Moving an LLC to Texas can seem like a daunting task, but it can also be a great opportunity for businesses looking to expand or relocate.
Texas is known for its business-friendly climate, lower taxes, and favorable regulatory environment which make it an attractive location for entrepreneurs and business owners. Unlike many other states, Texas does not have a personal income tax or corporate income tax.
This article will provide a brief overview of different options for transferring an LLC from another state to Texas.
Please note that this article is a generalized summary of some of the existing law for transferring an LLC to Texas. It is by no means comprehensive and may not apply to your specific situation. This article should not be taken as legal advice as your situation may differ significantly and laws are always subject to change, and such changes may not be reflected in this article. If you need legal advice for your specific situation, please contact us for a free consultation.
Moving an LLC to Texas
Moving an out of state LLC to Texas requires careful planning and execution. There are several steps that need to be taken before you can officially relocate your business.
Let’s go over the three main options that many entities take when transferring an LLC to Texas.
Option 1: Form a New Entity & Dissolve Your Old Entity
A potentially straightforward way to move an LLC to Texas would be to simply create a new one in Texas.
You can look at this like a “fresh start” for the business.
In short, you would (1) create a new LLC in Texas and (2) dissolve your LLC from the other state.
After forming the new LLC, you would transfer any assets from the old entity into the new one. You would operate under the new LLC going forward.
The new entity is technically a separate business from the old entity. It would have its own books, financials, agreements, and anything else used in the business.
That transition from one entity to another might be simple for a business that does not have many outstanding accounts, agreements, and the like. But it might be quite difficult for a business with long standing operations and many things already set up.
Not to mention, there might be significant tax consequences with this sort of move. Consult with a tax professional if you are considering this option.
One subset of this option would be to form an entity in Texas and merge the old entity into it. That is, the Texas entity would effectively acquire the old entity.
However, you’d still have to switch everything over to the new entity name, which could be a hassle for an established business.
Option 2: Register as a Foreign Entity in Texas
Another option is to register your LLC as a foreign entity in the state of Texas.
According to the State of Texas, whether an entity is considered “foreign” depends on where it was formed (not where the principal business office might be located).
For example, an LLC formed and governed by the State of Illinois would be a “foreign” entity to Texas.
Generally, for a foreign LLC to conduct business in Texas, it must register with the Texas secretary of state.
When registering, you’ll have to register the entity under a name that is valid and available in Texas.
Here are the exact naming rules under Texas law for LLCs:
Sec. 5.056. NAME OF LIMITED LIABILITY COMPANY OR FOREIGN LIMITED LIABILITY COMPANY.
(a) The name of a limited liability company or a foreign limited liability company doing business in this state must contain:
(1) the phrase “limited liability company” or “limited company”; or
(2) an abbreviation of one of those phrases.
(b) A limited liability company formed before September 1, 1993, the name of which complied with the laws of this state on the date of formation but does not comply with this section is not required to change its name.
And here’s a link to see if the name you want is currently being used in Texas: https://mycpa.cpa.state.tx.us/coa/
Failing to register an LLC can result in penalties, including injunction from transacting business in Texas, the inability to file a lawsuit in a Texas court, and late filing fees.
To register your LLC as a foreign entity, you’ll have to file Form 304 with the Texas secretary of state. This can be done via paper filing or by online filing.
The state filing fee for an application to register an LLC as a foreign entity is $750.
On top of this, a foreign LLC will generally need to have a registered agent in Texas, even if its main operations are out of state.
Note that the State of Texas can always change required filings and rules regarding foreign entities. It’s recommended that you speak with an attorney prior to attempting to file things yourself.
Option 3: Domesticate Your LLC
In some cases, you can convert, or “domesticate,” your LLC into a Texas LLC. Here’s a general overview.
To convert a foreign entity to become a Texas LLC, the converting entity must adopt a plan of conversion that complies with Texas Business Organizations Code §10.103.
Here’s what §10.103 says:
Sec. 10.103. PLAN OF CONVERSION: REQUIRED PROVISIONS.
(a) A plan of conversion must be in writing and must include:
(1) the name of the converting entity;
(2) the name of the converted entity;
(3) a statement that the converting entity is continuing its existence in the organizational form of the converted entity;
(4) a statement of the type of entity that the converted entity is to be and the converted entity’s jurisdiction of formation;
(5) if Sections 10.1025 and 10.109 do not apply, the manner and basis, including use of a formula, of converting the ownership or membership interests of the converting entity into ownership or membership interests of the converted entity;
(6) any certificate of formation required to be filed under this code if the converted entity is a filing entity;
(7) the certificate of formation or similar organizational document of the converted entity if the converted entity is not a filing entity; and
(8) if Sections 10.1025 and 10.109 apply, a statement that the converting entity is electing to continue its existence in its current organizational form and jurisdiction of formation after the conversion takes effect.
(b) An item required by Subsection (a)(6) or (7) may be included in the plan of conversion by an attachment or exhibit to the plan.
(c) Any of the terms of the plan of conversion may be made dependent on facts ascertainable outside of the plan if the manner in which those facts will operate on the terms of the conversion is clearly and expressly stated in the plan. In this subsection, “facts” includes the occurrence of any event, including a determination or action by any person.
On top of that, you will have to file the following documents with the Texas secretary of state:
- A certificate of conversion that complies with Texas Business Organizations Code §10.154
- A certificate of formation for the converted Texas entity that complies with chapter 3 of the Texas Business Organizations Code
The certificate of conversion indicates that you are converting your existing business entity into a domestic Texas LLC, and includes important information about your current LLC such as its name, jurisdiction, and date of formation.
The certificate of formation is the document that actually creates the Texas LLC.
In order to file the certificate of conversion, you will need to provide various items such as proof of compliance with any outstanding tax liabilities or other legal obligations from your previous state. Additionally, you will need to list specific details regarding the members and managers involved in your LLC.
And, as with registering a foreign entity in Texas, you’ll have to register under a valid entity name available in Texas.
The filing fee for a certificate of conversion is $300, while the certificate of formation’s fee is also $300.
Once your application is approved by the Secretary of State’s office, they will issue an official certificate verifying that your business is now registered in Texas.
Remember, this is just a general summary of the rules. Your specific situation may differ or call for a different process!
Overall, domesticating an out-of-state entity to become a Texas LLC is a rather involved process. It’s best to consult a Texas attorney to help you work through the process and make sure all forms are completed and filed correctly. Contact us for a free consultation if you’re considering moving your business in Texas.
Potential Tax Implications of Moving Your LLC to Texas
Moving an LLC to another state can have significant tax implications, so it’s important to research potential consequences before making a decision.
Obtaining a New Employer Identification Number (EIN) from the IRS
You may need to obtain a new Employer Identification Number (EIN) from the IRS.
An EIN is essentially a tax identification number used by businesses for various tax-related purposes such as payroll taxes or federal income taxes.
You can apply for an EIN online through the IRS website.
Remember that forming a new LLC in Texas would mean that you’ve created a new entity. Even if your current LLC already has an EIN, that new entity would need its own EIN as well.
Registering for Taxes in Texas
If you plan on moving your LLC to Texas, you need to be aware of the state’s tax laws and regulations.
Registering for taxes in Texas is a crucial step in ensuring that your business operates legally and avoids any potential penalties or fines.
The first step in registering for taxes is to obtain a sales tax permit. A sales tax permit allows your business to collect sales tax from customers in Texas.
To apply for a sales tax permit, you will need to fill out an application form and submit it to the Texas Comptroller of Public Accounts. Once approved, you will receive your sales tax permit number and instructions on how to collect and remit sales tax.
In addition to obtaining a sales tax permit, you may also need to file other necessary tax forms with state agencies. For example, if your LLC has employees in Texas, you will need to register with the Texas Workforce Commission (TWC) and report employee wages and payroll taxes through TWC’s Unemployment Tax Services system.
You will also need to prepare to file annual franchise tax forms. You should receive information relating to Texas franchise taxes shortly after registering an entity in the state.
It is recommended to consult with a tax professional familiar with Texas tax requirements to ensure that you are in full compliance.
Preparing Your Current LLC for the Move
Following Your Current State’s Requirements
Different states will have different procedures for transferring or winding up an existing entity.
Many states require “Articles of Conversion” to notify them of your intent to move and so you can obtain a Certificate of Good Standing or similar verifications.
Some states may require additional documentation or fees.
Just be sure to carefully follow the current state’s requirements in addition to Texas’s.
By following any required steps, you can ensure that your LLC is ready for a smooth transfer to Texas.
Transferring or Cancelling Licenses or Permits
Don’t forget to cancel any registrations, licenses, or permits you had with the previous entity if you’re dissolving that one. You should also inform vendors, suppliers, clients, and customers about your plans to move so that they can prepare accordingly.
Depending on the type of business you run, you might need to apply for a specific license in Texas (or you might be able to transfer it over from another state). Different industries are subject to different regulations, so be prepared to adjust if necessary.
What you need will depend entirely on the type of business you operate and whether it has already been operating in Texas, among other factors.
Updating Contracts and Agreements
One of the most important steps when moving your LLC to Texas is updating all contracts and agreements with vendors, suppliers, and clients. Ideally, the transfer will not disrupt ongoing business operations.
If you have any employees, be sure to setup their employment with the new entity as applicable.
Depending on the terms outlined in your agreements and contracts, there may be additional fees associated with modifying them following the move.
Some contracts may have specific provisions about how a party can terminate the agreement if one of the parties relocates its business.
Certain agreements might need to be renegotiated entirely.
Whatever the case, give yourself some time to work on the transition, particularly if you’re setting up an entirely new entity in Texas.
Informing Banks and Financial Institutions About the Move
In addition to updating contracts and agreements with vendors, suppliers, and clients, it’s also important to inform banks and other financial institutions about your move.
This includes notifying your bank(s), credit card issuers, lenders, insurance companies, payroll providers, accounting firms – anyone who provides financial services or resources related to your business operations.
If you don’t inform them about your move in a timely manner, it could lead to unnecessary complications (including account freezing due anti-fraud measures).
Conclusion – Moving Your LLC to Texas
Moving an LLC to Texas can be a complex process, and there are plenty of factors to consider.
It is important to note that moving an LLC to Texas may have both benefits and drawbacks. While Texas offers favorable tax rates and business-friendly laws, the process of relocating your business can be costly and time-consuming.
And, as we’ve seen, things can get complex pretty quickly. And it might not even make sense in your case.
It’s best to consult with an attorney licensed in the state of Texas before attempting to transfer your LLC to Texas. Contact us for a free consultation if you’re considering moving your business in Texas.
Regardless, best of luck!
Any information contained in this website should not be construed as legal advice and is not intended to be a substitute for legal counsel on any subject matter. See our disclaimer for more information.