Redomestication vs. Forming a New Company
From #LegalBytes: The Official Podcast of Cummings & Cummings Law · 14:27
Show by Cummings & Cummings Law
Attorney and CPA Chad D. Cummings notes that redomestication and forming a new company can both result in a business operating from a different state, but legally they are very different transactions. Redomestication moves the existing LLC or corporation to a new state while preserving continuity. Forming a new company creates a separate legal entity and then forces you to determine how everything belonging to the old company gets transferred to the new one. With redomestication, the same federal employer identification number is maintained, along with the company’s business history, credit history, contracts, banking relationships, tax elections, and, in most cases, its name. Forming a new company means creating a separate legal person and then dealing with the old company. That can mean transferring contracts, assets, intellectual property, bank accounts, licenses, and financing arrangements from one entity to another. You may also be dealing with a new FEIN and a different federal taxpayer. A contract containing an anti-assignment provision, a loan agreement requiring lender consent, or a professional license issued to the existing entity can turn what looked like an easy move into a significant legal problem. Moving assets or operations from one taxpayer to another is not automatically tax neutral merely because the same people own both companies. A company with an S corporation election, appreciated assets, or substantial goodwill should not assume that shutting down one entity and opening another is economically equivalent to moving the existing company. All 50 states permit interstate changes of domicile, but the terminology and methodology vary considerably. One state may describe the transaction as a conversion, another as domestication. The transaction can require a Plan of Conversion, formal approval, coordinated state filings, and attention to tax accounts, licenses, and payroll. A do-it-yourself mistake can leave you with two companies when you wanted one, no company when you thought you had continuity, or an FEIN attached to a company that no longer exists in the form you intended. Florida and Texas impose no personal income tax. Redomestication can move an existing company without dissolving it. Forming a new company means starting with a new legal entity. Redomestication means moving the existing company. Same company. Same FEIN. Same history. New legal home. For an established business, preserving what already exists is usually far more important than how easy it looks to form a new LLC online. Learn more about the differences between redomestication vs. forming a new company: https://www.cummings.law/redomestication/
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