Ask the accountant: Do I need to reincorporate when I move?

February 1, 2011 9:00 AM
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A reader asks:
If a business is registered in one state, and the owner of the LLC moves to another state, does the LLC need to be reestablished in the new state?

We passed the question on to Doug Collom, vice dean of Wharton San Francisco, where he runs the business school’s West Coast operations and serves as an adjunct professor, teaching a class on startups and venture capital. Here’s his answer:

Doug Collom, Wharton San FranciscoAn LLC, like any corporation (such as the usual Subchapter C corporation), can serve as the form of business entity in any state. If the business operations being run out of the LLC should expand, or if the LLC members want to take the business to a different state than the one where the LLC is organized, as a general premise there is no requirement to reincorporate. Depending on the kinds of activities that the business is conducting in its new location, it may be necessary to qualify with the secretary of state’s office of that state, as well as that state’s franchise tax authority, in order to conduct business there. But the original “situs” of incorporation will be respected, and there will be no requirement to reincorporate.

That being said, depending on the kind of business that is expanding or relocating, it would be a good idea to check out in advance the laws of each state that may pertain to the business. This may influence the decision on how or whether to conduct business in that state.

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  • http://twitter.com/nicholasnapp Nicholas Napp

    I don't mean to be rude, but while that is clearly a legally correct answer, it's probably not very helpful for most readers.If a corporation (LLC, c-corp or s-corp) is registered in one state and the business operates in another state, you usually have to pay a “foreign entity registration” to the state you are operating in. i.e. if you are incorporated in Delaware but operate in Florida, you pay a fee to Delaware AND a foreign registration fee to Florida.Also, you usually have to have a registered agent in the state you are incorporated in. If you operate in your incorporation state, you can put your company (or your attorney) as the agent. If you operate in a different state, you will have to find a registered agent and pay them.So you don't have to change the state of incorporation, but you'll pay twice if you don't.There are reasons why you may or may not want to do this, so definitely talk to a lawyer.

  • chrisjlv

    You are both right. However, lets say the entity was originally in CA (EEK) and then moved to Vegas. if this was my business, I would uproot it and re-domesticate into NV and dissolve the CA entity. The EIN would stay the same if the tax structure remained unchanged. if it was originally domestic (formed) in DE and the moved to, lets say, NY, I would prefer to be governed under the laws of DE so I would foreign qualify in NY and leave the domestic entity in DE (I may rethink this if it is an LLC with an office in NY County since the NY county required publication fee is in the thousands). This would allow me to be compliant in NY where the business and office is located at but still remain protected and governed under the laws of DE. This is more expensive but may be a good idea. The former scenario would be far more expensive not to re-domesticate in NV and kill the CA entity due to paying the $325.00/year NV fees and min. $800.00 CA franchise taxes/year and the CA registered agent. Most of the time, the original age of the company would be gone but all other numbers associated with the entity should remain (EIN, D&B, Paydex, etc…) when re-domesticating. Chris

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