How to Move Your Business and Change Your Entity Type
At Northwest, our Corporate Guides® receive tough questions every day, such as this one, where a client asked us about how to move a business to Texas AND change their entity type—at the same time:
“How can I move my business from Delaware to Texas, change it from an LLC to a Corporation, and still keep my same EIN?”
While moving a business, changing it from an LLC to a corporation and keeping your EIN sounds complicated, it’s really just a set of two processes: domestication and conversion. Below we go over how to move a Delaware business to Texas (domestication) and how to change your entity type (conversion).
Domestication and Conversion
Domesticating a business involves moving your company to a new state. By domesticating your business, you allow for it to retain its original date of incorporation, bank accounts, licenses, and lines of credit—and its existing federal tax identification number. In other words, you’ll keep your EIN when you domesticate, just as desired. You’re in luck, as both Delaware and Texas are part of the 29 states (plus Washington DC) that allow for a business to domesticate.
Conversion is the process for changing the entity type of a business, such as switching from an LLC to a corporation. Will this process require a new EIN? Sometimes, and it’s tough to pin down exactly what the IRS will require. Generally speaking though, the IRS is more concerned with changes in tax and organizational structure. So, if your LLC is already taxed as a corporation, the odds that you’ll need a new EIN go down significantly.
Domesticating and Converting a Business in Texas
Now, here’s the interesting thing about Texas. While most states consider conversion a separate process from domestication, Texas does not. The state considers domestication a form of conversion (because hey, you’re converting your out-of-state business to a Texas business). What does that mean for you? You can move your business to Texas and change your entity type in a single filing, as long as you include all the right forms and attachments. Here’s how:
- Complete the “Certificate of Conversion of a Limited Liability Company Converting to a Corporation” (Form 636). – $300
- Complete a Certificate of Formation – $300
You may can also choose to attach the following documents:
- Plan of Conversion
- Tax Clearance Certificate from the Texas Comptroller of Public Accounts
Each of these documents is explained in further detail below. You’ll need to submit all documents together in duplicate with the appropriate fees to the Texas Secretary of State at the following address:
Secretary of State
P.O. Box 13697
Austin, TX 78711-3697
Texas Certificate of Conversion
On this form, you’ll need to provide basic information about your company, such as its name and jurisdiction. You’ll also need to choose whether your filing is effective immediately or at a future date (up to 90 days in the future.). The document must be signed by someone authorized by the business.
The document will need one, and possibly several, attachments. You’ll need to tick the box affirming you are attaching a Texas Certificate of Formation (described below). There are also some optional attachments. If you choose not to attach them, you’ll need to certify some information on your Certificate of Conversion:
- If not attaching a Plan of Conversion, you’ll need to certify that you have such a plan on file with your business and can produce it upon demand.
- If not attaching a Tax Clearance Certificate, you’ll need to certify that your business is liable for any franchise taxes.
Texas Certificate of Formation
Because you’re not already a Texas business, you’ll have to submit a new Texas Certificate of Formation along with your Certificate of Conversion to become a “Texas” business. If you’re attaching a Plan of Conversion to your Certificate of Conversion, technically the formation certificate will be “part” of your Plan of Conversion. Otherwise, it’s just an additional document you must submit.
Important: On your Certificate of Formation, you must include a statement “that the entity is formed under a plan of conversion.” You’ll also need your business’s name, address, formation date, prior form of organization, and jurisdiction. The regular form provided by the Secretary of State doesn’t ask for this information, so you’ll need to add it under the space for supplemental information.
Plan of Conversion
This is a written document that explains what exactly is being converted and how. Texas law requires a plan of conversion (whether you opt to submit it or not).
Your plan of conversion must at least include:
- Name of your LLC
- Name of your new corporation
- Statement that your LLC is continuing its existence as your new corporation
- Statement that your LLC is to now be a Texas corporation
- Your Certificate of Formation
Texas Tax Clearance Certificate
In the case of converting a Texas LLC to a corporation, Texas requires evidence that your business has no outstanding payments owed to the state. Per Texas law, you can satisfy this requirement one of two ways: 1) you can add a statement in your entity’s Certificate of Conversion that your converted entity is liable for all of the required franchise taxes and assorted fees; or 2) you can submit Form 05-359 for a Certificate of Account Status from the Texas Comptroller indicating that the your entity is in good standing with the state and have made all required payments to date. You can mail this form to:
Comptroller of Public Accounts
P.O. Box 149348
Austin, TX 78714-9348
Once mailed you’re probably looking at 4-6 weeks before the state returns your Tax Clearance Certificate.
Dissolution of your Delaware LLC
Dissolution is the process of closing or ending a business. Because your Delaware LLC is no more, you have to officially dissolve the company with the state.
To dissolve your Delaware LLC, you’ll need to first have any LLC members vote to wind the business up. From there you’ll have to make sure that the LLC is current on all payments to the state, and get clearance from the Delaware Franchise Tax Section by paying any outstanding franchise tax.
Delaware Certificate of Tax Clearance
While you do not need permission from Delaware’s Division of Revenue to proceed in dissolving your LLC, Delaware does require that the business be paid up with regards to state taxes, as well as any annual franchise taxes owed.
While optional, you can jump through a few more hoops and certify that you are all paid up by paying $40 and requesting a “Certificate of Tax Clearance.” Delaware’s Division of Revenue (DOR) issues an official certificate to businesses that have met all of their tax obligations. To request the certificate you simply need to provide the name of your business, its Federal Identification Number (EIN), state of incorporation, and include a $40 fee. Mail your request and payment to:
Division of Revenue
Attn: Stephen Seidel, MS 18
P.O. Box 8763
Wilmington DE 19899-8763
Remember that in Delaware there is no need to obtain a separate certificate from the state’s DOR, and as long as your taxes are paid up and annual reports are current, your company will be considered in good standing.
Delaware Certificate of Cancellation
The final thing you’ll have to do is file a Certificate of Cancellation and pay the $200 filing fee (they really do nickel and dime you). You will also need to submit, along with the Certificate of Cancellation, a filing memo, to the Delaware Division of Corporations. You can download the filing memo here.
To complete the memo you’ll need to mark the box labeled “Priority 7.” This is for regular processing, which can take up to three weeks. If you wish to speed the process (and pay an extra $100), you can mark the box labeled “Priority 4,” and your paperwork will be processed in 24 hours. Why are there three other boxes on the form when you only need to pay attention to box 7 or box 4?
You can pay by credit card or check. Make sure to make checks out to “Delaware Division of Corporations” and include the check number. If you pay by card you can enter your payment information in the appropriate section. Don’t forget to include your 3-4 digit security code (CVV) that you can find on the back of your card. Mail your forms and payment to:
Division of Corporations
401 Federal St
Dover, DE 19901
Depending on how you chose to process your closing documents, you will have to wait a few days to a few weeks for the state to return certified copies of your dissolution. As you are finalizing the dissolution of your LLC, don’t forget to close all linked bank accounts. You will need to file a tax return and attach a certified copy of the Certificate of Cancellation to your final tax return.
Your business is now wound up in Delaware, and you are ready to mess with Texas!
Thanks to Our Corporate Guides®
This whole question of domesticating and converting a business—while keeping its EIN—is just one example of the tough questions our Corporate Guides®answer every day. At Northwest, supporting you as your company grows and changes is all part of how we do business the right way.