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December 1, 2022 | Maturity and Exit

Dissolutions and Moving Your Business to a New State

If you’re planning to move your business to another state or close it altogether, there’s a process you must follow, which varies by the structure of the business. It may seem a bit complex, but we’ll simplify it for you.

Feel like it’s too late to close your business and/or move it to a new state this year? Don’t worry; you can still make it happen. Here’s the right way to process a business dissolution and legally move your business to a new state.

Closing a Business

The steps for business dissolution depend on the legal structure of your business. Let’s look at the steps for each structure.

Sole Proprietorships

Sole Proprietors are “non-entities,” which means they have no legal separation from the business owner and are not registered with the state. Therefore, dissolving a Sole Proprietorship is relatively uncomplicated. After letting customers and vendors know you plan to close the business, make sure you pay off your debts, close business bank accounts, and file your final tax returns. The sole proprietor must also cancel any business licenses and permits. Since Sole Proprietors who operated their businesses using a DBA (Doing Business As) needed to register that name with the state, they must file the correct form to cancel the DBA in their state.

Partnerships

Although Partnerships are also not registered with the state, a few more steps are needed to close a business. To close a Partnership, all partners must agree to dissolve the business. The details of what happens when the business closes should have been documented in the Partnership agreement, including how the assets and liabilities will be divided among the partners. It’s also crucial to check with your state’s Secretary of State about any state regulations regarding Partnership closures.

In addition to filing their final tax returns, Sole Proprietors and Partnerships may need to file IRS tax forms regarding sales of business property and self-employment taxes.

Unlike Sole Proprietorships and Partnerships, C Corporations and Limited Liability Companies (LLCs) must be registered with the state in which they are formed. The formality gives these business structures separate entity status from the owners. Therefore, C Corporations and LLCs exist as legal entities until officially dissolved within the state.

C Corporations

The C Corporation’s home state dictates the process for forming and dissolving a corporation. Typically, the state requires the company to be in “good standing,” which means its ongoing compliance obligations, such as paying state taxes and filing timely corporation documents, are up-to-date.

C Corporations are separate, taxable entities, and owners/shareholders are W2 employees of the corporation—which is why the owners have limited liability from the company’s debts and legal responsibilities. C Corporations must have a board of directors, hold annual meetings, keep meeting minutes, and draft bylaws by which they operate. When deciding on dissolution, the corporation must have a meeting and vote to close the business. The board’s secretary must record the decision in the meeting minutes, and all voting board members must sign the document. If the C Corporation has shareholders, two-thirds of the voting shareholders must sign off on closing the business.

Limited Liability Companies (LLCs)

Likewise, LLCs are legal entities separate from owners and regulated by the state. In a Limited Liability Company, the owners are called members, and depending on state guidelines and the steps outlined in the member-created operating agreement, a meeting must be held to vote on dissolution.

Once the decision to close has officially been made, the following steps for C Corporations and LLCs are the same.

  • The businesses must file Articles of Dissolution (also called Certificate of Termination or Certificate of Dissolution) with the state, usually through the Secretary of State’s office.
  • The business may be required to settle the company’s debts and notify creditors and vendors about the company’s closure before filing the Articles of Dissolution.
  • Some states require corporations to publish an official notice of the dissolution in a print publication or online for a specific time period.
  • The companies should cancel any business licenses and permits, file final tax returns, submit final sales tax obligations, and divide up remaining property and assets among the owners.

Moving a Business to Another State

For Sole Proprietors and Partnerships, moving a business means closing it in one state and restarting it in another. However, for C Corporations and LLCs, the businesses can either dissolve the company in their former state and register in the new state or keep the original state as the corporation’s state of formation and file for a foreign qualification in the new state.

Filing for foreign qualification is wise if the company plans to do business in both states. Each state has its own process for foreign qualification, although it can usually be done online by filing for a Certificate of Authority and paying a fee. Keeping the business registered in both states also requires the company to designate a registered agent. Registered agents must have a local address and the authority to accept legal documents and government notices.

If the business is physically moving locations to another state, it’s better to follow the business dissolution process in the former state and register as an entity in the new state.

Alternatively, some states offer conversion or redomestication to change the company’s state of formation. The conversion option alleviates the burden of completely starting over in the new state. After the conversion, the company no longer exists in the former state.

In states that offer conversion, companies must apply for Articles of Domestication or Articles of Continuance. The company typically provides a Certificate of Good Standing and a copy of the application for Articles of Dissolution from the former state. Once approved, the company files Articles of Dissolution in the former state, and the company has officially moved. Only 27 states allow conversion, so check with your attorney or third-party legal counsel to see if your company offers that option.

<a href="https://www.corpnet.com/blog/author/nellieakalp/" target="_self">Nellie Akalp</a>

Nellie Akalp

Nellie Akalp is an entrepreneur, small business expert, speaker, and mother of four amazing kids. As CEO of CorpNet.com, she has helped more than half a million entrepreneurs launch their businesses. Akalp is nationally recognized as one of the most prominent experts on small business legal matters, contributing frequently to outlets like Entrepreneur, Forbes, Huffington Post, Mashable, and Fox Small Business. A passionate entrepreneur herself, Akalp is committed to helping others take the reigns and dive into small business ownership. Through her public speaking, media appearances, and frequent blogging, she has developed a strong following within the small business community and has been honored as a Small Business Influencer Champion three years in a row.

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