Published Thursday, September 18, 2014 at: 7:00 AM EDT
Moving your business to a new state may not be as complicated as you think. But you will need to do your homework to ensure a smooth--and legal--move.
Owners move their companies out of state for a variety of reasons. The change might be prompted by personal or health reasons, to get to a more favorable business climate, to operate in a state that has no state income tax, or because of some other motivation.
But whatever your reason for making a move, the first thing to do is to consult with your attorney, who can help you navigate the legal and regulatory waters of moving your business. There are important questions to be answered. The Small Business Administration (SBA) says the questions asked most frequently by business owners involve the impact that moving may have on taxes, registration, and incorporation.
So let's consider the answers as they pertain to different types of businesses:
Sole proprietorships and partnerships
These businesses are the easiest to move. The first step is to register your business in the state to which you are moving, using the "Doing Business As" (DBA) registration process. Then you need to discontinue your old business. Depending on the legal requirements of your new state, you might register at the county clerk's office or with the state government.
Limited liability companies (LLCs)
Moving an LLC to a new state involves several options:
You could continue your LLC in your current state and then register as a foreign (out-of-state) LLC in your new state.
You might dissolve your LLC in your current state and then establish a new LLC in the new state. There aren't any tax consequences if you choose this option.
You can register a new LLC in the new state. Each member also must transfer his or her membership interest, maintaining the same percentage of ownership as in the old LLC.
A final option would be to register a new LLC in the new state and then merge your previous LLC into the new entity. You can continue using your existing employer identification number (EIN) because the IRS considers your EIN as a continuation of the previous LLC. If all LLC members still have a 50% interest in the capital and profits of the new LLC, you won't face any tax consequences.
Corporations (C or S)
Moving a corporation to a new state is much like the process for moving a LLC. Your options are:
You can continue your corporation in the old state and register as a foreign corporation in the new state. If you choose this option you will incur fees in both states.
You can dissolve your corporation in the old state and establish a new corporation in the new state. However, heavy tax consequences could be associated with this choice and could affect employee benefits, such as retirement plans.
You can register a new corporation in the new state and then merge your previous corporation into the new one. This avoids the requirement to pay fees in two states and permits a tax-free reorganization.
Although an online business has no boundaries regarding where its owner can do business, if you move an online business to a new state you must comply with applicable laws in that state. To take an online business operation to a new state, you must move your business entity, following one of the methods for moving sole proprietorships, partnerships, LLCs, or corporations. If you have an e-commerce website, you also will need to apply for a sales tax permit in the new state.
Once you've moved your business, you'll need to finish the job by applying for necessary licenses and permits (which vary by state), making sure you comply with the local zoning laws in your new location as well as dealing with the tax ramifications, meeting reporting requirements, and adhering to the requirements of your old state for dissolving a corporation. Your attorney can help you make sure you don't miss anything.
Finally, don't forget that you can deduct or capitalize your costs in moving your business. That's the case regardless of whether you operate your company from home or a business location.
This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.