What this is: Let’s talk about why you would want to transfer your company’s domicile (also known as re-domiciliation) from one country to another, and if you can keep your company intact while doing so.
What this means: You may find better flexibility in doing business in your new domicile, or better tax laws. Offshore financial centers, like the British Virgin Islands and the Cayman Islands, often practice re-domiciliation, and it is permitted by Delaware law.
Re-domiciliation (sometimes known as domestication, re-domestication, transfer, continuance or company migration) is a process by which a company transfers its domicile from one country to another, while continuing the existence of the company.
For example, a Delaware company may become a Cayman Islands company through the process of re-domiciliation without having to dissolve the Delaware entity and incorporate a new Cayman entity.
A company may choose to change domicile for a variety of reasons. According to Mondaq.com, “…the laws of another jurisdiction might be better suited for the objectives of the company; might give it more flexibility or better tax treatment than the laws of its current domicile or it may be a combination of these factors.”
For a company to re-domicile, it must be permitted in both in its originating jurisdiction and in the destination jurisdiction. Re-domiciliation is commonly allowed in offshore financial centers, such as the British Virgin Islands and the Cayman Islands and is also permitted by Delaware law.
Non-US Company Domesticating Into Delaware
Section 388 of the Delaware General Corporation Law and Section 18-212 of the Delaware Limited Liability Company Act address companies originally located outside the United States that wish to re-domicile or domesticate into Delaware. Non-US entities looking to relocate to Delaware should file a Certificate of Domestication, accompanied by a Certificate of Incorporation or Formation, with the Delaware Secretary of State. The domestication should first be approved in the manner provided by the governing document of the entity and by any applicable laws. According to Delaware General Corporation Law §388(i), domestication “shall constitute a continuation of the existence of the domesticating non-United States entity in the form of a corporation of this State.” The Certificate of Domestication is quite simple, laying out the original name of the company and what the name of the company will be following the domestication (as written in the accompanying Certificate of Incorporation or Formation), the date of formation, place of domicile immediately prior to the filing the Certificate of Domestication, a future effective date (if any) and the manner of approval.
Access our new webinar, Life of a Company Part Two: Potential Changes During the Lifespan of a Company and the Corresponding Public Record Filing Requirements, now available on-demand.
Delaware Company Domesticating Into Another Country
Section 390 of the Delaware General Corporation Law and Section 18-213 of the Delaware Limited Liability Act address Delaware entities that wish to re-domicile from Delaware to another foreign jurisdiction. This is accomplished by filing either a Certificate of Transfer or a Certificate of Transfer and Domestic Continuance. Again, the appropriate approval of such action is required. A Certificate of Transfer, in addition to listing the name of the company, the date of filing the Certificate of Incorporation or Formation, the foreign jurisdiction to which it is transferring and the name of the company after the transfer, must also appoint the Delaware Secretary of State as its agent to accept service of process and the address to which the Delaware Secretary of State should forward such process. After filing a Certificate of Transfer, the entity ceases to exist in Delaware; its existence is transferred to the foreign jurisdiction.
A Certificate of Transfer and Domestic Continuance must state that the company will continue to exist as a corporation or limited liability company in Delaware. The idea of transfer and continuance, such that a company will exist both as a Delaware entity and as an entity domiciled in another country, is quite unusual. It is not allowed by many of the common jurisdictions that allow company re-domiciliation.
The basic requirements for re-domiciliation/continuation in the British Virgin Islands and the Cayman Islands are outlined below.
British Virgin Islands (BVI): Continuation
Sections 180–184 of the British Virgin Islands Company Act 2004.
- Foreign companies who wish to continue into the BVI must file:
- Certified copy of the Certificate of Incorporation.
- Memorandum and Articles that include all that is required by Section 9 of the Act and the name under which the company was originally formed, the name under which it is to be continued and the jurisdiction of formation.
- Evidence satisfactory to the Registrar of the BVI that the application to continue and the proposed memorandum and articles have been approved by a majority of the directors or in another manner established by the company for exercising the powers of the company.
- Evidence satisfactory to the Registrar that the company is permitted under the laws of its jurisdiction to continue into the BVI.
- An affidavit from a director verifying that the company is not subject to any insolvency proceedings and that it has not entered into any uncompleted arrangement with creditors.
- Effect of Continuation.
- Company is capable of exercising all powers of a BVI company.
- Company is no longer treated as a company incorporated outside the British Virgin Islands.
In the BVI, the registered agent of the company is responsible for making filings with the registrar and will be able to assist with the details of the requirements.
Cayman Islands: Continuation
Part XII of the Companies Law (2013).
- Foreign companies who wish to continue into the Cayman Islands must file:
- Certified copy of the Certificate of Incorporation.
- Certificate of Good Standing.
- Certified copy of the entity’s governing documents, such as by-laws.
- Notice of the Registered Agent in the Cayman Islands.
- Declaration that it is not subject to any insolvency proceedings.
- Other declarations that it is not attempting to defraud existing creditors and has given them notice of the continuation.
- Declaration that the transfer is permitted under the laws of the relevant jurisdiction and that it will cease to exist under those laws following the registration of the continuance.
- Effect of Continuation.
- Company shall continue for all purposes as if it incorporated as an exempted company under the Companies Law.
Many jurisdictions, especially the offshore financial centers, allow an entity to transfer from one jurisdiction to another. This is also fairly common in the United States, where companies can often file Certificates of Conversion to become domestic to another state. The process is less common in Europe and many countries (such as the UK) do not allow entities to re-domesticate. Delaware’s law, allowing transfer and continuance, where the entity can then be domestic to two different jurisdictions is very unusual and it remains to be seen if this will become more commonplace in the future. When considering re-domestication, the most important first step is to ensure that it is allowed in both the current jurisdiction and the desired one. If not, the process will need to be handled in a different way.
Learn more about this topic in our new webinar, Life of a Company Part Two: Potential Changes During the Lifespan of a Company and the Corresponding Public Record Filing Requirements, now available on-demand.
What’s the difference between a conversion and re-domiciliation?
Simply put – a conversion involves converting one business entity type into a different type, for example a corporation files a conversion to become an LLC. Re-domiciliation or re-domestication means the entity type remains the same but the domestic jurisdiction for the entity changes. Re-domiciliation is often used when the process occurs between countries. In both cases, for a statutory conversion, re-domestication or re-domiciliation, the process must be permitted in both jurisdictions.
Does California allow re-domestication?
On September 2, 2022, California Governor Gavin Newsom signed Senate Bill 49 (SB 49) into law. SB 49 amends the California Corporations Code (CCC) to allow domestic corporations to convert into foreign entity types. Previously, California only allowed domestic corporations to convert into other domestic entity types. For example, a California corporation could convert into a California LLC, but it could not convert into a Delaware LLC.
SB 49 changed that when it took effect on January 1, 2023. SB 49 now allows a California Corporation to convert into another entity type in another state, provided that the foreign state also allows for the conversion. You can find out more about SB 49 here.
Is conversion easy, and do most states allow it?
Each state handles the process for conversion differently and not all states allow conversions in all situations. This becomes particularly important if the company wishes to convert from one domestic state to another. Generally speaking, conversion statutes that allow an entity to move from one state to another require that the conversion is allowed by both states.
The process for conversion usually involves the following steps:
- A plan of conversion is drafted and approved.
- A Certificate of Conversion is filed in the domestic state, often accompanied by formation documents for the converted company.
- Filings must be made to reflect the conversion in all states where the company is registered to do business.
Although it sounds simple, it’s not. A qualified service company can handle all of the details for you, including the review of attorney prepared documents, research of state requirements, and submitting documents for pre-clearance.
For more information, please check out our article Conversions: Changing Company Type or Moving to A New State.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.