Time to Make a Move: New Law Allows for LLCs to Change their State of Organization
December 10, 2012
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A new law in Louisiana will allow a limited liability company (LLC) to change its state of organization from Louisiana to any other state as well as allow for LLCs formed in another state to convert into a Louisiana LLC. The new law (R.S. 12:1308.3) was passed in the 2012 regular legislative session (Act 476) and will become effective on January 1, 2013. The process of transferring an LLC to a different state is called conversion in Louisiana. Some states use the term domestication to refer to this process.
Currently, LLCs organized in another state can obtain a certificate to transact business in Louisiana. However, internal governance of the LLC and the liability of its managers and members that arise solely out of their positions as managers and members are still governed by the laws of the state of organization. Other states have similar laws which allow LLCs to transact business in their state. One current method by which LLC members may elect to change the laws under which an LLC is governed is through the use of mergers or consolidations. This new law allows for either an LLC formed in another state to continue its existence in and under the laws of Louisiana, or allows for an LLC formed in another state to continue its existence under the laws of Louisiana. The new process allows for mobility and continued existence without the necessity for mergers or consolidations.
LLCs will be afforded this new flexibility provided that the conversion is not prohibited by the laws of the other state involved. The change must be authorized by a majority of the members of the LLC (or a greater vote if required by the LLCs own articles of organization or operating agreement). Finally, certain filing requirements with the Secretary of State must be accomplished to effectuate the change.
Members of an LLC benefit from having broad flexibility in determining the internal affairs of their company and set up their operational framework in an operating agreement. Issues not addressed in the operating agreement are governed by the default rules determined by the laws of the state of organization. Therefore, it is important for a company considering taking advantage of this law to be aware of the default rules in the new state which will govern the company. One should consult with an attorney familiar with the laws of the state to which the LLC is transferring and determine if it is necessary to amend the operating agreement. One should also consult with a tax professional to ensure that all requirements are met, which may vary depending on the new state of organization.
Whether you are a large regional company with subsidiary LLCs taking on projects in a market that is shifting locations or a smaller business looking to relocate, Act 476 provides new and important foundation for determining if it’s time to make a move.