In 2019, I posted an article on How to Save Taxes by Moving From New York to Florida. When undertaking such a move from New York or another high-tax state, owners of LLCs and other corporate entities must pay careful attention to the steps required to conduct business in that new state. Doing things the right way means avoiding major tax and regulatory headaches.
Business owners have three options to establish a business presence in Florida.
Option One: Operate as a “Foreign Entity” in Florida
By default, a business that was established elsewhere and transfers some or all activities to Florida is classified as a “foreign LLC” (or other corporate structure) operating within the state. In order to legally conduct business, the owner of a foreign LLC must file the appropriate form, to authorize the entity to do business in Florida, with the Florida Department of State Division of Corporations.
Functioning as a foreign business entity is usually the quickest way to get a business up and running in Florida and maintain continuity. This approach to LLC relocation makes the most sense if the business has continuing operations in its original state, or the owner ultimately plans to return to the state where the company was established or bequeath it to another of that state’s residents or family members. In other situations, foreign entity status might limit flexibility or create bookkeeping hassles by keeping the company anchored elsewhere. These are minor inconveniences and should not be a deterrence to using this procedure.
Option Two: Domesticate the Business in Florida
For many relocating business owners, domestication in Florida offers best-of-both-worlds benefits. When properly executed, this process ensures seamless continuation of operations while facilitating a smooth transfer of company headquarters to Florida. Continuity is ensured by the preservation of all aspects of the corporate entity’s identity, including bank accounts, credit rating, public records, and tax ID number.
To reap these benefits, an LLC owner must complete the proper steps in the proper order. Briefly, the stages of the Florida domestication process are:
- Obtain a Certificate of Good Standing for the corporate entity from the state where it is currently based.
- File a Certificate of Domestication and Articles of Incorporation/Organization with the Florida Division of Corporations.
- File for dissolution of the LLC in the previous state. Naturally, this step should only occur after the business owner receives confirmation that Florida filings have been accepted.
Importantly, domestication in itself does not offer relief from all obligations to the state where the LLC was previously based. New York, for example, deems a corporate entity as continuing to do business in the state under a variety of circumstances, such as operating a New York office or other facility, employing New York workers or officers, or regularly conducting transactions in the state. Registration as a foreign business entity in New York might be required in such cases.
An LLC that domesticates in Florida but continues operating as a foreign business entity elsewhere must usually maintain a registered agent in every state where business is conducted.
Option Three: Dissolve Your LLC and Establish a New One
Some states do not allow domestication of a corporate entity that formed elsewhere in the United States. Instead, they require the owner to dissolve the original company and establish an entirely different one in the new state. This “out with the old, in with the new” approach carries with it some additional administrative work, including the need to close bank accounts and apply for a new tax ID number.
I have encountered situations in which shuttering an existing company and starting fresh made a great deal of sense. For example, the old company may have had financial, tax, or branding baggage that would best be left behind in the owner’s former state. Dissolution does not make such baggage disappear, but can prevent it from tainting or attaching to Florida operations.
Conclusion: Look Before You Leap
Successful company owners know that one-size-fits-all solutions to business challenges should be viewed with the utmost skepticism. While domestication well serves the needs of many LLC owners moving to Florida, owners should thoroughly review every option—preferably with a well-qualified professional—before making a final decision.