Option 2: Merger - Form a new corporation or LLC and merge the old
Another way to formally transfer an LLC or corporation is to form the corporation or LLC in the new state and then merge the old corporation or LLC into the new one. This is a statutory transaction you will have to comply with merger provisions of the corporation or LLC laws, including filing the necessary documents in the old and new states.
The effect of a merger is that by operation of law all of the non-surviving (old state) corporation’s or LLC’s assets, properties, and liabilities become the assets, properties, and liabilities of the surviving corporation or LLC in the new state. There is no need to dissolve the corporation or LLC in the old state or to enter into contracts to transfer the assets, properties, and liabilities of the old to the new.
Option 3: Statutory conversion/domestication
The easiest way to change the state of formation when moving an LLC or corporation is through a statutory transaction. In some states, this is called a conversion. In other states, it is called a domestication.
A statutory business conversion is one entity transaction. There is no need to form a new corporation or LLC in the new state or transfer any assets, liabilities or properties from one entity to another. The corporation or LLC files required documents with the old and new states to make the transaction effective.
The problem with this transaction is that it is not authorized by every state. But where it is authorized, it is a convenient way to change the formation state.
Option 4: Foreign qualification - An alternative to changing the LLC or corporation state of formation
You don’t need to change your formation state just because you are moving the business to a new state. The formation state can be any state. The business owned by the corporation or LLC doesn’t have to be located there, or even be doing business there.
If you want to keep the same formation state for your corporation or LLC there is another option — foreign qualification (also known as foreign registration). A corporation or LLC can do business in one or multiple states other than the one in which it was initially formed.
However, to do business in a “foreign” state — that is, any state other than its state of formation — it has to get authority from that state’s business entity filing office (such as the Secretary of State). That’s done through a procedure traditionally known as foreign qualification. Qualification of either a corporation or LLC basically requires filing an application for authority, along with a certificate of good standing from the formation state and paying the filing fee.
Something to keep in mind in deciding whether to qualify the entity or change its state of formation is that if you qualify, you will have to comply with certain obligations of two business entity laws — those of the formation state and of the foreign state. In general, that means maintaining a registered agent, filing annual reports, and paying annual fees in both states.
For more information, see Doing business in another state (foreign qualification).
Other compliance obligations when changing the formation state or foreign qualifying
There are other things to remember if your LLC or corporation moves to another state — regardless of whether you decide to change your business entity’s state of formation, or you decide to foreign qualify in the new state.
- Documents will have to be prepared and filed. Dissolution, formation, merger, conversion, domestication, and foreign qualification — all of these require the preparation and filing of documents.
- Appoint a registered agent. You will have to appoint a registered agent who resides in or has an office in the new state. Many corporations or LLCs will appoint a professional registered agent because of the expertise in handling the time-sensitive and critical documents they will receive on the company’s behalf.
- Obtain necessary business licenses and cancel unnecessary ones. You will undoubtedly need to obtain the necessary business licenses to do business in the new state. You have to consider state and local requirements — and these requirements will vary based on the type of business you operate.
- Update state records to notify of change of formation state. Changing the state of formation is a significant change. And where your corporation or LLC is on a public record as being formed in the old state, you will need to update those public records to indicate that it is now a corporation or LLC of the new state.
And remember to update all public records, and notify insurers, banks, customers, contracting parties, etc. of the new business address. You should do this regardless of whether you decide to change the formation state or decide not to change the formation state and qualify the corporation or LLC instead.
It’s important to carefully plan your business move so you aren’t missing any steps. As you can see, moving the physical location of a business to a new state has consequences for the corporation or LLC. And the person or persons who own the corporation or LLC have some decisions to make and steps to take to make sure they stay legally compliant.
Start the process today to foreign qualify.