Consider these essential considerations when you are changing your business address.
Redomestication is when a business changes its home state (also called its “domicile”) to become its new state. It is the process of changing a company’s charter to another state and altering its residence.
Before discussing domestication in detail, let’s first look at “domestication” or a business’s domicile.
Domestication and business domicile
A corporation’s domicile state, or limited liability company, is usually the state where it was established legally. Domestication refers to establishing a state as a home. To do this, you need to file forms known as Articles of Organization or Articles of Incorporation. The domicile is typically the central place of business.
Entrepreneurs may choose to relocate or change the home state of their business to another place than their primary location. Why? Most of them see the advantages (such as a better tax or legal environment) when they register in a different state. Delaware, for example, has been a trendy state for LLCs and corporations to file a certificate of incorporation/certificate of formation with the Delaware Division of Corporations.
Why would a business desire to domesticate its business?
A business owner might find domestication beneficial as their company grows and evolves.
- The market is changing, and there are more opportunities in another state.
- Real estate costs (renting and leasing, property taxes, etc. Renting, leasing, property taxes, etc., have increased in the current domicile state. This has a significant impact on profitability.
- The business tax and fee imposed by the state of domicile may have been increased or added to.
- The state where the company is situated has more regulations.
- Other states may offer tax incentives that will benefit the company.
- Redomestication will make the family’s lives more accessible (such as better schools for their children, more excellent job opportunities for their spouse, or closer to their elderly parents). You can find out more.
- The new state will allow for more diversity and access to more workers.
How to make your company’s home better
Each state may have a different process for domesticating. It is crucial to understand the requirements and consult a tax advisor or attorney before starting the journey. Business owners generally require these steps.
- Do not file the Articles of Dissolution form of your current state.
- To apply for domestication, you must file Articles of Domestication (or Articles of Concontinuance) and provide a Certificate of Good Standing for your current state. Also, you will need to submit a copy of your Articles of Dissolution for your home state.
- After you receive approval from the new government, dissolve the company in the state it was chartered.
Seven things to remember when you move your business
1. Don’t rush to judgment
It could have severe consequences if the business dissolves in the original state before being officially approved by the new state for domestication. The new state could reject the request, and you may not have an active legal business entity.
2. Redomestication may not be allowed in every state.
Businesses can move to any state. However, not all states allow companies the right to domesticate in their jurisdictions. States that do not recognize domestication usually require you to dissolve your existing business and register a brand-new entity in the new home country. You might be able to see that this process can be more complex than filing domestication documents.
3. Redomestication and foreign qualification are two different things.
A company that has completed domestication ceases to be a legal entity in its home state. It will then have to comply with all laws and regulations in the new state.
Redomestication is not the same as foreign qualification. Foreign qualification means a business registered in another state (or multiple states) than its home state. The company can retain its residence in that state, even though it has been granted foreign qualification.
4. Be aware of the requirements for business permits and licenses.
Before doing business in a new location, you should research the required permits and licenses. You may need to register for sales tax to report and remit the sales tax on goods and services that are taxable.
It can face severe penalties and even legal problems if you do not have the proper licensing. If you hold any state or local business permits and licenses in your current state, you will need to cancel them and apply in the new state.
5. Prep to report, pay, and prepare payroll taxes (if any)
If you plan on having employees in your new state, you will need to register to report and pay state income tax and state unemployment tax. These are essential elements to manage payroll and meet state compliance needs.
6. You need to find a new bank
If your bank is not nationally chartered, you might need to close the existing account and open an account for business with a bank in a new domicile state.
7. The IRS is not in the dark.
Notify the IRS about any change in business address. The IRS will then be able to update its records.