A business owner may relocate a business to another state for a variety of reasons, including increased real estate costs, property taxes, business taxes, or business regulations in the old location; changes in the target market; or even personal or family reasons. Relocating your residence from one state to another requires that you complete several tasks, such as changing your mailing address, utilities, insurance policies, and possibly banks. Moving a business is much more complicated, and it may be difficult to determine what to do first. The steps needed for a successful move vary depending on your business structure.
Sole Proprietorships
One of the main advantages of forming a business as a sole proprietorship is that you do not have to comply with the formalities and requirements necessary for most other business structures. What you need to do to move your business will depend on the requirements of both your old state and the new state; however, there are certain steps you must always take. First, notify your clients and vendors about the move. Depending on the terms of your contracts, you may be required to provide a certain number of days’ notice. In the absence of any contractual notice requirements, a conservative approach of providing three months’ notice will allow your vendors and clients to prepare and accommodate the new location. If you will no longer be working with certain clients or vendors, thank them for the relationship and stay in touch.
Next, pay any state, local, or employment taxes and close your business accounts. Make sure you follow any state-specific steps to wrap up any obligations in the old state and then register in the new state. If licenses are required, terminate existing licenses and obtain new ones in the new state. Do the same with professional liability and commercial insurance.
Third, if you are using a “doing business as” (DBA) name, terminate the old name and apply for a new name in the county (or counties) where you will be doing business. Depending on the state, you may need to register the DBA name with the secretary of state’s office or the county clerk. Some states do not require you to register if you are a sole proprietor, so it is important to check the destination state’s requirements. States often have a website providing this information.
Fourth, if necessary, close your business bank accounts and establish a relationship with a local banker to set up new accounts. Transfer the money from the old to the new accounts. Change your mailing address with the United States Postal Service and notify the Internal Revenue Service so it will send correspondence relating to your business’ taxpayer identification number to the new address.
Finally, make sure that a final tax return is filed in the old state for time spent there that year. This means that two state tax returns will need to be filed for the year of the move—one in each state.
Partnerships
Moving a partnership requires most of the same steps listed above. However, a partnership has more than one owner, so the other partner or partners should ensure that any accounts in their name are terminated and new ones are established in the new state. Some states require partnerships to register, so it is important to ascertain the requirements of the new state. The partnership agreement should be reviewed and rewritten if necessary to address the business’s purpose and the partners’ obligations, and to comply with the laws of the new state.
Limited Liability Companies
If you are relocating a limited liability company (LLC) to another state, there are even more steps required in addition to those outlined above. First, if the members decide to continue doing business in the old state, they should consider whether they want to (1) create a new LLC in the new state and dissolve the old LLC or merge the old LLC into it or (2) continue the LLC in the old state and register or qualify the LLC as a foreign LLC in the new state. If the business is more personal and local in nature (for example, a fitness coaching business), it may make sense to terminate the old LLC and create a new LLC in the new state, since the eventual client base is likely to be located in the new state. If you will be terminating the old LLC, file the proper termination documents with the old state and follow and document the procedures outlined in your old operating agreement for unwinding the company. If you choose to merge the old LLC into a new one in the new state, you must comply with the merging procedures set forth in the law of the old state. Review and revise the operating agreement to the extent necessary to comply with the new state’s requirements.
Corporations
The steps necessary to move a corporation to a new state are often the same steps needed for a sole proprietorship, with some additional requirements. First, look carefully at the requirements of the new state for incorporating the business in that state. Decide if you will continue to do business in the old state or only transact business in the new state. If you transact business in the new state and the old state, you may need to register or qualify your business in the new state. If you will no longer transact business in the old state, you should file dissolution or termination documents in the old state and incorporate domestically in the new state to create a new corporate entity. If you will be dissolving the existing corporation, be sure to follow and document the procedures outlined in your old bylaws for unwinding the corporation. Review the bylaws and revise them to the extent necessary to satisfy the new state’s requirements.
We Are Here to Help
Moving a business to another state involves several decisions and steps, so the best advice is to seek help from certified public accountants (CPAs) and business lawyers. Ideally, you should contact CPAs in both the new state and in the old state to make sure you have complied with all of the federal, state, and local tax requirements. Work with a lawyer in the old state to properly unwind the business (or transition it to the new state if desired). Contact a business lawyer in the new state to help you decide which entity is best for your business and complete all of the steps necessary under that state’s law to legally establish the business. The tax advisors and business lawyers will apprise you of traps to avoid and steps to take to ensure the move is as smooth as possible. Contact us today to set up an appointment so we can help you successfully move your business to your new location.