Redomestication (good) vs. Dissolving and Reorganizing (bad)

From #LegalBytes: The Official Podcast of Cummings & Cummings Law · 14:31

Show by Cummings & Cummings Law

nd financial history remain intact or have to be rebuilt. With redomestication, continuity is the objective. The same company continues with the same federal employer identification number, or FEIN, existing contracts, credit history, banking relationships, tax elections, customer relationships, and, in most cases, business name. There is no unnecessary transfer of the business from one entity to another because the existing entity is the one changing states. If the business has permanently left its former state, redomestication can also eliminate the need to maintain duplicate registrations and obligations there, subject to whatever continuing tax nexus or other obligations remain. Dissolving and reorganizing is fundamentally different. You terminate the old entity and form a new one in the destination state. Now you have to determine what happens to everything the original company owned or was party to. Contracts may need to be assigned or renegotiated. Bank accounts, credit relationships, assets, licenses, and other rights may need to be transferred. The new entity may require a different FEIN. More importantly, dissolving or transferring assets between separate entities can have federal and state tax consequences that do not exist merely because the same owners remain involved. What looked like the simple solution can become a legal and tax reconstruction project. The danger is doing any of this in the wrong order. Dissolving the original company before the interstate transaction has been properly structured can destroy the continuity you were trying to preserve. Once the entity is gone, fixing the mistake may require far more than filing another form. You can create questions involving ownership of assets, existing contracts, tax accounts, elections, and even whether the operating business is now sitting inside the legal entity you think owns it. Repairing a broken transaction can cost tens of thousands of dollars and, in serious cases, hundreds of thousands. Redomestication avoids that unnecessary restart, but it is not a uniform national procedure. All 50 states permit businesses to accomplish interstate changes of domicile, but the terminology and methodology vary substantially across state lines. A transaction may involve a Plan of Conversion, written approval by the appropriate principals, Articles or Certificates of Conversion, formation instruments, and coordinated filings in both states. Similar terminology can mean different things in different jurisdictions, which makes copying documents from another transaction particularly dangerous. That is why attorney and CPA involvement matters. Redomestication touches the business laws of two states plus federal and state taxation. A Secretary of State can accept a document without determining whether you preserved your FEIN, tax elections, contracts, or entity continuity. The forms are only part of the transaction. The legal plan, approvals, sequence, and tax treatment determine whether the move actually works. So the distinction is straightforward. Dissolving and reorganizing kills the existing company and attempts to rebuild the business inside another one. Redomestication moves the existing company while preserving it. Same company. Same FEIN. Same history. New legal home. If you already have something worth preserving, destroying it first and hoping you can recreate everything afterward is usually the more dangerous path. Learn about the difference between redomestication and dissolving a company: https://www.cummings.law/redomestication/

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