Are You Considering Moving Your LLC to a New State?

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Whether you’re moving because your home state lacks the consumer base needed for your business to thrive or because another state offers better incentives, relocating a business from one state to another is not as difficult as you may think and could be the best business decision you ever made.

In fact, business owners have three different options when it comes to moving their LLC to another state. These include the following:

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Maintain two separate LLCs

You can keep your old LLC and create a second LLC as a foreign entity in the new state. While each state has different rules regarding this process, qualifying typically entails completing paperwork (such as a Certificate of Authority application with the Secretary of State Office), publishing a notice, providing a certificate of good standing from the original state, paying a fee of $100 to $300, and designating a registered agent to accept documents for the company.

Keep in mind that in addition to paying taxes on the new LLC, you will also need to continue paying taxes and fees on your original LLC. This is definitely something to take into consideration when planning to move your LLC across state lines. Especially since in some states, these taxes and fees can be quite expensive.

For example, California imposes a minimum $800 annual franchise tax on all California LLCs, even if they do all or most of their business out of state. Depending on the fees, this choice can become too expensive or too complicated and business owners will need to choose one of the other alternatives.

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Dissolve the old LLC and create a new LLC

For business owners who don’t want the hassle of maintaining two entities, a good option is dissolving the old LLC and developing another LLC in a new state. Remember, each state has different rules regarding the dissolution of an LLC, so be sure to follow your state’s guidelines. For the most part though, these guidelines require two things:

The first thing you should do is read your old LLC’s articles of organization and operating agreement. One of these two documents should contain rules on how to dissolve the company. In most cases this involves the LLC’s members voting on a resolution to dissolve. Make sure you follow any specific procedural requirements that may be part of your LLC’s dissolution rules or your state’s LLC laws.

Before choosing this option, know that when you dissolve your old LLC, you must wind down your business by tying up any and all lose ends. This means paying off your business’s debts and distributing any remaining assets to its members. These assets could be cash, marketable securities, or real or personal property.

Once your LLC is dissolved, the members are required to pay income tax on the value of any cash or marketable securities they receive only to the extent the value exceeds their basis in their membership interests. Unlimited amounts of appreciated real estate/personal property can be distributed to the LLC’s members tax free. And, because an LLC is a pass-through entity, the LLC itself pays no taxes upon dissolution.

After these steps are complete, the members of the old LLC can then form a new LLC in a new state.

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Merge the old LLC into a new LLC

Merging an old LLC into a new one saves you the trouble of dissolving the old LLC. The LLC laws of most states permit one LLC to merge into another LLC, but you’ll need to follow the procedures required by your state’s LLC laws. These typically will require two thing.

First, it often requires that you create a written plan of merger which must then be approved by vote of the LLC’s members. Second, the articles of merger must be filed with the secretary of state where the LLC was formed. Filing the articles of merger effectively dissolves the old LLC that merges into the surviving LLC.

After both steps are complete, the old LLC ceases to exist and all of its property vests with the new LLC which becomes responsible for the old LLC’s debts and liabilities.

For federal income tax purposes, a merger of two LLCs is tax free provided the old LLC’s members continue to own at least a 50% interest in the capital and profits of the new LLC in the new state.

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In conclusion

There are many reasons a business owner will need to close up shop in one place and start a new somewhere else. It’s a tedious task, but by following these guidelines, it doesn’t have to be a headache. Just keep in mind that the rules for moving an LLC from one state to another differ from state to state, as well as business to business. It’s vital to check the exact requirements and procedures before making the transition.