LLC domestication is a popular way of moving a business to a new state.
Through LLC domestication, LLC owners can change the governing laws of the LLC without disrupting their ongoing LLC operations.
Life is unpredictable, and we never know what is coming next. You are here in a moment and trying your luck somewhere else in the next moment. Moving from one place to another is overwhelming for many of us, but this moving should not affect your business.
Yes! You heard it right!
How does an LLC domestication work? LLC Domestication allows your Limited Liability Company (LLC) to move from its domicile state (the state of LLC registration) to another state without affecting the day-to-day functioning of your business.
Now you would be wondering what LLC domestication is and why you need to domesticate your LLC. Keep reading to get the answers.
What is an LLC Domestication?
LLC domestication is a legal process of moving your LLC charter to another state. In other words, LLC Domestication is a way to move your LLC from the LLC domicile or home state to a different state.
LLC domestication is also referred to as changing the domicile of your LLC. By domesticating your LLC, you change the governing laws of your LLC. For instance, you initially registered your LLC in Florida, but now you are moving to Texas for some reason.
So, rather than dissolving your Florida LLC and again registering an LLC in Texas, you just domesticate your Florida LLC to Texas LLC by filing Articles of Domestication. By LLC domestication, now your LLC will not come under Florida statute, but it will be governed under the laws of Texas.
LLC Domestication vs. LLC Conversion
Is there any difference between LLC domestication and LLC conversion? Many people use the term LLC domestication and conversion interchangeably. However, both of these terms are different.
LLC domestication involves moving an LLC from its home or domicile state to a different state.
On the other hand, LLC conversion deals with the change of entity type.
In other words, LLC conversion allows you to change an LLC into a corporation, Limited Liability Partnership, or any other legal entity.
Reasons to Domesticate an LLC
Why does anyone want to move an LLC from one state to another? There could be many reasons for that.
LLC domestication is a seamless way of transferring an LLC from one state to another. Though moving an LLC to a different state will still be an LLC, the governing state laws will be changed.
In addition to changing LLC governing laws, the following are some factors for which you want to domesticate your LLC:
1. Relocation of LLC Owner
Most LLC owners want to move the LLC with them while moving to a new state. There are multiple reasons to move to another state, such as:
- Better living standards and opportunities
- Low living costs
- Availability of a diverse workforce, or
- Any other personal reason
So, if you have moved to another state and do not plan to continue to conduct business in the state of your LLC registration, you should think about LLC domestication.
2. Tax Benefits
If another state has announced tax incentives or the LLC domicile state has imposed more taxes, LLC domestication is an effective way to avoid unnecessary taxes.
3. Avoid Strict Regulation
If you feel your LLC domicile state has imposed strict rules related to your business or introduced new laws concerning a specific industry, domesticating your LLC to a business-friendly state is not a bad choice.
For instance, your Missouri LLC deals in marijuana. However, the state law only allows marijuana for medicinal purposes, and you want to sell marijuana for recreational purposes as well.
4. High Operational Costs
Are you facing high operational costs in the state of your LLC registration due to the following reasons?
- High prices of real state,
- High property taxes,
- High lease price,
- High cost of raw material, or
- Expensive labor.
If yes, you can move your LLC to a state where the operational costs are low through LLC domestication.
5. Change of Target Audience
If your target audience has changed at any stage of your business or another state offers better business opportunities, you can move your business to that market or state through LLC domestication.
Advantages of LLC domestication
LLC domestication allows you to keep your LLC operational without sacrificing the day-to-day activities of your LLC. In addition to that, LLC domestication offers the following benefits:
i. State Tax Savings
Once you have moved to another state and no longer wish to conduct business in the state where you originally registered your LLC, you should domesticate your LLC. Doing this will save you from paying tax in the state where your LLC is registered. You only have to pay the state taxes where you operate your business.
ii. Avoid Multiple Filings
If you have registered your LLC in a different state and operating your business in another state, you need to file LLC annual fees and taxes, LLC annual report, and other state filings in both states.
After LLC domestication, you only need to file LLC-related paperwork in only the state of your business operation.
iii. Access to Local Professionals
LLC domestication enables you to benefit from local professionals such as CPAs, attornies, etc., who can guide your LLC better regarding the local laws and rules.
iv. No Need to change Bank Account
After LLC domestication, you can use the previous bank account. There is no need to open a new business account in the new state where you moved your business operation.
v. Previous Contracts are Valid
After domesticating your LLC, you can continue the previous contracts with vendors and investors. Usually, there is no need to update the contracts after moving to another state, as after LLC domestication, the contracts remain valid. You may also keep the LLC operating agreement that governed the LLC before domestication.
vi. Tax Payer Status Remains the Same
After LLC domestication LLC is treated the same for tax purposes. Moreover, you do not need to acquire another Employer Identification Number (EIN).
vii. No Disruption in LLC Operation
LLC domestication allows you to continue your regular business operations without any disruption. There is no need to change your contracts, transfer your licenses, or move your business assets and employees.
Disadvantages of LLC domestication
Though relocating your LLC from the state of formation to a different state offers multiple advantages, there are also some negative points. The following are a few disadvantages of LLC domestication:
i. Relatively High Cost
Compared to some of the available alternatives, LLC domestication is a relatively expensive process. For example, in Nevada, you need to pay $350 for filing Articles of Domestication in addition to the Articles of Organization fee, which is $75.
ii. Complexity of Process
For many entrepreneurs, LLC domestication is a bit complex process. You need to file multiple paperwork such as Articles of Continuance or Articles of Domestication, Certificate of Good Standing, Articles of Dissolution, etc.
Alternatives of LLC domestication
If there are any alternatives of an LLC domestication is a question in many minds.
In many states in the USA, statutory LLC domestication or conversion is unavailable. Moreover, many business owners find LLC domestication a bit complicated and look for other options.
In such cases, you can use the following alternatives of LLC domestication to move your LLC from one state to the other.
a) Forming a New LLC and Merging it into the Old LLC
In this scenario, you need to form a new LLC in the state you have moved to and combine the old LLC with it. Combining the new and old LLC is done using a statutory merger.
A statutory LLC merger is the closest equivalence to a statutory LLC domestication. This option offers the following advantages:
- No need to dissolve the old LLC
- No need to transfer assets
- No need to file a new EIN
b) Operating the LLC as Foreign LLC
Many business owners operate their LLC in the state of new residence as foreign LLC or out-of-state LLC. In such cases, LLCs are mainly governed by the state’s laws where you registered your LLC.
However, to conduct sufficient business as a foreign LLC, you need to comply with:
- The law of the LLC registration state and fulfill annual requirements
- The state laws where an LLC operates as a foreign LLC and pay state taxes and franchise taxes etc.
Complying with both state laws significantly increases the annual cost of maintaining the LLC and adds considerable hassle to the LLC’s maintenance paperwork.
c) Dissolving the Old LLC and Forming a New LLC
Another alternative to LLC domestication is to form a new LLC in the state of the new residence and formally dissolve the LLC where it is currently registered.
Tip of the Day: LLC formation by DIY method is mostly hectic and time taking. Hiring a reliable LLC formation service save you from unnecessary headaches. Therefore we recommend you to:
However, dissolving the previous LLC and forming the new one comes with many disadvantages. You need to:
- Obtain a new EIN unless the LLC is treated as a disregarded entity
- Re-hire employees
- Open new bank accounts
- Renew business contracts
- Transfer assets
Which States Allow LLC Domestication?
Your business can leave any state at any time. However, not every state allows an LLC domestication.
To date, only 37 states have enacted laws authorizing business domestication, including LLCs, corporations, and other legal entities, into the jurisdiction.
The states that allow LLC domestication are listed below:
District of Columbia
You can also learn more on which of the states allow LLC domestication detailed guideline here.
Which States do not Allow LLC Domestication?
Many states in the USA do not allow LLCs to domesticate to their jurisdictions.
Here is the list of states that do not allow LLC domestication:
Tax Effects of LLC Domestication
LLC domestication has no federal tax consequences as it is simply a change in state governing laws.
This means that the LLC may continue to use the same Federal Tax Identification Number (FTIN or EIN) and file its taxes as it always has.
However, you need to keep state-law tax consequences in mind. For example, in Texas, you must pay Texas franchise taxes and pay the outstanding franchise taxes to the previous state.
To satisfy this requirement, you need to obtain a certificate of franchise account status from the Texas Comptroller.
This certificate is basically a statement containing the LLC domestication documents and states that the new LLC is responsible for any outstanding franchise tax obligations of the old LLC.
LLC domestication is an effective and popular way to move your LLC from one state to another without disrupting the day-to-day functioning of your business.
However, in the state where LLC domestication is not allowed, you can also operate as an out-of-state or foreign LLC in the state of your new residence.
Finally, if you want to save yourself from the hassle of multiple filings, you can consult expert LLC services to do the job for you at a fraction of the cost.
FAQs on LLC Domestication
What is the difference between a domestic LLC and a domesticated LLC?
A domestic LLC is an LLC that operates in the same state where it is originally filed its Articles of Organization. In contrast, the domesticated LLC is the LLC that has moved from its registration state to the state of residence of the LLC owner.
For example, if an LLC is registered in Florida and conducts business in Florida, it will be called a domestic LLC. While if an LLC was originally registered in Illinois but has legally moved to New York, it will be a domesticated LLC.
How do you domesticate an LLC?
Generally, LLC domestication involves the following steps:
- Aquisition of a Certificate of Good Standing: Acquire a Certificate of Good Standing from the state where your LLC is currently registered
- An Article of Dissolution: Complete the Articles of Dissolution form in the current LLC registration state but do not file it.
- Articles of Domestication: File Articles of Continuance or Articles of Domestication in the state of the new residence. You need to submit a copy of the (completed but not filed) Articles of Dissolution form and Certificate of Good Standing from the existing home state.
- Articles of Dissolution Again: Once you receive approval from the new state, file Articles of Dissolution in the state where it was chartered originally.
You can learn more from our detailed and states specific article on how to domesticate your LLC from one state to another.
Does New York allow LLC domestication?
No, New York law has no provisions for LLC domestication. Therefore, if you wish to move your LLC to New York, you can either operate as New York Foreign LLC or dissolve the LLC in the original state of registration and register a new LLC in New York.
Do I need a new EIN if I move my LLC to another state?
This depends on how you moved your LLC to the new state. For example, you do not need a new EIN if you moved your LLC to another state through LLC domestication or merged the new LLC in the current state of residence with the existing LLC in its home state.
However, if you have dissolved the previous LLC and formed a new LLC in the state of the new residence, you need to file for a new EIN.
Does New Jersey allow LLC domestication?
At present, the governing statutes of New Jersey authorize LLC domestication. It means you can move a Delaware LLC to New Jersey LLC through LLC domestication.
Aisha Noreen is an owner of a small business with more than 9 years of experience in the marketing industry. With the wisdom of an old soul, she always seeks innovation and mind-blowing ROI techniques. Her unique approach helped many small businesses thrive and she can surprise you in many ways as well. Believe it or not, her energy, passion, and creativity are contagious enough to transform your business and take it to another level.