Relocating Your Business to another State: Legal and Practical Concerns

Small businesses that move from one state to another probably won’t face the kind of *problems that Boeing, headquartered in Washington, is currently experiencing in trying to open a new plant in South Carolina.  However, small businesses still have an array of legal and practical concerns that need to be addressed when they relocate.Why relocate?There are some compelling reasons to move from one state to another. Maybe you want milder weather. Maybe your significant other takes a job across the country. Or maybe you have wanderlust.But there’s another good reason to relocate: the business climate may be friendlier to small companies in some states than in others. Regulations may be fewer, taxes lower, and incentives higher. To learn about business climates (and I’m not talking weather), go to:

• Small Business & Entrepreneurship Council’s *2010 Small Business Survivorship Index
• Small Business & Entrepreneurship Council’s *2011 Business Tax Index
• Tax Foundation’s *State to State Migration Data Tool

 Legal mattersThe type of legal entity used for your business dictates what actions to take when you cross state borders.

• Sole proprietorships and partnerships can move easily; they only have to register to do business by filing a DBA (“doing business as”) declaration in the new state if they operate under a fictitious name (e.g., Barbara Weltman, DBA, “Small Business Writing Pros”).
• Limited liability companies (LLCs) and corporations must take action, as explained next, although several choices exist. This action should be done with the advice and assistance of an attorney.
• LLCs have various options from an organizational standpoint. You can (1) Continue the LLC in the old state and register to do business in the new state as a “foreign LLC” (you’re viewed foreign even though you aren’t set up overseas!), (2) liquidate the LLC in the old state and form a new LLC in the new state, or (3) form an LLC in the new state and simply merge the old LLC into it.
• Corporations, whether they are regular (C) or S for tax purposes, also have options: (1) Continue the old corporation and register it as a “foreign corporation” in the new state, (2) dissolve the corporation in the old state, or (3) do a tax-free reorganization, which is essentially a merger of the old corporation into a corporation in the new state.

Which option to use for LLCs and corporations depends on the upfront and ongoing costs as well as legal hassles involved. This is something that should be worked out with your attorney.Practical issuesLLCs and corporations that are planning to relocate should hold formal meetings to decide the course of action. For example, if you decide to dissolve your corporation, this action needs the consent of the shareholders.Check for tax incentives before relocating. Even if you only bring a handful of jobs into a state, your company may qualify for special tax breaks, such as tax abatements or special tax credits. Contact the economic development agency in the new state to learn more.Budget for the cost of moving. Depending on what you have to move and how far you move, moving expenses can be significant or minor. Moving machinery when you relocate a factory is expensive; simply taking your laptop with you when you relocate your consulting business isn’t worth talking about.Discuss the move with your staff to determine whether employees will come along. Determine what financial assistance the company can offer employees to help with the relocation, such as paying for personal moving expenses. Notify customers and vendors about the move. Tell them what the move means to them.Plan, plan, planWork with all the parties involved to obtain input that can ease a transition. And hope for a little luck that things go smoothly! *Denotes a non-government website Barbara Weltman is an attorney, author of several business books including J.K. Lasser’s Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day™ and her monthly e-newsletter Big Ideas for Small Business™; both are available at www.barbaraweltman.com, and host of Build Your Business Radio. Follow her on Twitter at twitter.com/BarbaraWeltman.

About the Author

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for 2011 and 2012. Follow her on Twitter: @BarbaraWeltman.