Option 2: Form a new corporation or LLC and merge the old into the new
Another way to formally change the home state of 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 so you will have to comply with the 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 is through a statutory conversion or domestication.
Conversions and domestications are single entity transactions. 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 these transactions is that they are not authorized by every state. Most states authorize statutory conversions and they can be used to both change the type of business entity and to change the state of formation. Fewer states have statutory domestications, which are used solely to change formation state. But where one or both is authorized, it is a convenient way to change the formation state.
Other compliance obligations when changing the formation state
There are other things to remember if your LLC or corporation changes its state of formation.
- Documents will have to be prepared and filed. Dissolution, formation, merger, conversion, domestication — all of these require the preparation and filing of documents.
- Appoint a registered agent. You will have to appoint a registered agent who has a street address in the new home 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.
- Update public 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. Update state, federal, and local records.
- Inform other relevant parties. Notify insurers, banks, customers, contracting parties, etc. of the change.
Foreign qualification. An alternative to changing the LLC or corporation’s state of formation when the business relocates
Although this article is intended to describe how a small business owner can change their LLC or corporation’s home state, one other thing to keep in mind if you are considering a change in home state because you are relocating the business, you don’t have 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).
Conclusion
If you decide to change your LLC or corporation’s home state, it’s important to carefully plan how you will do it so you aren’t missing any steps. The change 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. Consider getting the advice of a business lawyer to help you decide if you should make the change and how you should do it. A corporate service provider like BizFilings can help you with the filings and other compliance requirements involved in making the change.
Start the process today to foreign qualify.
