their name or file a ‘doing business as’ (DBA) registration.
• State business laws: Conflicts between different state laws could interfere with or derail a plan to move a business entity. Professional legal advice can help you avoid costly delays.
• Business contracts and debts: Moving to a new state could affect contracts or financial obligations in unexpected ways.
• Asset distribution: Some methods of moving a business require distributing assets to the owners, only for them to reinvest those assets in the new entity or state. This process can be complicated and time-consuming. It can also lead to tax liability.
• Tax consequences: If the move involves liquidating or reinvesting assets, the IRS may treat those steps as taxable events. Always discuss these issues carefully with your accountant or lawyer.

Moving a business to a new state can be complex, and each situation is unique. If you have specific questions about your business or want guidance tailored to your circumstances, an attorney can help. With the right support, you can stay compliant and focus on growing your business.