Should You 'Domesticate' Your Entity in Arizona?

Should You ‘Domesticate’ Your Entity in Arizona?

Over the years, we have had clients who formed entities in other states for operating their businesses. Subsequently, they have moved to Arizona only to discover they have to qualify their entity in Arizona to do business here. This has generally increased the clients’ annual costs because they are spending administrative fees and/or statutory agent fees in both states.

Last year, Arizona passed The Arizona Entity Restructuring Act (Act). Among other improvements as outlined by Attorney Michael Margrave in his blogs on the Act earlier this year, the Act allows for an entity formed in one state to become an Arizona domestic entity and close out the domicile in the other state. Through this process, the entity would not lose its continuity of existence. That is an important factor because tax implications always have to be considered with your CPA.

If, let’s say, a Delaware limited liability company (LLC), has qualified to do business in Arizona and wishes to “convert” to an Arizona domestic entity, while leaving Delaware, documents from both states would be prepared and filed to make this transition out of Delaware and into Arizona.

After the domestication is effective in Arizona, there would be no more annual report filings and fees due to Delaware. Also, a statutory agent would not be required in Delaware.  Annual administrative fees, which can add up over a period of time, would be reduced. The best news is that there would be no loss of continuity in the legal existence of the entity.

Keep in mind that both states involved must have reciprocal statutes approving conversion. A domestic entity in any state that does not have reciprocal domestication and conversion statutes, would not be able to domesticate in Arizona.

If you have formed an entity in another state that you wish to domicile here, the Arizona Entity Restructuring Act has created a friendly environment to move your entity to Arizona, thereby reducing many dollars of annual costs as well as double fillings.  We would be pleased to discuss this process with you.

Darlene Lundy, Certified Paralegal;

Disclaimer: This blog is for information purposes only. Legal advice is provided only through a formal, written attorney/client agreement.