Everything is bigger in Texas—including the business environment. According to the Texas Governor’s website, Texas ranks number one for firm relocations from other states. In recent years, Texas has become a hotbed for business due to no personal or corporate income tax, a skilled workforce, access to global markets, extensive infrastructure, and business-friendly laws. As a result, more and more corporations, non-profits, and other entities are relocating to Texas. However, before a corporation or non-profit moves to Texas, there are several important factors to consider.
1. Can a business incorporated in another state convert to a Texas entity?
The first thing to consider is whether the state where your entity is incorporated will allow it to convert to a Texas entity. If not, it may be an option to merge with an existing Texas entity or to create a Texas entity and then merge your existing corporation into it. Additionally, it may also be an option to keep your existing entity if you plan to conduct business in the state where it is incorporated and create a different entity for conducting business in Texas. Another option is to continue doing business in your original state of incorporation and register as a foreign entity doing business in Texas. However, the company must meet the Texas requirements for foreign or out-of-state entities. With this option, it is important to keep that it may cause tax implications and will require document preparation and filings. Further, the corporation will be paying double the fees, taxes, and be subject to potential litigation in both states. Lastly, you could choose to dissolve your original incorporation and create a new entity in Texas.
Does your non-profit have the proper IRS paperwork acknowledging tax-exempt status?
If you are thinking about relocating your non-profit to Texas, it’s important that you have an updated copy of your IRS letter acknowledging your tax-exempt status. If your letter is outdated or you have not requested one, then one should be requested as soon as possible in the planning stages, as it may take several months to receive the letter and it could hold up the relocation process.
2. Are you prepared to disassociate your entity from its original state of incorporation?
Your existing company likely has several connections to the original state of incorporation. These connections may include permits, accounts, and/or licenses. For example, all businesses have a business license issued by either the city, county, and/or state where the business has its headquarters or principal place of business. Additionally, if the entity is one that is highly regulated and requires a license to operate like contractors, lawyers, accountants, hairstylist, doctors, or dentists, then the professionals need to ensure they can get licensed in the state to which they are moving. Other permits and licenses may be at issue, which is why it is important to meet with a business attorney to determine all licenses and permits that need to be disconnected or transferred to the new state of incorporation. Taxes are another important consideration when disassociating an entity with its existing state of incorporation. Taxes need to be current and paid in full.
Next, it is recommended to think about the various processes and systems the corporation or non-profit uses and determine if they exist outside of the original state of incorporation. If so, those suppliers need to be notified about the conversion of the entity to another state.
3. What paperwork needs to be completed to form your Texas corporation or non-profit?
If you elect to merge create a Texas corporation or non-profit and merge your existing company into it or start from scratch by dissolving your original company and creating a new entity in Texas, it may require registration and/or amending articles of incorporation and by-laws to comply with the Texas Business Organization Code (TBOC). For example, for a non-profit, the Texas Business Organization Code requires three directors, a president, and a secretary; however, the president and secretary cannot be the same person. Additionally, the company will need a registered agent and address in Texas that is not a post office box.
Additional paperwork to be completed may include the revision of existing contracts with customers and suppliers to reflect your new state of incorporation. Further, your change of address will need to be updated in your filings with the Secretary of State and in your incorporation documents.
Transferring a corporation or non-profit to Texas can be a complicated and complex process. Depending on the circumstances, it can involve more considerations than mentioned in this article. If a company is considering moving its business to Texas, a Texas business law attorney is recommended to help ensure compliance with all the necessary changes to ensure a smooth transition. The work to transfer your existing entity to Texas will most likely be worth the reward of operating and thriving in a supportive business environment.