Your Guide to Business Re-Domestication Conversions
Your Guide to Business Re-Domestication Conversions
If you’re a business owner who has relocated to a new state, a business re-domestication through a statutory conversion may be right for you. Moving is a time filled with excitement and headaches. It can be an excellent opportunity to be closer to family, enjoy a different climate, try new experiences, or work at a new job. On the other hand, there are numerous logistical considerations, such as hiring movers, updating mailing addresses, obtaining new identification documents, setting up utilities, and other items. For business owners, a move may also affect your company’s operations. Business owners may also want to consider a statutory conversion as part of their moving checklist.
What is a Statutory Conversion?
A statutory conversion is a legal mechanism by which a business may change its entity type or domicile (home state). This post focuses on the latter type—a re-domestication conversion to change the domicile of a business to a new jurisdiction. Many states have adopted statutes within the last twenty years allowing for statutory conversions.
There are several reasons that a business might consider a re-domestication conversion:
- Maintain Existing Company. Instead of dissolving the previous company and forming a new company, a conversion continues the existence of your company and re-domesticates its jurisdiction to a new state.
- Maintain Company Credit and Tax History. A conversion allows the company to maintain its EIN and tax filing history. This may be important for several reasons, such as carrying forward a Net Operating Loss, amending prior returns, or using company financial statements and credit history to secure bank financing or vendor approval.
- Avoid new contracts. If your company has business contracts, licenses, insurance, leases, or other agreements, then a conversion allows those documents to remain intact without the need for renegotiating or amending.
- Assets/ Liabilities. If your company has bank accounts, real property, equipment, or items titled in the company name, a re-domestication conversion avoids the necessity of transferring the title. Similarly, if your business has a loan or other liabilities, a conversion prevents you from re-structuring those claims.
- Employees. If your company has employees, a conversion avoids the need to transition payroll and employment agreements to a new company.
- Operating in multiple states. Depending on your business, upon moving, you may be operating in multiple states or only in a new state. Instead of registering as a foreign business in Oregon and operating in multiple states, a re-domestication conversion will allow you to streamline annual filing fees and corporate governance expenses.
Are There Other Options Besides a Re-Domestication Conversion?
Yes, there are other options, but they may be less appealing. For example, a business owner could register a new business in their new state. Then, the business owner could maintain two separate businesses.
Another option would be to dissolve or merge the original business into the new one. These options could involve additional time and expenses and result in the loss of company credit, tax history, and other considerations.
What are the Steps in a Re-Domestication Conversion?
The primary steps in re-domestication conversion depend on the jurisdiction and entity type. In general, the key steps under Oregon law are:
- Document Preparation: The first step involves preparing the necessary documents, such as Meeting Minutes and a Plan of Conversion/Domestication. These documents will vary depending on the type of entity and the specific states involved.
- Submission to Original Home State: The next crucial step is submitting the conversion/domestication documents to the Secretary of State or its equivalent agency in the company’s original home state. Depending on the company’s future plans in the original state, it may also be necessary to register as a foreign entity.
- Notification to New Home State: Once the conversion is completed in the original home state, the company must then prepare and submit conversion documentation to the Secretary of State in the new home state.
- Address Updates: To maintain compliance and ensure proper communication, the company should update its business address with various relevant parties, including the IRS, state revenue departments, and any other pertinent entities.
A Case Study
A business owner came to the Law Office of Jonathan D. Mishkin, P.C., seeking assistance relocating from Washington to Oregon. She planned to have her principal place of business in Oregon and continue to work with existing clients in Washington.
In this instance, we assisted the business owner with a re-domestication conversion from Washington to Oregon. The Law Office of Jonathan D. Mishkin, P.C. prepared the appropriate company documents authorizing the conversion, the conversion documents for submission to the Washington Secretary of State as well as the documents to register as a foreign business in Washington, and the conversion documents to establish the business as an Oregon entity.
Using the statutory conversion mechanism, the business owner could maintain existing tax EIN, contracts, insurance, other business agreements, financial history, credit history, and employment agreements.
The process allowed her to hit the ground running in her new home state of Oregon.
Need Support With a Re-Domestication Conversion?
If you are a business owner who recently moved or is considering moving, schedule a consultation with the Law Office of Jonathan D. Mishkin, P.C., to see whether a re-domestication conversion is suited for you.
Our law firm can assist businesses relocating to Oregon and from Oregon to another state. Book your call today to learn more about how we can help you.
This article is for information purposes only and should not be considered legal advice. If you think a statutory re-domestication conversion may be right for you, please get in touch.