How to Move a Business to Another State (The Essential Guide)
January 22, 2019 by Aley Brown
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When looking to relocate a business to another state, there are several things that you should consider.
The most obvious consideration that comes to mind is that of legal concerns. Depending on the type of business you own (corporation, LLC, sole proprietorship, etc), and the laws within your current state, there are a lot of issues to work through when moving your business to another state.
We will cover the different legal concerns discussed above in this blog, as well as other issues that can arise when trying to move your business to another state. Things like costs, employee impact, community impact, customer impact, as well as future growth capabilities.
Before we get started, we should mention that we aren’t legal professionals, and that this blog no way constitutes legal advice. If you are looking to move your business to another state, we highly recommend that you consult with an attorney to ensure you are following all local, state, and federal laws.
How to Move a Business to Another State: Legal Concerns
For this step, if you own a sole proprietorship, you are in luck! This is the simplest business ownership form for relocating to another state.
You simply have to move your business, and then register in the new state, just like how you registered in the state where your original location was.
Easy peazy, right?
Well, it gets a lot more complicated from here.
According to BizFilings, there are three options for corporations looking to move their business to another state:
- Continue with the same business in the original state, and then register as a foreign corporation doing business in the new state location
- Dissolve the corporation in the original state, and then open a brand new corporation in the new state where you are trying to move the business
- Do a company reorganization, merging the old corporation into the new corporation in the new state location
Lot’s of options! But none of them are that simple to carry out.
If you continue to run a corporation in both locations, you could have to pay double fees for everything, which can be a burden to your bottom line. Dissolving the corporation in the original state also includes hefty fees and potential tax increases for shareholders.
So, maybe you’re reading through this and thinking: all of this is great, but what about an LLC?
Moving an LLC to another state is pretty similar to moving a corporation, unfortunately.
You can either create a new, foreign LLC in the new location, liquidate (this is different from dissolving, but a similar concept) the original LLC, or merge the old LLC into the new one with a reorganization.
Whatever you decide to do, make sure that you work closely with an attorney to make sure that you have all the information you need to make the best choice, and that you follow all federal and state laws.
How to Move a Business to Another State: Other Concerns
Cost
This is one of the most self explanatory considerations, but also one of the most complicated because of all the hidden or secondary costs involved with moving a business to another state.
First, you must consider the cost of moving from one state to another. The bigger the distance, the higher the potential cost for the move. For example, relocating a 3000 person office across country will be a lot more expensive than moving a 20 person office across state lines.
However, in both scenarios you would want to assess if the cost benefit outweighs the actual cost of making the move.
Next, you’ll want to consider how the overhead costs of your new location will impact your everyday operations. Things like your lease or mortgage payments, utilities, shipping, and wages could all be impacted.
For example, if you were to move a company from Kansas City to New York, the rent for your office space and the cost of wages would most certainly increase by a lot.
Next, you’ll want to think about the “hidden” costs of moving. These hidden costs could be different for every organization, so it is important for the people involved in the relocation decision to thoroughly assess any financial surprises that could show up as a result of the moving.
Building on the previous example, if you were to relocate from Kansas City to New York, would you be able to pay for the costs of all of your employees to relocate? That could be a pretty costly expense. More than likely you will also have to substantially increase their wages to meet the cost of living in New York.
And because going from Kansas City to New York is such a big move, many of your employees will not want to relocate. Depending on the attrition rate, your business might have to take on huge costs associated with hiring and then training new talent in New York to fill these openings.
Depending on the skill sets needed by your workers, and the pool of qualified candidates in New York, your company might also have to increase their spending on training over the long term as well. For example, there are ton of workers with farm science knowledge in Kansas, but probably fewer in New York.
Employee and Stakeholder Impact
People want to work for and with companies that make it easy for them to come to and be at their location. Think about the last time you went somewhere that had difficult parking. Wasn’t very fun, right?
Imagine having to do that every day for work.
I don’t know about you, but I have been dissuaded from going to places just because the parking wasn’t ideal, especially in the winter time when it means having to walk several blocks in the cold!
To deal with this, your organization can build a parking lot, lease a lot, or reimburse for parking. But once again, this will impact the costs of moving your business to another state, and must be taken into account.
Next, the location should be in a spot that is easily accessible from a commuting perspective. No one wants to commute into an office for over 30 minutes, so make sure to take that into consideration when locating your office within a city.
If you have clients or customers who frequently fly in to visit your organization, it could also be important that your office is within a decent distance of the airport.
Taxes
When moving your business to another state, it is important to assess the tax situation of your new location. Depending on where you are moving to, and your original location, taxes could have a huge impact on the profitability of your organization.
Some businesses also receive tax credits for having an office in different locations, so make sure to weigh those when thinking through the tax impacts of your moving your business to another state.
Customers
Your clients are the lifeline of your business’s financial health. So when moving your business to another state, you should consider the impact it will have to your customers.
This could be in the form of increased costs (due to the increase in overhead), or maybe a decrease in cost since you will be moving closer to a customer.
Some words of wisdom: if your business is overly reliant on one particular client, make sure you understand the risks associated with moving closer to that client for cost savings. If you were to ever lose that relationship in the future, it could then destroy your business, and the positive attributes that resulted from moving closer.
Growth Capabilities
When moving your business to another state, it is important to think about not only how the new location will impact your short term, but also over the long term.
For example, let’s say that your business is expanding like crazy and that you plan to double your employee size in the next 3 years.
Make sure that you assess if your new location has the labor pool to actually support that growth. If your growth will mostly be around general business professionals like developers, accountants, lawyers, and marketers, it might not be as much of a concern.
But, if you need to hire 50 more people with extensive backgrounds in Farm Science, you might want to conduct a study to determine if the local labor pool actually has the talent for that.
This doesn’t just apply to human capital. It can also apply to the need to grow your facility space, or even the capacity of local shipping companies.
Community Impact
The organizations that run a community are all interdependent. So when one business closes, or relocates, it impacts the entire organization.
Because of this, some would argue that it is a business’s ethical responsibility to assess and minimize the community impact associated with relocating a business.
For example, let’s say that your business is the biggest employer in a small town of 30,000 people.
If you relocate your business halfway across the country, the amount of jobs available in that community will substantially decline, resulting in a decrease in town population as people leave in search for employment. This will then impact small businesses in the area due to the decrease in patronage from people in the town.
Relocation a Business: The Final Say
The decision to move a business to another state can have huge impacts, and should not be taken lightly by the leaders involved in conducting the relocation. It is important to consider all of the factors involved with relocating a business, and then make the best decision for all of the stakeholders involved.
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