What Does It Mean to “Domesticate” an LLC in Another State?

While many businesses launch and operate in their home state, others choose to relocate. Dissolving an LLC that’s based in one jurisdiction and registering a new one with another state may seem ideal for entrepreneurs. However, a better option has emerged: LLC domestication.

Today, we explain what it means to “domesticate” an LLC.

Key Takeaways

• LLC domestication is the legal process of relocating your company to a new state. It preserves the existing entity and its operational history.
• Some LLCs relocate to save on compliance costs, operate in a business-friendly environment, or serve customers in another state better.
• Domestication isn’t the same as foreign registration. The latter allows your business to operate in multiple states without leaving its original jurisdiction.
• Consider relocating your LLC if:
  • You want to avoid operational disruptions.
  • It holds significant assets.
  • You want to maintain the company’s operational history. 
• Not all states allow LLC domestication, making it crucial to verify both origin and destination state laws before proceeding

LLC Domestication: What Is It?

The term “LLC domestication” refers to the legal process of moving an LLC from its original jurisdiction to a new one.

A “domesticated” LLC will be closed in its charter state. However, the company retains its original structure, and information such as its federal tax ID are transferred to the records of the LLC’s new state.

LLC domestication involves filing specific documents with the venture’s original jurisdiction and its new location. We’ll discuss these papers later on.

3 Reasons for Domesticating an LLC

LLCs can relocate for any of the following reasons:

• Lower compliance costs – Certain jurisdictions charge lower business taxes and annual fees on businesses.
• A business-friendly legal environment – Some jurisdictions have established corporate-focused legal courts and enforced business-related laws.
• Fewer compliance requirements – Some LLCs serve customers in multiple states, increasing their compliance burden. Domesticated LLCs are required to meet their jurisdiction’s specific legal requirements.

The Difference Between Domestication & Foreign Registration

The terms “domestication” and “foreign registration” can be used interchangeably, leaving you confused. Nonetheless, there are several key differences between both processes.

Domesticating an LLC means moving it outside of its original jurisdiction. Meanwhile, foreign registration allows LLCs to operate in locations other than its home state. For example, a Nevada LLC can register as a foreign entity in California to operate there.

We’ve listed the key differences between domestication and foreign registration in the table below to help you choose the best option.

Related Resource

Learn the differences between domestic and foreign LLCs from NCH.

When to Domesticate an LLC

Domesticating an LLC may make sense in any of the following situations.

Ensuring Business Continuity

An LLC’s business bank account, lending information, vendor contracts, and federal tax ID number are maintained when it’s domesticated. You lose all of these if your business closes and you form a new LLC in another state.

Overall, domestication saves you time and keeps your LLC operational.

Conducting Business with Significant Assets

LLCs with real estate or other significant assets may find dissolving and relaunching challenging. After all, asset transfers between entities affect an LLC owner’s taxes, require third-party consent, and need to be well-documented. Domestication can help you avoid these issues.

Transferring to another state can also work for LLCs with existing contracts. Let’s say you run a professional LLC with clients in the state where you want to relocate. When the business is domesticated, it can reduce confusion and prevent you from drafting new contracts.

Maintaining Operational History

Your LLC’s formation date and operational history are extremely valuable. Many of your lenders, investors, and business partners have used this information to assess your venture’s stability and reliability.

If you choose to dissolve your LLC and open a new one, you’ll start from scratch. This can affect your chances of securing financing and building and maintaining business relationships.

Do All U.S. States Allow Domestication?

Several U.S. states will let you domesticate your LLC. Thus, you must check whether this rule applies to your chosen jurisdiction.

Also, domestication processes vary by state. Contact the Secretary of State in your chosen jurisdiction to know how to relocate your LLC there.

Where Can LLCs Domesticate?

LLCs can domesticate in any of the following states:

• Alaska
• Arizona
• Connecticut
• District of Columbia
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Massachusetts
• Minnesota
• Mississippi
• Nebraska
• New Hampshire
• New Jersey
• North Dakota
• Pennsylvania
• South Dakota
• Utah
• Vermont
• Virginia
• Wisconsin
• Wyoming

Alternatively, LLC conversion is offered in states such as Nevada. This term is used to describe domestication.

What’s Needed for LLC Domestication?

In states where LLC domestication is offered, you must submit the following documents:

• Articles of Domestication or Articles of Continuance
• Certificate of Good Standing
• A copy of the Articles of Dissolution (This document shouldn’t be filed before your LLC starts the domestication process.)

Your LLC’s new jurisdiction provides the Articles of Domestication or Articles of Continuance. The last two documents should come from the company’s original state of formation.

How Long Does It Take to Process Domestication Documents?

Processing times vary by state, ranging from several weeks to several months. Your chosen jurisdiction’s review process and current workload determine the exact timeline for LLC domestication.

Related Resource

Learn about the LLC domestication process from the Ask NCH series.

Domestication’s Impact on Your Tax & Legal Obligations

LLC domestication creates significant tax and legal implications that should be considered and discussed with a professional. Let’s look at how this process can affect your LLC’s tax and legal obligations.

Federal Tax Filings

Domesticating your LLC doesn’t change its tax classification and reporting obligations. Moreover, the business keeps its federal tax ID number when it relocates to another jurisdiction. If domestication requires changes to the items listed below, it can only affect your LLC’s tax and legal obligations.

• The company’s ownership
• Tax classification elections (particularly for LLCs electing C corporation or S corporation status)
• The LLC’s primary business activities

A trusted tax advisor can help you understand the potential tax consequences of domesticating LLCs and stay compliant with current taxation rules.

Learn About NCH’s Tax Consulting Service

State Tax Payments

Domestication may also affect your LLC’s state tax obligations.

If your business operates in a jurisdiction that imposes franchise taxes, moving to one without them can give you substantial tax savings. Conversely, domestication in states with higher taxes may increase your tax liability.

Business-Related Regulations & Licenses

While domestication keeps everything about your LLC intact, it can change the company’s regulatory and licensing requirements.

In states offering domestication, you may be required to obtain new business licenses and permits. It’s especially important if your LLC operates in a regulated industry like medical care or finance. Also, the jurisdiction where you want to relocate may enforce regulations different from your LLC’s original location.

To keep your business compliant and avoid potential issues, check the current laws and licensing guidelines of your chosen jurisdiction before domestication.

Frequently Asked Questions

Can I domesticate my LLC in any jurisdiction?

No, you can’t domesticate your LLC in any jurisdiction. Certain states offer domestication, including Wyoming.

If your business is relocating to a state where domestication is permitted, its original jurisdiction must allow it to do so. The state will dissolve an LLC and transfer the entity to its new location.

Can a multi-member LLC be domesticated?

Yes, a multi-member LLC can be domesticated. Before the business relocates, all members must approve the decision according to the LLC’s operating agreement.

Additionally, the multi-member LLC’s original jurisdiction and its new home state must allow its domestication.

How long does LLC domestication take?

Timelines for LLC domestication vary by state.

If domestication is done online, your filing will be processed immediately. Conversely, mail filings may take longer to process. Some states with domestication procedures may offer expedited processing that can take several hours or days to complete.

Can my LLC keep its legal business name after domestication?

Yes, your LLC can keep its legal business name after domestication. The name shouldn’t be taken in the company’s new jurisdiction. Otherwise, you may need to change it or register a fictitious business name (“Doing Business As”) with your LLC’s new state.

Will domestication change my LLC’s federal tax ID number?

No, LLC domestication won’t change your LLC’s federal tax ID number. Instead, the business keeps its EIN (Employer Identification Number) and other information related to its operations. This way, your LLC maintains its existing banking, lender, and vendor relationships.

Will LLC domestication affect my venture’s state tax obligations?

Yes, LLC domestication will change your venture’s state tax obligations. That’s because your LLC will be required to follow the tax laws of its new jurisdiction.

The aforementioned change may affect your tax payments. If your LLC relocates to another state, it may need to file a final tax return with its original jurisdiction.

Does my LLC need to update its operating agreement after domestication?

Yes, your LLC needs to update its operating agreement after domestication.

State laws governing LLCs vary. That said, the provisions of your LLC’s operating agreement might not adhere to the laws of its new jurisdiction. Revising the document ensures that your business stays legally compliant.

What happens to my LLC’s existing contracts after domestication?

Since your LLC maintains its structure after domestication, its existing contracts will remain valid and enforceable.

However, some agreements may require you to inform the other parties of your LLC’s relocation. Review these documents before domesticating your business to avoid significant issues.

Does domestication cost more than dissolving & reopening an LLC?

The answer mainly depends on the filing fees for these processes.

States that offer domestication charge varying fees for LLC domestication, dissolution, and formation. Hence, you must compare these costs beforehand.

Does my LLC need to maintain a registered agent in both states during domestication?

Yes, your LLC needs to maintain a registered agent in both states during domestication. Once the process is completed, your business is only required to have a registered agent in its new jurisdiction.

Expert Tips From NCH

1. Before relocating your LLC, check whether your original state allows domestication in another jurisdiction. Review the state’s guidelines for the process (if they’re already established).
2. Get a Certificate of Good Standing and a copy of the Articles of Dissolution from your charter state before domestication. You’ll need them to complete the process.
3. Contact your bank and lenders to notify them of your planned relocation. They should also give you instructions for updating your account information.
4. Research the compliance requirements of your LLC’s new jurisdiction. Take note of the state’s due dates for specific filings, its filing fees, and other important prerequisites.

Relocate Your LLC Without Issues

If you want to run your LLC in a new location, domestication is possible. This process keeps the business fully operational, making it a better option than foreign registration and dissolving and relaunching it.

Thorough planning and compliance are key to successful domestication. However, you may face significant legal and tax consequences in the process. NCH’s business specialists are here to help you move your business without issues.

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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.