To say 2020 was hard for small businesses is an understatement. Shutdown orders and COVID restrictions choked revenue streams, slowed cash flow, squashed business development opportunities, and took a heavy toll on the personal well-being of many small business owners. While many survived and few thrived, countless small businesses closed for good.
But closing a small business or settling for mere survival may not be your only options. Many businesses and their owners are on the move—moving to states that afford them a better chance at not only surviving but thriving. Tired of high taxes and callous government edicts which pay no mind to the lives of small businesses and their employees, many small business owners are leaving states like Illinois in droves. They are finding greener grass and more opportunities in states which provide better business climates.
While some businesses cannot move because they are anchored to a brick and mortar location or focused on serving a specific community, other businesses have more flexibility and relocation potential. For those that are considering a move, here are five legal considerations to take into account:
A lot of work goes into establishing a corporation or LLC. Even the thought of doing all of that work again may discourage you from moving. But it is important to note that some states allow you to transfer your corporate form to their state with a lot less work. Transferring an LLC to another state, for example, is referred to as domestication. Check to see if the states involved in your move allow for domestication. This way you may be able to keep certain benefits which are tied to your existing corporate entity such as your Tax ID number, accounts, and even credit rating.
However, once you finish domesticating a corporation or an LLC in the new state, it is important to take the necessary steps to dissolve the entity as registered in the state you are leaving. You will also need to change registered agents or the address of the registered agent.
Depending on your corporate structure, it may also be advantageous to create a corporate entity in the new state and then merge it with your existing corporate entity. Such a merger should be done in consultation with your attorney and accountant.
When you move, you may have an obligation to report any changes in your business address, corporate name, or corporate documents to local, state, or federal offices. Often times, you can find information about what you must report and who you need to notify on your Secretary of State’s website. You should also contact your state’s Department of Revenue to take the steps necessary to ensure that your business avoids paying any unnecessary taxes going forward. You will need to notify the IRS about your change of address as well.
While you may be the only ABC Roofing Company in Illinois, for example, when you move to a new state that name may already be taken. Even if the name is not taken, you may still want to consider changing your name or adopting a d.b.a. (doing business as) for marketing purposes in your new location. Again, you can often find information concerning business name availability and business name changes on your new state’s Secretary of State’s website.
The short answer is yes. Typically, the expenses a business incurs moving from one location to another are tax deductible. You may also be able to deduct your personal moving expenses if you can show that they are related to the business move and meet the IRS’s guidelines. Again, you should speak with a tax advisor to gain a better understanding of what is and is not going to be deductible.
Importantly, each state has different requirements for what must be in governing documents. You should not assume that bylaws which were sufficient in the state you are leaving will be sufficient in the state to which you are moving. You should contact an attorney to help you understand what the new state requires and how you can go about amending or adding to your government documents if necessary.
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