What does it look like to change States of Formation?
Changing your state of formation can be a lot less painful than it used to be. Don’t worry – we’ll dive into some of the legal terms you are about to read in detail later in this blog.
Conversion. In many cases a conversion can be done. Both the state the company is leaving and the new state need to legally recognize a conversion.
If conversion is recognized by both states the process is fairly straight-forward though some of the paperwork can get complicated. The company will prepare documents to convert out of California and convert into Texas. Once the conversion is filed on both ends, the California company legally continues in the form of a Texas company. How easy is that?
It is easy, but there are some technical issues. The certificate of conversion will need to be processed and approved by both states at the same time. If not, it could be an ugly situation where a Company exists in one state and not the other, or one state thinks the company moved and the other state doesn’t recognize the move.
There are some technical things, beyond the scope of this blog that can be done.
Merger. Another possibility is to merge the moving entity into a newly created entity in the destination state. This was a popular strategy before conversion statutes came into being. With more and more states recognizing conversion this is happening less, but we still see it.
Wind-up the California Entity. Another strategy is to wind up the California entity and move its assets to the new Texas entity by a sale or other method. While a lot of clients consider this as a possibility the tax and logistical issues often make this a bad idea. But it can work in some cases and should be considered.
This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity. Each case is unique. Past results do not guarantee future outcomes.
About the Author
R. Shawn McBride — R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Firm, PLLC. Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can reach R. Shawn McBride at firstname.lastname@example.org or (214) 418-0258.
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