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Maybe it’s Time to Move your Company to a Business-Friendly State

1/9/2014

 
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In today’s economic environment, it has become popular for companies to relocate to another state. This strategic decision may occur as part of an effort to lower business costs, find a more business-friendly state with lower taxes and less burdensome regulation, or simply to provide employees a better quality of life. Historically, companies had three primary ways in which they could relocate: (1) remain a company in its parent state and register as a foreign company doing business in a new state; (2) dissolve the current company and form a new company in a new state; or (3) form a new company in a new state then through a merger or acquisition acquire the old company or its assets.

However, a fourth option, domestication, has been gaining momentum making it much easier to relocate a company. With domestication, an existing company can be transferred to a new jurisdiction without the hassle of acquiring third-party consents and regulatory approval that may occur with a merger. Additionally, since the resulting business entity after domestication is the same entity as the original entity, it may retain its “age” and Federal Tax Identification Number, which may be useful when acquiring corporate bank accounts, lines of credits and special government exemptions.

One of the more recent states to pass a domestication bill is the State of Maryland. In 2013, the Maryland legislature approved and Governor O’Malley signed into law the Entity Conversion Bill (HB 1140). This law, which came into effect on October 1, 2013, permits business entities formed in foreign jurisdictions to convert into Maryland business entities. In order to covert/domesticate a foreign company into a Maryland company, the following documents and fees must be filed with the Maryland State Department of Assessments and Taxation, Charter Division: Articles of Conversion ($100), Articles of Incorporation ($120), and Certificate of Good Standing from Home State. For more information about the Maryland Domestication/Conversion procedure, please read the Code of Public General Laws (Statutes) of Maryland, Article – Corporations and Associations, Section 3-901.

If you have any questions or would like further information about domestication, please contact an attorney.

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