What Is Domestication?

Domestication involves actually moving the legal organization from the original state to the new state. Once the company is domesticated, the company can’t do business in its original state.

What are domestication’s advantages over foreign registration? To begin with, it is cheaper to do business in one state than in two. If you do your research, you may find a new state to domesticate in that has lower corporate, sales, income, and franchise taxes than your old state. States also vary widely in how much they charge in filing fees, such as for annual reports. And again, paying once is better than paying annual fees in your original and foreign registration state. 

Domestication Disadvantages

The domestication process can be expensive. Because the definition of domestication and the requirements for accomplishing it vary from state to state, it also is a complex undertaking. 

And again, it’s not offered in every state, so if you’re moving from Florida (which allows domestication) to Hawaii (which does not allow domestication), your corporation cannot follow you.  

How to Domesticate Your Business in a New State

Though the process may vary based on state legal requirements, the general domestication process is as follows: 

• Draft a plan of domestication (or plan of conversion) — this document outlines the steps the business will take to domesticate in a new state.
• Approve the plan of domestication — the LLC members or corporate board must approve the plan. 
• Draft documents for the original state — depending on the state, you may need to file articles of domestication, a certificate of surrender, or dissolution documents. You also may need to present a draft of this document, along with your articles of domestication, when filing in the new state.  
• Draft and file documents in the new state — you will file your articles of domestication or certificate of conversion in the new state, along with any additional formation documents required. You will need a certificate of good standing from your original state. 
• File your documents in the original state — particularly if the original state requires you to dissolve your LLC or corporation, you want to make sure to properly domesticate it in the new state first. 

Of course, you also must pay any fees required for these filings. And after you have domesticated your company, it’s wise to update your operating agreement or other governing documents. 

Summary

Domestication can be a good way for a business owner to legally relocate a small business to another state. Just make sure your original state and the new state allow domestication.