The number of companies moving to Maine increases each year. As companies relocate, they should understand the rules that apply when moving across state lines. These include legal and tax considerations as well as practical matters.
Qualifying versus domesticating
First, good news: a company that is newly doing business in Maine may not need to move the company to Maine. Suppose you own a Texas company; you have just moved to Maine, but your company in the near term will keep operating in Texas. In this case, Maine law generally will require your company now to “qualify” or register to do business here, but that is as easy as filing a form with a small fee with the Maine Secretary of State while continuing to operate from Texas. There is no legal need to close the Texas company or relocate it.
On the other hand, if you will stop operating in your original state altogether, at some point it makes sense to relocate the company entirely. This is called “domestication” in a new state. Domestication has powerful benefits: it allows your company to avoid tax consequences (and to keep its credit history), because it remains the same company in the eyes of tax authorities as it crosses state lines.
While Maine law makes it simple to domesticate here, not all other states allow their companies to leave so easily, so the first step is to confirm that your current state of organization allows for “domestication out.” If yes, then typically you can simply file documents in the other state and in Maine to accomplish the domestication. Those documents usually require approval from the company’s principals (shareholders and directors in the case of a corporation, or members and any managers in the case of a limited liability company).
If the first state does not allow domesticating out, then you may need to form a new company in Maine, transfer to it the assets of your existing company, and then dissolve the first company. There are significant tax considerations in this type of transaction, so it is not one to undertake without first consulting accountants and attorneys.
Familiarize yourself with Maine law
You’ll want to understand the Maine laws relevant to your business – some of which may differ considerably from those in your original state. In Maine, for example, using the same non-compete agreement that you used for your employees in other states may subject your company to a $5,000 fine. Our earned paid leave law differs from those in other states. And the Pine Tree State has a host of other state-specific business laws covering issues from product warranties to data breach responses.
Update your template contracts and employee documents
Most companies have contract templates that they use with customers, suppliers or other companies such as resellers. As soon as you domesticate in Maine, you’ll want to update the contact information in them as well as the clauses that select a state whose law will govern disputes. Your employee handbook and other employee documents should be reviewed for the same reasons, and for compliance with Maine’s employment laws.
Secure any necessary permits and licenses
Many professions in Maine require state licenses, from foresters to acupuncturists. Other business activities, from cannabis cultivation to food trucks, require city permits. The Maine Secretary of State and your city hall can confirm which ones you may need.
Domesticating in Maine should not require a change to your company’s Employer Identification Number, but you will likely need to file a Form 8822 with the IRS to update your address. You will also need to determine with an accountant whether and when the products you sell are taxable and when you must apply for a Maine sales tax permit.
To domesticate or re-form your company in Maine, and to do business here going forward, working with local attorneys, accountants and banks or credit unions is essential. Other relationships are powerful too. If you’re a startup, get to know the Maine Center for Entrepreneurs (MCE) and Maine Technology Institute (MTI). If you’re a company considering investment, consider MTI as well as the Maine Venture Fund and Maine Angels.
Welcome to Maine! We look forward to doing business with you.
This article is lightly adapted from an article originally published by Mainebiz and is reprinted here with that publication’s permission.
Adam Nyhan is an attorney in Business & Corporate and Intellectual Property practices at Perkins Thompson, P.A., a business law firm serving clients throughout the United States and in other countries. He represents companies American and foreign companies in U.S. business matters.