Where to set up S Corp? How to change registered states of an LLC? Concerns about similar owners across different entities?

Asked over 4 years ago - Lansing, MI

Strictly Internet based business. Four partners in three states across the USA.

No one lives in NV. Heard NV is the best state to set up an S Corp. Any input?

Seperate LLC now... We want to change the registered state. Can we transfer it? Do we simply setup the LLC in the new state and let the old state annual filing fee laps? LLC has 4 owners, and is also strictly internet based.

Lastly, we are trying to keep the LLC and S Corp separate. The LLC will hold the assets while the S Corp will incur the front line liability of doing business with the public. What is the term for similar owners across multiple entities and how does this effect liability protection and annual tax filings?

Thank you kindly!

Attorney answers (1)

  1. Linscott Roberts Hanson

    Contributor Level 13

    Answered . You've asked a number of questions, not just one. The first one seems to be whether Nevada is the "best state" to set up an S Corporation as a domestic corp. I am not licensed to practice in either Nevada, or Michigan where you live. Here's my answer: The State of Nevada spends time and effort in advertising itself as a special place to form Corporations and LLCs. I have set up both there at the request of clients who believe this advertising. I don't find Nevada to be particularly "user friendly" nor do I find features of its law to be particularly suited to the average small business. In other words, there doesn't seem to be an advantage to incorporating in Nevada over other states.

    Next you ask about changing the domicile of an LLC. There are two ways to do this. One is form a new LLC is the State where you want to be located, then merge your existing LLC into the new one, with the new one being the survivor. This works in all states. Some states, such as Delaware and Colorado, offer a simpler alternative, called a conversion. If the State has a conversion provision in its statute, it is possible to simply take an existing LLC and have it "convert" from one state to another. Illinois, where I practice, is looking at adopting a conversion provision, but it doesn't presently have one, and neither does Michigan. The key is that BOTH states, the one where you are and the one where you want to wind up, have to have conversion language in their act.

    Keeping a corporation and an LLC separate is part of avoiding veil piercing. You need to respect each entity as totally separate from the other. No commingling funds. No having one entity perform contracts for the other. Document their relationship with a well drafted contract, and follow the terms of the contract for their dealing with one another. Plenty of formality. I think the term for owners across various entities is "common ownership" and this, in and of itself, does not risk veil piercing, so long as you respect the separateness of the entities. (Just because you own stock in GM and Ford doesn't subject them to being consolidated for liability or other purposes).

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