Expanding into a new state — whether by opening a new location, hiring remote employees, buying an existing company or completing an acquisition merger — can be a major growth opportunity. It can also expose your business to new legal obligations, taxes, licensing rules and operational risks that vary widely from state to state. What issues should businesses evaluate before taking their company to a new location?
Do you have the right expansion structure?
How you expand affects your legal exposure, taxes and compliance workload. Common structures include:
- Registering as a “foreign” entity in the new state (keeping your current entity and qualifying to do business there)
- Forming a new subsidiary or separate entity in the new state
- Asset purchase of a local business (buying assets rather than the whole entity)
- Stock purchase/merger (acquiring the entity itself)
Not only can your choice determine how you operate in a new state, it can also determine your level of risk in that expansion. In mergers and acquisitions, the structure can determine whether you inherit past liabilities such as unpaid taxes, wage claims or contract disputes.
Are you prepared for local taxes?
Expanding operations often adds your complex new tax challenges. These could include state income or franchise taxes, sales tax collection obligations, gross receipts taxes and local taxes for the city or county. Even without a physical location, the state may require sales tax collection based on sales volume or transaction counts.
What are the requirements of doing business in the state?
States may impose a variety of requirements on entities doing business there. This can include annual reports and filing fees, and registered agent requirements. Even if you have experience meeting these requirements, you may have different reporting deadlines in your new state.
You will likely also need to navigate new requirements for your daily operations. You may need general business operating licenses, professional licenses or health and safety permits. You may also need to comply with different financial services, transportation, childcare or zoning laws. State privacy laws may require additional steps to remain compliant, especially if you handle customer data.
Do you need to update employment practices?
Hiring even one employee in another state can trigger new obligations. You will need to navigate local wage and hour rules, pay laws, benefits, workers’ compensation coverage and employee classification rules. If you’re acquiring a company, you should also review past wage practices and benefit plans carefully because employment claims could follow the business. An attorney can help you ensure that your expanding business aligns with all relevant local laws.
Legal guidance can help you expand your company with confidence
Expanding into another state can be transformative, but it should be treated as both a business move and a legal compliance project. The best results typically come from early planning and working with a business law attorney who can help you create a comprehensive legal strategy for your changing business.