How to Move Your Business to Another State

Even though a business owner opens a business and incorporates it in one state, there may come a time that the business owner may desire to relocate the business to another state for a variety of reasons which may include:  the business owner has relocated to another state, the cost of doing business would be less in another state (most often Wyoming), another state offers a friendlier business climate; the business has expanded to include new people who primarily reside in another state; and more.  These business owners often desire to know how to formally move a business that is incorporated in one state to another state.

Relocating a Corporation

There are several different ways in which one can relocate a corporation.  These options include:  1) allowing the corporation to remain incorporated in the present state and filing for foreign qualification in the new state; 2) establishing a new corporation in the new state and ending the existing corporation; and 3) establishing a new corporation in the new state and merging the old company into it.  There are a number of factors that a business owner may want to consider before deciding on which of these options is best when moving the business to another state.

How to choose the best option for moving your business to another state

Option 1

With several options to choose from when trying to decide how to move your business to another state, it is important to look at some important factors which may impact the decision.  The first factor that you may want to consider is how much business the company will conduct in its present state once it has relocated; this is important due to the fact that if the company keeps conducting business in the present state, it will have to make a foreign qualification in the present state if the state of incorporation is moved.  This will subject the business to the same taxes, fees, and other requirements that it would subjected to if the business were incorporated in that state.  In this instance, a business owner may opt to simply make a foreign qualification in the new state to save time and paperwork.

Option 2

A small local business that is moving to another state may wish to simply dissolve the present corporation and incorporate the business in the new state.  It is important to note that there are some tax consequences to dissolving a corporation.   When a corporation dissolves, income for appreciated assets must be recognized.  Furthermore, these assets must be distributed to the shareholders and the shareholder will be taxed accordingly.  This is due to the fact that, in a corporation, the business cannot keep the assets if the business dissolves.  This factor often makes dissolving the corporation only a viable option when there are a limited number of shareholders who have all agreed to reestablish the business in the new location.

Option 3

Larger more complicated corporations may opt to merge the old corporation into a new corporation established in the new state; this often occurs when a corporation has opted to relocate the state of incorporation to Delaware because of its business friendly climate.  Unlike dissolving the corporation, this type of move is not accompanied by any additional taxes on income, however, the old corporation does not truly end.

No matter what option you choose, it is important to remember that all legal formalities must be followed.  This may include filing the appropriate paperwork to dissolve the corporation in the state in which the business is located and undergoing all of the formalities of incorporation in the new state.

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