A U.S. business entity begins its existence by forming under the statutes in a given state or commonwealth. A normal business endeavor is to then file for authorization to conduct business in one or more other states. When an entity is dissolved, or merges out of existence, it will also have to terminate its authority to do business in those other states. But sometimes an entity still in existence may, for business reasons, choose to no longer conduct business in a given state. In this circumstance, the entity will need to file a withdrawal of authority.
Tax Consent May Be Required
A corporation or a limited liability company (LLC) will have filed an application or a certificate with the corporate or business entity administrator in the foreign state in which it wanted to do business. To withdraw its authority, it will also need to file a certificate or application with the same administrative office. Several states require pre-filing tax approval before consenting to a corporation’s or LLC’s withdrawal from doing business. In the following states, a corporation needs consent from the tax or revenue authority prior to withdrawal (*Asterisk indicates LLCs require tax consent, as well.):
|Louisiana*||New Jersey||Rhode Island*||Washington|
|Michigan||New Mexico||Tennessee*||West Virginia|
In the above jurisdictions, the pre-filing tax consent is an important step that must be taken and for which adequate plans must be made. For many states, it is a one-stop process with the tax or revenue department. However, in Louisiana (Department of Labor), Michigan (property taxes) and West Virginia (workers’ compensation and employment security), additional departments/agencies must consent to an entity’s withdrawal. Even without an extra step, the time to obtain tax clearance and file the withdrawal can take up to two years to complete (New Mexico and Pennsylvania). The majority of tax-consent states, however, run the gamut from two weeks to eight months for the full process.
Annual Report Delinquency Must Be Addressed in Some States
Another consideration, whether tax consent is required or not, is up-to-date annual reports and fees. Several states will require that an entity catch up on delinquent reports and fees owed prior to processing the withdrawal. This requirement is noteworthy, as it can cause delays once the application or Certificate of Withdrawal is submitted to the state corporate or business entity administrator (normally the same administrator responsible for receiving the annual reports). The following states require a corporation be up-to-date on annual reports and fees prior to withdrawal (*Asterisk indicates the same requirement for LLCs. See notes where indicated):
|District of Columbia||Kentucky*||Nebraska||Rhode Island*|
|Delaware*||Maryland* (see note)||New Hampshire*||South Carolina*|
|Illinois*||Minnesota (see note)|
Maryland – Personal property return cannot be delinquent.
Minnesota has a requirement for LLCs only (not corporations) regarding up-to-date annual reports for withdrawal.
Original Signatures May Be Required
In today’s electronic world, one would imagine that there would no longer be a need for original signatures on filed documents. But, one would be wrong… at least in certain cases. When a certificate or application for withdrawal for a corporation is being mailed or submitted by hand-delivery in Alabama (LLCs, too), Florida, Minnesota (counter service, only) or Nevada, signatures must be original. For the following states, all signatures for corporate withdrawal certificates or applications must be original (*Asterisk indicates a signature requirement for LLCs as well):
|Massachusetts* (see note)||New Hampshire*||South Dakota*||Wyoming*|
|Maine*||New Mexico*||Tennessee (see note)|
Massachusetts - LLC needs original signatures when filed by mail or presented for filing in person.
Tennessee – Original signatures only required for LLC withdrawals.
Publication Requirements: Arizona & Pennsylvania
Arizona and Pennsylvania each have a post-withdrawal filing publication requirement (for corporations, only).
In Arizona the corporation is required to publish a Notice of the Withdrawal within sixty days after the Corporation Commission approves the withdrawal filing. The notice must appear in three consecutive issues of a publication in the county of the corporation’s known place of business. Following the completion of the publication, an Affidavit of Publication may be filed with the Corporation Commission.
Pennsylvania’s requirement is that the corporation publish notice of intention to withdraw once in a newspaper of general circulation in the county in which the business was located, and once in a legal newspaper in same county. Proof of publication is filed with the minutes of the corporation; not with the Department of State. A copy of the notice must be mailed by certified or registered mail to each known creditor and claimant and to each municipal corporation in which the corporation has a place of business in Pennsylvania.
Forewarned is Forearmed
Though withdrawal from a foreign jurisdiction may not have the internal significance of a dissolution or merger for a business entity, from a compliance perspective, it has many of the same procedures, requirements and levels of documentation. Solid advance preparation is the key to a smooth transaction. Consultation with a service professional, especially for foreign jurisdictions with which one is less familiar, can go far in helping you save time and avoid unnecessary problems.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.