Article of Domestication or Continuation

 
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Posted On : 25th Nov 2010

What is an article on domestication or continuation?

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 State’s 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 company’s 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

Infotaxsquare.com will work with you to make sure your relocation plans move forward expeditiously and your business grows where it needs to grow.

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
 
 
GENERAL FILING INSTRUCTIONS FOR ARTICLES OF DOMESTICATION OR CONTINUATION
 
ALL CORPORATIONS IN ORDER TO DOMESTICATE THEIR BUSINESS MUST COMPLY WITH THE FOLLOWING:
 
  • Make sure that the corporate name you are using is available for use by your corporation. The name may be formally reserved for xxx of days. If you are a holder of a trade name that is identical or non-distinguishable from the proposed name, you will be asked to provide a copy of the Trade name Certificate.
  • Names may be checked and reserved. Precedent over any other documents filed on paper and submitted by mail, fax or over the counter.
Deliver the completed original Articles of Domestication or Continuation (and one (1) or more exact copies) to the Commission.     
  • The domestication or continuation must be executed by a duly authorized officer.
     
  • The Statutory Agent must provide a physical street/location address (A P.O. Box may also be listed. However, a physical street/location address must be furnished). A statutory agent may be an individual resident, a domestic corporation or limited liability company, or foreign corporation or Limited Liability Company authorized to transact business.
     
  • The Certificate of Disclosure must be signed and dated within xxx no of days of delivery to this office by a duly authorized officer.
     
  • If the person executing the documents has a power of attorney authorizing him/her to do so, a copy of the document granting authority must be included with the filing.
     
  • Attach a Certificate of Existence (Good Standing) or certified copies duly authenticated by the official having custody of the corporate records in the jurisdiction in which the corporation was incorporated before the transfer of domicile.
     
  • Within xxx no of days after the Commission has approved the filing, you must publish the Articles of Domestication in a newspaper (if required) of general circulation in the county of the known place of business.

DO NOT PUBLISH UNTIL THE COMMISSION APPROVES THE FILING. A list of acceptable newspapers in each county will accompany the approval letter and is posted on the Commission web site. The corporation may be subject to dissolution if it fails to publish. Filing an affidavit of publication is not necessary.

ALL DOCUMENTS FILED WITH THE COMMISSION ARE PUBLIC RECORD.

AS SUCH, ALL DOCUMENTS ARE OPENING FOR PUBLIC INSPECTION.
 
 
CONCLUSION
 
“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”

 

 

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