Whether you're looking to move closer to your customer base or ease your bottom line through lower operating costs, there are plenty of reasons why you'd want to move from one state to another. However, it's not as simple as packing up a few boxes and pulling up stakes.
Depending on how your business is structured, out-of-state moving requires careful planning and decision-making to reduce financial and regulatory liability. Here's what you can expect as you relocate your business to a new state.
Moving as an LLC
If your business operates as a limited liability company (LLC), then there are several options open to you that you wouldn't benefit from as a sole proprietor.
One way to move your LLC is to form a new LLC in the state you're moving to and merge the LLC in your old state into it. There are two major benefits to this approach:
- Since you're technically continuing the old LLC under the new LLC, the Internal Revenue Service (IRS) will, in most cases, let you retain your employer identification number (EIN) for use with the new LLC.
- Merging an old LLC into a new LLC in another state has few, if any tax penalties or consequences as long as the old LLC members maintain a 50-percent interest in the capital and profits of the new LLC after the merger.
As an alternative, you could choose to dissolve the old LLC and form an entirely new LLC in the state you're moving to. The process entails making a clean break from the old business (by settling outstanding debts, winding down inventory, disbursing leftover assets, etc.), which requires your LLC's members to vote on a resolution to dissolve.
Another way of moving your LLC involves maintaining your current LLC in your old state and registering it as a foreign LLC in the new state. While you won't have to dissolve or merge your old state's LLC, you'll wind up filing paperwork and paying fees and taxes in both states.
Moving as a Corporation
Both C and S corporations have similar options as LLCs, with a few differences in regards to tax consequences and specific state regulations. You could choose to continue the corporation in your old state and register as a foreign corporation in the new state, create a new corporation in the new state and merge your old corporation into it or dissolve the old corporation in its entirety and register anew in the new state.
Moving as a Sole Proprietor
Running your business as a sole proprietor gives you several advantages over a typical corporation or LLC. For starters, there's less paperwork and red tape to deal with except under very specific circumstances. The only things you'll have to do is make sure all of your contacts are up to date (including the address used for your EIN, if you use one instead of a SSN) and taxes for both states are filed in a timely manner. You're usually required to pay taxes for the portion of the year the business was in operation in each state.
Keep in mind that some states require sole proprietors to obtain a general business license from the same state entity that handles licensing and permits for corporations and LLCs. You'll also want to cancel any licenses or permits in your old state prior to moving. Licenses and permits are usually required for sole proprietors engaged in certain professions.
Don't forget that even the simplest move could be fraught with unforeseen circumstances, whether tax-related or regulatory. In such cases, listening to the sage advice of your attorney or your tax expert can help your business avoid potential pitfalls as it moves out-of-state.