Organizations evolve to survive and thrive. As market conditions and circumstances change, most companies take up new ventures to maintain and grow their businesses.
Reincorporation is one major way businesses seek growth by venturing into opportunities that can positively impact the organization’s trajectory.
When planning for reincorporation, the 2 main questions to consider are:
- Why might a business reincorporate?
- What are some of the pitfalls you should avoid when reincorporating?
Reincorporation, also known as a statutory conversion, is the process in which a company moves from one jurisdiction to another or from one state to another. It could also mean merging business entities or transferring a company’s assets to another.
Reincorporation could be nationally or internationally, where you reincorporate a company in a foreign jurisdiction. Or, foreign entities may choose to reincorporate into a local or domestic entity.
Common reasons for reincorporation include:
- To attract investors or venture capitalists
- To change business structure (LLC to C-corp, for example)
- To take advantage of tax benefits
- To merge various entities
The circumstances that necessitate reincorporation vary from one company to another, and often a board of directors must approve the reincorporation. The board’s interests, duties, and responsibilities protect the organization, and thus they should be involved in any foundational plans to reincorporate the business.
Strict processes should be followed during reincorporation so your organization is not on the wrong side of regulators, which could lead to huge fines and reputation damage.
How to Reincorporate a Business
Follow these steps to ensure a smooth process when reincorporating a business.
1. Study State and Local Requirements
Understand state and local requirements. Corporate laws vary per state, so seek local and legal advice before starting the process.
In most states, the processes are typically quick and straightforward. You are expected to fill out certain forms for a straight conversion. If your state does not allow straight conversion, you may need to form the desired entity type in the chosen jurisdiction, then merge the existing entity to the new entity.
2. Seek Board of Director Approval
The board of directors should be part of the reincorporation process. Since the board protects the organization’s best interest, they need to ensure whatever step the business takes is for the organization’s benefit.
During board evaluation of the reincorporation, the board may analyze and discuss the entire plan to determine whether it’s within the company’s interest. If the board deems reincorporation is a profitable venture, they can approve it.
3. Draft Reincorporation Agreement
Once the board approves a presentation for reincorporation, move on to the next step of drafting an agreement. The agreement helps manage expectations and prevent misunderstandings. It also shows the roles and duties of the principal parties of the reincorporated entity. Include these elements in the reincorporation agreement:
- Name of the reincorporation
- Directors and officers at the time of reincorporation
- Salaries established within the business plan
- The effective date of the reincorporation
- Authorized capital and share value
- Terms and conditions of the agreement
All parties to the agreement should analyze and understand their roles, terms, and conditions so everyone is on the same page.
4. Obtain Necessary Business Licenses
Most states, counties, and local governments require organizations to acquire licenses before setting up businesses. This isn’t an exception when planning for reincorporation. Licenses differ based on the multiple jurisdictions across the country. For this reason, finding the right license for your entity, industry, and where you operate is essential. Failure to obtain licenses can lead to severe consequences, fines, notices, forced business closure, and reputational damage for your organization.
When applying for a license, you may need to provide a written application, a business name, a statement of purpose, associated fees, the location of the business, and proof of license for specialized activity.
5. Leverage Technology to Store and Manage Board Documents
A board management solution like OnBoard makes work easier for board members, CEOs, and other professionals. When reincorporating your business, you will likely have many documents requiring effective, secure storage and management. Leveraging board management software allows boards to easily store, manage, and share policy updates, access board materials at the click of a button, move from one organization to another quickly, and access user controls for every meeting, action, and document within the platform.
Effective Boards Leverage OnBoard
Frequently Asked Questions
What Does It Mean To Reincorporate A Company?
To reincorporate a company is to move the business, a legal entity, from one jurisdiction to another. It could also mean converting one business establishment form into another.
What is the Concept of Incorporation?
Incorporation is the legal process through which a corporate entity or company is formed. The concept for incorporation is to separate the company's assets and income from its owners and investors. Board members and company managers generally manage incorporations.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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