Understanding the Legal Process of Moving A Business from your original state to Virginia
In the United States companies are formed under state law, and each state regulates the way businesses can conduct business in their boundaries.
When a business expands into a second state or engages in certain activities in a second state they are typically required to register as a foreign LLC, foreign corporation, or whichever foreign entity type matches their entity type, in order to obtain permission to conduct business in the second state.
In some cases, a business wants to move their LLC or corporation to a new state and cease operations in the original state of formation.
Business owners move, and in many cases the business moves with them. So, what happens when the business wants to stop doing business in its initial state of formation and move to another state?
The goal of this article is to educate you on the basic legal ways you can move a business to Virginia.
There are Three Ways to move an LLC or Corporation to Virginia
There are three basic options if you want to move a business to Virginia.
- You can continue the entity in your original state and then register as a foreign entity in the new state.
- You can dissolve the entity in the old state and form a new one in the new state.
- You can have your business undergo a reorganization and merge the original entity into an entity formed in the new jurisdiction.
Selecting the right option depends on your particular circumstances, and you should consult with an attorney and tax professional to discuss your business goals and objectives before you move a business to Virginia.
Each of the scenarios presented can have different state and local tax effects. Additionally, if you execute incorrectly, the transaction can be treated as a sale of the business and result in unintended federal tax consequences.
First Step: Planning to move A Business to Virginia
Before moving your LLC or corporation to Virginia, you need to check the original states laws on domestication, mergers and/or statutory conversion. You need to evaluate your available options, because all options are not available in all fifty states. Each states laws must be taken into account when deciding how to move your company to Virginia.
It is also best to make sure your entity is in good standing with its original state, as you will not be able to execute your plan until the entity is in good standing in the original state of domicile.
To check if your entity is in good standing, get a certified copy of your entity’s articles of incorporation and a certificate of good standing from the original state. If your entity isn’t in good standing, you’ll need to resolve any outstanding fees or filings.
In some cases, you might need to reinstate your entity with the original state if it was dissolved or marked as inactive due to non-compliance.
Next Step: Develop and file the appropriate document Set
The right document set depends on the method you choose to execute, the laws of the original state of formation, and the laws of the new state (Virginia in this case).
With the right know-how these documents can be filed and/or forms can be completed online through the Virginia State Corporation Commission’s filing system.
Register as a Foreign Entity Doing Business in Virginia
Businesses register as a foreign entity doing business in Virginia for a variety of reasons. In some cases, businesses are always physically based in Virginia, but register in a foreign state to obtain certain tax or legal benefits (For example, DE or WY). Businesses also file to operate as a foreign business when expanding or moving to Virginia.
This method allows your company to also do business in Virginia. Meaning, this registration does not effect your registration in the original state.
In Virginia, you can register a foreign LLC or foreign corporation by submitting a form online and paying your registration/filing fee. You utilize form LLC1052 for an LLC and form SCC759/92 for a corporation. Under this approach, no documents are filed with the original state and the original state remains the jurisdiction of formation.
Note, if you decide to keep your business in its original state but also register as a foreign entity in another state, you’ll need to pay annual fees, registration fees, and franchise taxes in both states.
Dissolve and form a New Business Entity
If you choose to simply dissolve your old entity and form a new one, you will face more complex federal income taxation implications.
For example, if you liquidate a corporation, you may incur federal income taxation to the corporation and its shareholders. You should consult with an attorney and accountant.
If you go this route, best practices dictates that you domesticate first by filing the appropriate form in the new state. In Virginia, an LLC uses form LLC1077 and a corporation uses form SCC722.5-VA. Next, you dissolve your original LLC or corporation. This is accomplished by filing the appropriate papers in the original state of formation, which vary by state.
In the event that there is an issue with your domestication filing, and you have already dissolved your old LLC or corporation, your company will not exist in either the old state or Virginia. Always ensure that you are registered in Virginia before dissolving the old entity in the original state of formation.
Reorganization and merger
Another option to move a business to Virginia is through a reorganization or merger. Should you choose the merger or consolidation route, you will generally not be subject to federal income tax consequences.
Best practices dictate that you research the merger rules for both the original state of formation and Virginia. There are several ways to effect a merger or consolidation. You can merge the original entity into a single surviving entity. You can also consolidate into a new resulting entity formed by the consolidation.
This is accomplished by preparing the appropriate papers in the original state and in Virginia, which varies by circumstance.
Third Step: Notify the Federal Government
The federal governments wants to know who is responsible for paying taxes. If you move a business to Virginia, you also need to notify the IRS and FinCEN.
Notify The Internal Revenue Service
Businesses use Form 8822-B to notify the IRS when they change their business mailing address, business location, or the identity of their responsible party.
Update Beneficial Ownership Information
FinCEN’s Beneficial Ownership Information Report requirements also require updating the businesses initial report when certain changes occur.
If there is any change to the required information about a reporting company or its beneficial owners in a BOIR that a reporting company filed, the reporting company must file an updated BOIR no later than 30 days after the date on which the change occurred.
Meet the Author
Derek A. Colvin
Derek is a graduate of Penn State Law and Old Dominion University. He started his legal career in public service as a prosecuting attorney before entering private practice. He currently serves business clients as a partner at Waldrop & Colvin, the law department for your business. His practice focuses on SMB client legal services and franchising.
Derek is laser-focused on delivering efficient and effective solutions for business legal needs. As a seasoned litigator set on thinking critically and communicating effectively, Derek is well-suited to advise and protect your business as an independent owner, franchisor, or franchisee.
Derek A. Colvin offers a free 15 minute consultation.
You can call or email Derek Colvin directly or you can schedule a video conference today!
