Once your corporation or LLC is up and running, you may decide to move or expand your operations to another state. This often happens when the founder of a business moves, or when he brings on a cofounder who lives in a different state. This is also a common scenario for entrepreneurs that form a corporation in Delaware, but don’t have an actual physical presence in that state.
The good news is that this is a common scenario and one that almost all businesses will confront if they expand to a certain point. Each state has a system by which foreign entities (those formed in another state or another country) can register to do business in that state.
The first thing you’ll need to determine is whether you’re actually “doing business” in the new state. The definition of “doing business” varies by state, and it’s extremely important that you have an attorney review the relevant state’s statute to determine whether you’ve met that threshold. Broadly speaking, however, you’re likely “doing business” if you have operations within a given state (this could include having an office or warehouse there, or the presence of employees) or if you’re collecting revenue in the state. Typically, the mere fact that you have customers in a state doesn’t mean you’re doing business there (although again, be sure to check your relevant state’s statute).
But what if you’re entirely moving out of the state where you formed your entity? Here you have a couple different options: you may want to register to do business in your new home state. Or, if there’s little chance that you’ll be moving back to your original home state, you may want to move the entity to the new state and dissolve your original entity. Some states, like Delaware, allow you to “domesticate” an out-of-state entity with a single filing. Keep in mind that you’ll typically have to dissolve the original entity once your company has been established in your new home state.
Whether it makes sense to dissolve and re-form your company or simply register in your new state will depend on a number of factors, including the cost and hassle involved in reforming in a new state. Keep in mind that if you decide to dissolve and re-form your entity, you may need to establish a new bank account or transfer lines of credit; this isn’t usually the case when registering in a second state. Speak to an attorney to decide which option makes the most sense for your situation.