A guide to Domestication and Conversion of an LLC in USA

Introduction

Changes in company residence must be made if you want to relocate your firm from its place of incorporation to another state (also called “domestication”). Only states that permit domestication are acceptable for change of domicile from any other state. The benefits of the Domestication and Conversion of an LLC in the USA include retaining the same Employer Identification Number (EIN), corporate structure, and in some states, the foundation date. Comparing the procedure to alternatives like foreign qualifications, the disadvantages include cost and complexity.

What is Limited Liability Corporation (LLC)?

A Limited Liability Corporation (LLC) is a type of corporate structure used in the United States of America (USA) that protects its owners from being found personally liable for the firm’s debts or liabilities. Limited liability companies are hybrid legal structures that combine the characteristics of a corporation with partnership or sole proprietorship.

What is LLC Domestication?

LLC domestication is a way to transfer an LLC from one state to another by changing the governing law that is applicable to the LLC. Once domestication is done, the LLC is no longer subject to the laws of the originating state.

What is the process of LLC Domestication in USA?

The process of LLC domestication in USA is not standardized. Each state that permits domestication has its own standards, and the laws of the state of origin and the new state must be satisfied with it. The following steps are commonly included in the procedure, but it may vary based on the law of one or both states:

• Domestic Application

The following records are generally necessary for a domestication application in most states:

• Domestication-related or Continuance-related Articles (from the new state)
• A certificate of good standing (from your charter state)
• Copy of Articles of Dissolution That Have Not Been Filed (from your charter state)

Your charter state’s Secretary will provide you with a Certificate of Good Standing. This record certifies that your business has paid all applicable state taxes and fees. A copy of your Articles of Dissolution, which are still unfilled, indicate that you plan to shut your business when the domestication is completed.

• Ideas Regarding Compliance

Domestication will have a noticeable effect on the yearly fees, taxes, and compliance needs that your company will need to handle. It makes little sense to move your business due of high taxes in your charter state only to find that your new location has even higher yearly costs. Here is when doing your homework truly pays off.

• Yearly reports

Not all states demand the submission of yearly reports. The filing costs for certain states vary substantially. Some states do not impose any fees. Others demand hundreds of dollars. Moreover, filing times may differ. California mandates annual disclosures from companies, but just biannual filings from LLCs. In contrast, Pennsylvania calls for a report every ten years.

• Taxes and Fees

State taxes vary significantly. There are other factors to take into account besides corporate taxes, personal taxes, and sales taxes. For example, several states impose special franchise taxes besides general taxation.

• State oddities

Across state boundaries, business compliance is generally equivalent, however some states have their own requirements. It’s important to be aware of these oddities even if it’s doubtful they’ll prevent you from domesticating there. Being alert to oddities like these will prevent you from paying fines for compliance infractions.

Effect of Domestication on Foreign (Out-of-State) LLC Registration Requirements

The LLC no longer exists in the prior state when it domesticates or converts to a new state. Since it is no longer present in the previous state:

• There is no need to take into account the requirements for foreign registration as it is not regarded as a foreign entity in the new state.
• It doesn’t need to be dissolved in the previous condition because domestication has made it nonexistent there.

If the LLC plans to go on doing business in the previous state, foreign registration can be an issue. In that case, after converting to the new state, the LLC may be required to register as an out-of-state (foreign) LLC in the previous state.

Alternatives to Domestication of the LLC

LLC domestication is the best approach to transfer an LLC to a new state , however this option isn’t always accessible. The LLC cannot domesticate to the new state if any of the two states concerned does not have laws allowing domestication. In that case, the LLC owners have to think about the alternatives to domestication of the LLC.

In the case that domestication is not an option, the creation of a new LLC and then a statutory merger is usually the next-best option. In that it allows for an automated transfer of assets and, frequently, permits the LLC to keep its EIN, this procedure comes pretty close to an LLC domestication.

Detailed Read: Alternatives to Domestication of the LLC.

Advantages of Domestication of LLC

When compared to the alternatives, LLC domestication can transfer the LLC to the new state without compromising company continuity. Advantages of Domestication of LLC are-

Similar Taxpayer: The LLC’s employer identification number remains unchanged after domestication. The LLC is still active and continues to file its tax returns as usual.

Same Business Operations: Domesticating an LLC prevents interruption of business activities. The domesticated LLC carries on conducting business in the same manner as the original LLC.

Same Bank Accounts:  LLC domestication can help reduce the burden to create additional bank accounts. The LLC can often continue to utilize the same bank accounts and business activities, even if it might wish to inform the bank of the change.

Identical Taxpayer:  For tax reasons, the LLC continues to get the same treatment. It may go on filing taxes and using its employment identification number as it did before to domestication.

Similar Contracts:  The LLC is free to maintain its current relationships with its staff, investors, and suppliers. Normally, updating or reassigning contracts to a new corporate organization is not necessary.

Domestication of an LLC has significant legal consequences, but few practical ones. LLC domestication is frequently more desirable than interstate commerce because of the smooth transition between states.

Conclusion

Domestication is a choice that takes some level of due diligence, like many commercial decisions. The corporation can keep its original formation date, current Federal tax identification number, corporate bank accounts, permits, and lines of credit by domesticating. Additionally, keeping track of the corporation’s existence maybe helpful if you want to apply for fresh credit lines or special government exemptions.