Many people are moving to Texas—for the jobs, affordable housing, low taxes, booming industries, and friendly people.
This favorable business climate of Texas is grabbing the attention of business owners. Texas regulations, taxes, and incentives may be more favorable to your business than in your current state. In addition, Texas has a favorable franchise tax policy. Businesses with total annualized revenue less than or equal to the no tax due threshold are not required to pay franchise taxes. Currently, this threshold is approximately $1 million.
If you are one of these folks, you may need to consider whether you should relocate your business to Texas as well. Before you move your business to Texas, there are a few things you need to know.
Relocating a Business to Texas
If you are relocating a business to Texas from another state, there are a few ways this objective can be accomplished:
Sole proprietorships and partnerships can move easily. Typical requirements include filing an assumed name certificate or DBA (“doing business as”) in Texas.
Moving an entity, such as a corporation or a limited liability company, to Texas is more involved process. Which option you choose depends on the up-front and on-going costs as well as the legal hassles involved.
Register as a Foreign Entity
If your business is registered in another state but you’re expanding your business into Texas (with continuing operations in another state), you may be required to register as a “foreign entity” in Texas. The issue is whether you are transacting business in Texas. Generally, a company is transacting business in Texas if it has an office or an employee in Texas or is otherwise pursuing one of its purposes in Texas.
This can be an expensive option over time since your company will be required to pay an annual fee to maintain its status as a registered foreign entity.
Form a New Entity in Texas
Another option is to terminate your business in your existing state and form a new business in Texas.
For continuity reasons, many business owners prefer to convert their existing businesses to Texas businesses. For a cross-jurisdiction conversion to be effective, the jurisdiction where your company was originally registered must permit the transaction, and you must comply with the conversion laws in both that state and in Texas. The process is a little tricky and involves coordinating various filings in the existing state and in Texas. In addition, the business’s name must be available in Texas, and you will need to adopt a Plan of Conversion, which authorizes moving the business from the current state to Texas.
If your existing state does not permit conversion, you may want to consider a merger. The process involves setting up a new entity in Texas and then merging your existing entity into it.
Finally, if your business is currently registered as a foreign entity in Texas and you decide to convert to a Texas entity, you are still required to follow the rules for conversion. Once the conversion is complete, the foreign entity registration in Texas is automatically withdrawn.
If a move to Texas is in your business' future, consider your options and these procedures to make the transition a success. For more tips on business matters, sign up for our Executive Summary Newsletter with resources businesses need.