If you’re new to Texas, you’re not the first from California to sing about it. In their 1964 album, The Beach Boys sang about being a “Long Tall Texan.” Nowadays, there’s a lot more to moving to Texas than just singing a song. This is the first of a series addressing tips for moving the entirety of your business and you into the Lone Star State.
If you intend to continue to conduct business in your home state, you should strongly consider having two separate and distinct entities, books, employees and accounting systems. Generally speaking, it’s easier to start a business in Texas than it is to terminate your business ties in your departing state – together with the on-going payment of all of the departing state’s taxes and fees. You should strongly consider the following:
1. Disconnect Your Existing Company Entity
Identify all business connections with your departing state.
- Identify all State Permits, Licenses and Reporting – These may include, among others:
- General Business License– An annual license issued by the city or county to allow a business to operate legally within an area.
- Professional License– Some professionals must be licensed, such as builders or contractors, barbers, accountants and doctors.
- Seller’s Permit– Businesses selling taxable goods or services.
- Use Tax Account– May be required under certain conditions.
- Health Permit– Businesses selling products that people consume or that touch the human body need a local health permit and annual inspections.
- Signage Permit– Some county and city zoning laws require sign permits.
- Home Occupation Permit– For businesses that operate out of their home.
- California Labor & Workforce Development Agency and the Employment Development Department– If you have employees, timely and fully address all LWDA requirements.
- California Franchise Tax Board– If you are required to file a federal income tax return and received income above a certain amount from a California source.
- Taxes, Fees and Related Charges, Penalties and Interest
- Pay all Taxes Current and in Full
- File a Final Report– Typically, a Final Report is different from and in addition to your annual report.
2. Form Your Texas Entity
Best to determine from the moment you move whether your Texas entity will be the same “old state” entity and whether you will attempt to have your “old state” company authorized to conduct business in Texas or if you will elect to form a new Texas entity.
- You can continue your “old state” company in the old state and register as a foreign entity doing business in Texas (undertake foreign qualification in Texas). However, there are a couple of things to note:
- Ongoing State Fees– If you keep both entities, you will pay duplicative annual report and/or franchise taxes, and sometimes complicated tax filings for the entity and its owners – most probably continuing to report to all of the entities identified above.
- Delaware or Nevada– If your company was incorporated in Delaware or Nevada, you are probably foreign qualified in your “old state”. You may choose to eliminate your “old state” qualification to do business and register your Delaware or Nevada entity as being qualified to do business in Texas. Please note that more is required to cut ties with your “old state”.
- Jurisdiction for Litigation– If you retain your “old state” company domiciled in your current state, any litigation filed against your “old state” company, will almost certainly be filed in your “old state” and your company will be required to defend itself in and under the laws of your “old state” – even if most or all of your employees, business and activities were moved to Texas.
- Reorganize – You can undergo a reorganization, forming an entity in the new state and merging the old company into the new.
- Conversion– Depending upon your departing state, you may be able to follow a conversion process to morph the “old state” business into a Texas entity – assuming that your company name is available using a Texas Comptroller’s search.
- Merger– If a conversion is not permitted by your departing state, a merger of the “old state” entity into a new Texas entity may be a preferred course of action. Again, the company name that you select must be available through the Texas Comptroller’s office. And, when properly done, this can be entirely tax-free for a C corporation.
- Liquidate – You can liquidate your “old state” company and form a new entity in Texas.
- This may result in federal tax issues if you have a C corporation, but not likely if you have a limited liability company.
- For any company entity, there are state mandated formalities if you dissolve your business, depending upon the state, often at least requiring document preparation (dissolution papers), filing and paying any outstanding taxes and dissolution fees.
3. Consider Your Company’s Legal Documents
- Contracts with Customers and Vendors – Legal jurisdiction is now in Texas, not your departing state; it makes sense for your documents to choose Texas law. Texas law treats at least some contract provisions differently. Moreover, depending upon the claim and the attentiveness paid to your contracts and relationships, you may still find yourself defending a lawsuit in your “old state,” especially if your company is still shown as being domiciled there. Get a checkup on your legal documents, both those with your customers and those with your vendors.
- Employee handbook – Many aspects of your employee handbook, whether off the internet or tailored to suit your company, are different in Texas. My partner Michael Kelsheimer offers a free “Employer Handbook” with easy to understand Texas-specific answers to frequent employment questions.
4. Change Your Address with the Government – Federal, State & Local Agencies
- The IRS requires no document change, like your employer ID number (EIN), but you must complete Form 8822-Change of Address (Part II) and designate if only changing mailing address or also changing notifications for business income, excise, employment, and other tax matters.
- The Texas Secretary of State requires company registration to do business in Texas perhaps necessitating amending organization documents (Articles of Incorporation for a corporation or Articles of Organization for a limited liability company) and notification of any address change. If you elect to be organized in one state and registered to do business in another, you must maintain registered agents in each state and complete each state’s filing and reporting requirements. California, for example, imposes a franchise tax on every corporation or LLC that is registered to do business there.
Tilting the Scales in Your Favor
Whether you are moving your business across the United States or across the street, it’s about time that you double check your company structure, your state of domicile, your ongoing contacts and responsibilities with your “old state,” and the possible pitfalls that staying domiciled in your “old state” may present. In subsequent articles, I’ll cover more of the legal issues affecting both your company’s contracts and the rights and privileges of your personal life – personal traps and opportunities that you may want to consider as you settle into being a Long, Tall Texan. Who knows, you might even buy a big white horse?
Finally, WELCOME! I hope that you find our great Lone Star State to be everything that you hoped … perhaps, with the possible exception of the weather.
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