I find that for most entrepreneurs, it makes sense to incorporate in the state where the entrepreneur resides.
Incorporate in the state in which you are doing business, unless there is a good reason to do otherwise [in which case the other state chosen probably will be Delaware].
Why Move a Corporation to Another State?
However, if the entrepreneur relocates to another state, then a choice must be made.
- If the corporation remains registered in its initial state, then it will have to pay to register as a “foreign corporation” in the new state. That means the corporation will pay fees and, possibly, taxes in two states thereafter.
- Alternatively, the entrepreneur can move the corporation to the new state. Using that approach, the corporation will incur some costs for the move. However, from that point on the corporation will pay fees and taxes only to the new state.
Moving a Corporation to Another State.
Legally, there are three ways to move a corporation to another state.
- Form the new-state corporation. Merge the existing corporation into the new-state corporation.
- Form the new-state corporation. Transfer assets and liabilities of the existing corporation to the new-state corporation. Dissolve the existing corporation.
- Convert the existing corporation to a new-state corporation.
Alternatives 1 and 2 can have significant tax implications. This can be an especially complex issue for Alternative 2, because there are different types of mergers.
Number 3 is the easiest approach, because the existing entity remains in place. The potential problem, however, is that applicable laws may not permit Alternative 3. For example, California law does not permit a California corporation to convert to a foreign-state corporation.
So if you want to move your corporation to another state, you should work closely with your tax advisor and a business lawyer to identify the approach that will work best and to carry out that approach successfully.
This blog does not constitute legal advice and does not establish an attorney-client relationship. If you need legal advice, please contact a lawyer directly.