In this article, our Illinois business attorneys explain how to move a corporation or LLC and wish to a different state. There are several different options for accomplishing a corporate relocation depending on your business goals, and we describe each in detail.
Keep Your Corporation or LLC Active in the Original State and file a Foreign Registration in the New State
If you plan to continue doing business in the original state, typically, the best option is to keep your corporation or LLC active in the original state and register in the new state as a foreign corporation.
When is a Company Required to File As a Foreign Corporation in Illinois?
In Illinois, as in most states, your company is required to register as a foreign corporation if it “transacts business” in Illinois. Generally, your company will be considered to be transacting business in Illinois if it has a warehouse, a store, or an office in Illinois or if your company has a sales representative operating in Illinois. The following activities do not qualify as “transacting business”:
- Defending a lawsuit;
- Holding internal business meetings;
- Maintaining a bank account in Illinois;
- Sales activities of independent contractors;
- Soliciting orders that require acceptance from outside of the state;
- Owning real estate or other property in the state;
- Isolated transactions that are completed within 120 days;
- One of the company’s members, managers, directors, or officers residing in Illinois.
Should My Corporation or LLC File a Foreign Registration?
I recommend consulting with an attorney to determine whether, based on your business activities in both your company’s current home state and the new state, you will be considered to be transacting business in both states. If so, maintaining your existing company in your current state and filing a foreign registration in the new state is the best approach. If not, you should consider one of the other options below. The reason we only recommend filing a foreign registration if it is necessary due to transacting business in multiple states is that it tends to be more expensive than other options we will discuss. You will have to continue to pay annual Secretary of State fees in the original state as well as annual fees in any states you file your foreign registration.
Dissolve Your Existing Corporation or LLC and Form a New Corporation or LLC in the New State
Dissolving your existing corporation or LLC and forming a new corporation or LLC in the new state in which you will be doing business is the best option if these three things are true:
- You will not be continuing to “transact business” in the state in which you will be dissolving (discussed above);
- Forming a new corporation will not cause business continuity problems. Business continuity problems occur in the following situations:
- The existing corporation is bound by continuing contracts that cannot be easily assigned to the new corporation;
- The existing corporation has lines of credit that cannot be easily assigned to the new corporation;
- It would be too cumbersome to transfer bank accounts or client accounts from the old corporation to the new corporation.
Your accountant does not believe that there will be negative tax consequences to dissolving your existing corporation or LLC.
If all of the above circumstances will not pose problems, dissolving your existing corporation or LLC and forming a new corporation will likely be the best option for relocating to a new state because you will only have to pay annual fees to the Secretary of State in one state, as opposed to two or more.
Form a New Corporation or LLC and Merge the Old Corporation or LLC into the New Company
If your company is not “transacting business in both the old state and the state to which you are relocating, it may make sense to essentially relocate the existing corporation or LLC from the old state to the new state. This is the best option when business continuity (discussed above) is a concern or when there will be negative tax consequences associated with dissolving the existing corporation. Unfortunately, the process for accomplishing this is not as straightforward as simply changing the home state of the existing corporation. The steps you will need to take are generally as follows, although you should consult with each of the Secretaries of State of the states involved because the process may vary from state to state:
- Establish a new corporation or LLC in the state to which you intend to relocate.
- File Articles of Merger with the Secretaries of State of each of the states involved. These Articles of Merger will merge the old corporation into the new corporation, which is located in the state you wish to relocate.
Filing Articles of Merger will essentially eliminate the corporation or LLC in the state from which you wish to move while allowing you to maintain continuity in your business and avoid tax consequences from the sale of the business.
I advise consulting with your attorney and accountant at every stage of this process in order to ensure that you are selecting the best strategy for your business and that you are executing it properly.
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