Article Of Domestication
Domesticating involves the "transfer" of an existing corporation to a new jurisdiction
. If you are planning to relocate your business outside of the State within which you are now incorporated, you may want to domesticate. Although you have the option of merely dissolving the existing corporation and re-incorporating in your new home state, Domestication may be the more attractive alternative. This is because Domestication allows you to retain the "age" of the corporation, which may be important if you want to keep your existing Federal Tax Identification Number, corporate bank accounts and lines of credit. In addition, retaining the "age" of the corporation may be useful if you are applying for new lines of credit and/or special government exemptions.
It is not necessary for you to have a complete knowledge of the governing laws, rules, policies and/or restrictions relating to each States requirements for Domestication.
This will allow you to take advantage of all of the benefits while retaining your original incorporation date that the company first came into existence in the non-United States jurisdiction and continuing to be deemed the same entity.
You can also change your companys business structure at the same time if your attorney or accountant has advised you that it would be best for your individual circumstances.
Whereas business "conversion" involves a change in the type of business entity (converting a partnership to LLC, an LLC to corporation, etc.) business "domestication" involves changing the state in which a business entity is organized. For example, a corporation originally organized in the State of Minnesota can be moved to the State of South Carolina and be treated under the law as the same, on-going corporation. In other words, with respect to the state of South Carolina the "foreign" corporation (foreign, because organized outside of South Carolina) can be "domesticated" into South Carolina.
Sole Proprietorship to Partnership
Sole Proprietorship to Corporation
Sole Proprietorship to LLC
Partnership to LLC
Partnership to Corporation
Corporation to LLC
LLC to Corporation
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Whenever a corporation has been formed in one state and prefers to be governed by the laws of another state, it is possible to change the state of domestication. Of course, any corporation formed in any state may qualify to do business in other states and be entitled to be benefits of the laws of the foreign jurisdiction for the business conducted there. Although qualifying to do business as a foreign corporation authorizes a corporation to enter into transactions and have a presence in the foreign state, it remains subject to any limitations on its operations as a result of being domesticated in its state of formation. There may be good reasons for a corporation to be domesticated in a state other than where it was formed. For example, suppose a corporation were formed in State X but does most of its business in State Y. The corporation may be subject to taxation by State Y on sales of its products in State Y and may also be subject to tax on its income in State X, because it is domesticated there. If a corporation domesticated itself as a corporation in State Y, its income would not be subject to taxation in State X.
Historically, corporations could domesticate in a new jurisdiction by using a merger procedure. A new domestic corporation was formed in the new state and the existing corporation was merged into it. Merger of a foreign corporation with a domestic corporation is authorized in the laws of every state. Modern corporation statutes are now permitting domestication by a more direct method, authorizing a procedure whereby the corporation can simply domesticate itself in a new jurisdiction.
The Model Business Corporation Act permits a foreign corporation to become a domestic corporation if the process is permitted by the laws of the state of formation. Thus, a corporation in state X will be allowed to domesticate itself in state Y only if the laws of state X authorize this procedure. The domestication procedure in the Model Business Corporation Act is very similar to other fundamental changes in the corporate structure. A plan to domestication is adopted by the board of directors and is submitted to the shareholders for their approval. The plan must include
1.The new jurisdiction in which the corporation is to be domesticated
2.Any amendments to articles of incorporation that are necessary or desired
3.The manner and basis of reclassifying shares of the corporation based upon the laws of the new state of domestication
4.Any other terms and conditions of the domestication.
The plan must be approved by the shareholders by a majority vote, like the cases of merger or share exchange, if there are provisions of the domestication that will affect the rights of a particular class of shares, such a class must be allowed the plan as a separate voting group.
Same employer identification number may or may not be used if filing article of domestication or article of continuation in other state. It depends on the availability.
by: Nashib Umer
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