It’s certainly understandable why a business may want to move to another state. Lifestyles, labor pools and taxes are reasons why companies may want to leave California for Texas, or Maryland for Delaware – I see those often — or the reverse.
But the move needs to be made very carefully because it’s an entity that is relocating.
The good news is that the statutes that govern the formation of businesses – these include limited liability companies, corporations, limited partnerships and other formations – often are honored from state-to-state with simple mechanisms for legal purposes. The mechanism is often referred to as a conversion.
If the two states involved in the move have conversion statutes that allow an entity to leave and enter, then the business simply has to comply with both statutes to relocate its headquarters or legal domicile.
The not-so-good news is that there’s usually another layer of issues.
The entity’s underlying LLC documents or other governing authority may need to be rewritten under the new state’s law. And a lot of business owners believe their taxation will simply move with them. But that’s not necessarily the case.
States typically apply a formula and a proportionate system to allocate the tax dollars among multiple states. So, moving your entity from California to Texas doesn’t mean your California tax obligations will end immediately. And it definitely means your Texas status will start sooner rather than later. We want to look carefully at how all of this plays together.
It has become easier to relocate entities in most states. For example, it’s very easy to take a California LLC and make it a Texas LLC. But there’s work to be done. We need to ensure we make the switch properly to get the desired business results. That’s why you work with a team of advisors to help make sure you get this done correctly from the beginning.
What’s your experience with this? Have you relocated a business? Did you find it difficult? Join us in the comments below and let us know about your experience.
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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. FreeImages Photographer creative daw.
About the Author
Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment (www.rshawnmcbridelive.com) , gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at [email protected] or 407-517-0064.
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