By Nellie Akalp
Redomestication refers to when a business changes the state that’s considered its home state (also known as its “domicile state”). It’s a process that shifts a company’s charter to a different state, altering its residence.
Before I get into what’s involved with redomestication, let’s first talk about “domestication” and a business’s domicile.
Business domestication and domicile
Generally, a limited liability company or corporation’s domicile state is the state where the business was legally formed. Domestication, establishing a home state, gets completed by filing forms called Articles of Organization (LLC) or Articles of Incorporation (corporation). The domicile is usually where the principal place of business resides.
However, some entrepreneurs choose to move their company or change its home state to one other than where they have their primary business location. Why? Usually, they see benefits (such as a more business-friendly legal or tax environment) in registering in a different state. For example, Delaware has become a popular state for corporations and LLCs to file a certificate of incorporation or certificate of formation with the Delaware Division of Corporations.
Why would a business want to redomesticate?
As a company grows and evolves, a business owner may find redomestication advantageous for several reasons:
- The target market has changed, and better opportunities exist in a different state.
- Real estate costs (renting, leasing, property taxes, etc.) have risen in the current domicile state and significantly affect profitability.
- The domicile state has imposed additional or raised business taxes and fees.
- The domicile state has implemented more regulations on the industry the business is involved in.
- Other states may have introduced tax incentives that would benefit the business.
- Redomestication will serve the business owner’s family life more effectively (such as access to better schools for their kids, closer to job opportunities for their spouse, or nearer to aging parents, etc.).
- The new state will provide access to a more extensive or more diverse workforce.
Steps to changing a company’s home state
The process of redomesticating may differ depending on the state. It’s critical to research what’s involved and helpful to enlist the expertise of an attorney and tax advisor before venturing down the path. Generally, business owners will have to follow the following steps:
- Complete (but don’t yet file) the current state’s Articles of Dissolution form.
- Apply for domestication in the new state by filing Articles of Domestication (or Articles of Continuance), providing a Certificate of Good Standing from the current home state and providing a copy of (completed but not filed) Articles of Dissolution form for the existing home state.
- After receiving approval from the new state, dissolve the business in the state where it was chartered originally.
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7 things to keep in mind when moving your business
1. Don’t jump the gun
It can have devastating consequences if a business dissolves in its original state before the new state has officially approved its domestication filing. If the new state rejects the request, you could be left with no active, legal business entity.
2. Be aware that not all states allow redomestication
Although businesses can leave any state, not all states allow companies to redomesticate to their jurisdictions. States that don’t acknowledge redomestication typically require you to dissolve the business in your current home state and register the brand-new business entity in the new home state. As you might imagine, that process becomes more complicated (and usually more costly) than filing domestication documents.
Here is a current list of states which allow out-of-state businesses to domesticate within the state’s borders. Each state has its own rules and processes, so it’s crucial that you research any details.
- District of Columbia
- New Hampshire
- New Jersey
- South Carolina
- South Dakota
3. Understand that redomestication is different from foreign qualification
After a company completes redomestication, it ceases to exist in its original home state. It must then follow the laws, regulations, and compliance requirements of its new home state.
Don’t confuse redomestication with foreign qualification. Foreign qualification involves registering a business in another state (or states) in addition to its home state. With foreign qualification, the business retains its residence in the state where it initially domesticated.
4. Stay on top of business license and permit requirements
It’s important to research any required licenses and permits in the new home state before doing any business there. This may include sales tax registration so you can report and remit sales tax on taxable goods and services sold in the state.
Be aware that conducting business without the proper licensing can lead to hefty penalties and legal problems. Also, if you have state or local business licenses and permits in your current home state, you must cancel them and apply for the required licenses and permits in the new state and local jurisdiction.
5. Prep to report and pay payroll taxes (if applicable)
If you plan to have employees in the new home state, you must register to report and pay the state income tax (SUI) and state unemployment insurance tax (SUI). These are critical elements for managing payroll and meeting a state’s business compliance requirements.
6. You may have to find a new bank
If you are using a bank that is not nationally chartered, you may need to close your existing account and open a business account with a bank in the new domicile state.
7. Don’t keep the IRS in the dark
Let the IRS know of a change in business location. That way, the agency can update its records and have the correct address on file for your business’s EIN (Employer Identification Number) or other tax ID number (e.g., your Social Security number).
Ramifications of redomestication
As with all things related to business entity registration, redomestication will have legal and tax ramifications. It’s wise for to ask your trusted advisors (such as your attorney, accountant, and tax professional) for guidance as you consider making a move.
About the Author
Nellie Akalp is Founder and CEO of CorpNet.com, a trusted resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states. See Nellie’s articles and full bio at AllBusiness.com.
This article was originally published on AllBusiness.com.