Things to Consider Before Moving Your Business to Another State
Some states have lower taxes, more funding resources, a higher density of talent, and other perks for small business owners.For decades, Connecticut offered substantial tax breaks to lure in companies. The state’s business relocation strategy worked. More companies are headquartered in Connecticut than in any other state.
It didn’t last forever, though. Why did businesses move to the south? Other states caught on to the game and started offering even better perks.
If your state isn’t doing enough for your small business, it may be time to consider moving your business to a new location. Let’s look at some of the reasons small businesses are packing up and moving to greener pastures.
Business Moving Guide
Moving a business from one state to another can be tricky. If you want to relocate but don’t know where to go, consider the tips from our business moving guide below.
Costs of Relocating a Business to Another State
Moving a business to another state is expensive in the short term. For one thing, your executive employees will likely expect you to foot their moving expenses. Some of them may not move no matter how much you pay them. That means finding new employees, which can be expensive, too.
Don’t forget about the actual physical process of moving. Relocating a business to a new state requires the help of a commercial moving company that can be costly too.
Even moving across town isn’t cheap, but you can add a few zeroes when moving your company out of the state. Small businesses should expect to spend around $10,000 to $30,000 to relocate.
In the long term, a business relocation strategy can pay big dividends. However, your company must last that long. Try to save up a nest egg before you move. If you can’t save enough, then reach out to investors for help. Once you get to the new state, hit the ground running, and have a plan to keep your business profitable throughout the moving process.
Taxes and Cost of Living
What do Texas, Nevada, Washington, South Dakota, and Wyoming all have in common? Besides having a relatively low cost of living (minus Washington), these are the five states in the U.S. that don’t have an income or capital gains tax for corporations or individuals. A corporation that legally does not pay income taxes is referred to as an S corporation.
Fewer taxes mean more take-home money for you and your employees. Combine that with a lower cost of living (again, except in Washington), and you have a recipe for increased profits.
State Grants and other Programs
The top states for small businesses get that way by offering a healthy financial environment where companies can thrive. One way for a state to do that is by pouring money into companies through grants and other programs.
Regulations
It can be expensive to run a business that the government heavily regulates. Every dollar you spend to jump through legislative hoops is less money to move your product.
Some states haven’t reviewed their small business laws for decades. They add new regulatory burdens on top of old ones, making it very difficult for entrepreneurs to operate.
Fortunately, there are states that proactively look for ways to ease the regulatory burden for small businesses. Tennessee is known for its straightforward rules. Other business-friendly state governments include Alaska, Indiana, Missouri, Kentucky, and North Dakota.
Financing Sources
California is one of the best states for business. That’s not because its tax burden is the lowest. It’s because California is where venture capitalists are putting their money.
You need money to make money. Sometimes that requires taking out a loan. When your state has more loan sources such as banks, angel investors, venture capitalists, etc., then you might have a better chance of getting approved for funding.
Online funding for small businesses is a growing industry. Like the personal loan market, it’s filled with a wide variety of financial products. Some are better than others. Many are expensive.
It helps to live in a state with a wide variety of funding options. That way, you might be able to choose between a few different products and then hopefully find an affordable option.
Employees
When moving your business to another state, you need to consider where you’ll get new employees since not everyone on your team will make the trip.
If you move into a community that’s light on talent, it will be more challenging to find workers for your business. It might also be more expensive.
States with solid higher education programs are effectively churning out new business professionals every year. Many of these graduates get funneled into nearby businesses that capitalize on the younger, cheaper talent.
The Case Against Business Relocation
So, why doesn’t everyone move? Well, there are some downsides:
- The weather - Some business owners are willing to sacrifice a little profit to live somewhere with great weather. It stays uncomfortably hot in Texas for a lot of the year. South Dakota and Wyoming have cruel, unforgiving winters that locals like to say “keep the riff-raff out.”
- People have less money to spend - When you live in a state with lower wages, that means all the other employers are paying their people less, too. There’s less money to go around, and so you might not be able to charge as much for your product.
- There are fewer people - Texas has some of the biggest cities in the country. But Wyoming has twice as many cows as people. South Dakota has three times as many cows as people. Fewer people translates to fewer customers for you.
- Active venture investing communities don’t exist - New York and California are home to many investors. This type of capital is not as available in other states, which makes it more difficult to find funding.
If you run an online company (one that doesn’t generate profits from local customers and can hire remote employees), you might be immune to some of those issues.
Don’t Choose the Wrong State
Forbes.com recently reported on a study about the best and worst states for entrepreneurs. They looked at 21 factors, ranging from socio-economic to the percentage of local entrepreneurs who said they started their new business because of opportunity instead of necessity.
The worst states included Rhode Island, Connecticut, New Jersey, Maine, and Alabama.
That doesn’t mean you should stay away from these states, though. Even if the tax burden is high and the success rates are low, your business may still thrive in one of these areas. You need to justify the risk with a solid business plan.
Before you move your business to a new location, it helps to do some serious research. Find out how your new competitors are doing. If they are struggling to survive, then you might be subjecting yourself to a similar fate.
Legal Implications and Requirements
If you are wondering about the legal implications and requirements on how to transfer a corporation to another state, the tips below will help you make a smooth transition to the new state.
How to Transfer LLC to Another State Permanently
The process of moving a business to another state depends on the business entity, business structure, and legal implications. For a corporation or a new LLC to operate legally, they must register in the new state and pay an annual fee. If a business owner wants to move his business permanently to a different state, then they must dissolve the existing corporation in the old state and start a new corporation in the new state.
To move an LLC to a new state, all board members in the home state must agree to move the entity to a new location. This must be recorded in the meeting minutes. Then, the entrepreneur must file a “Certificate of Termination” or “Articles of Dissolution” document with the help of the corporation’s Secretary of State to end the business entity permanently. Whether the old LLC is a limited liability company or not, it has to pay off any debts related to the old company. If the old LLC files taxes as a partnership, it is not required to pay business taxes on the assets; however, members have to pay income tax on the distributed assets.
Once the old corporation is closed in the old state, the business owner can register the LLC in the new state according to its rules and regulations.
How to Transfer LLC to Another State Temporarily
A small business owner who wishes to live in one state and own a business in another must file in the new location to operate as a foreign entity. They have to submit a Certificate of Authority application form and pay a filing fee to the Secretary of State office. The entrepreneur also has to provide details about their existing corporation in the original state, why they want a foreign LLC, their business license, bank account, tax obligation, state taxes, tax savings, etc. They may also end up paying franchise tax.
Business owners who want to make a temporary move might want to consider working with a registered agent. A registered agent is a person or a company that has the authority to perform legal services on behalf of a business or a foreign corporation. The registered agent can help handle corporate filing requirements, tax notices, state correspondence, and more. Other than hiring a registered agent, you may also want to hire a professional mover.
Sole Proprietorship and Partnerships
Moving sole proprietorship or partnerships is relatively easy compared to moving an old LLC to a new location. The sole proprietor has to cancel their local business licenses and apply for new ones in the new state.
Before canceling the business license of your sole proprietorship, make sure to:
- Pay any outstanding fees or state income taxes
- Open a new business bank account if your current one is not nationwide
- Inform the IRS about your move to a new state so they would change your business address on your Federal Tax ID or EIN.
If you make your move mid-year, note that you will have to submit tax returns for both states you were operating in.
