It seems like everyone is moving to Texas these days. Where is everyone coming from? California! The reasons are obvious, California has the highest state income tax in the country at 13.3%,[1] while Texas, on the other hand, has no state income tax.[2] Couple that with one of the lowest costs of living in the country and it is no wonder Californians are flocking to Texas at alarming rates. Further, today’s “work from home” environment is allowing more people to keep their jobs and work from anywhere, adding fuel to the flight.

The reasons listed above may seem like enough to incentivize anyone to make the leap to the great state of Texas, however, for business owners there is one more major incentive, Texas’ historically friendly business environment. Due to this environment, more deals are happening in Texas, more California companies are moving their headquarters to Texas and business is booming. Oracle,[3] Hewlett Packard,[4] and Tesla[5] are just the latest tech giants to announce plans to move. It is no wonder that several small business owners are following the tides of their larger counterparts and moving to Texas.

If you are a California business owner you probably have already thought about moving to Texas, but it is less likely that you have considered the legal ramifications of making such a move. Fortunately, both California[6] and Texas[7] permit the “conversion” of a business entity. Conversion is a legal term that has a broad meaning. It can mean a change in the form of an entity, i.e. converting a corporation into an LLC. It can also mean changing the state of organization of an entity, i.e. from a California LLC to a Texas LLC. It is the latter type conversion that is the topic of this article.

Because both California and Texas permit conversions, changing the state of organization of your business entity is a pretty straight forward process. First, you must tell California you are leaving. This is accomplished by filing a Certificate of Conversion (Form CONV-1A)[8] with the California Secretary of State. Second, you must make a plan. This is called a Plan of Conversion.[9] It includes important information about where you are moving from and to, the type of business entity you operate, and that you will keep a copy of the Plan of Conversion on hand in case it is requested.[10] Third, you must tell Texas that you are on your way, and you are bringing your business entity with you. This is accomplished in a two-fold process: (i) filing a Certificate of Conversion with the Secretary of State of Texas; and (ii) filing a Certificate of Formation for the newly converted Texas entity with the Secretary of State of Texas.

Although this seems pretty simple, it is important to note that the filings listed above are just what is required to be filed with each state. Every business entity is different and will require tailored internal documents to affect a conversion. This is where quality business legal counseling can help make your move stress free (at least for your company). Let us guide you through your conversion and move to the great state of Texas. So, pick up some boots, jeans and a cowboy hat, and, most importantly, don’t forget to bring your company.

[1] https://www.cdtfa.ca.gov/

[2] https://comptroller.texas.gov/

[3] https://www.cnbc.com/2020/12/11/gov-greg-abbott-on-oracle-companies-moving-headquarters-to-texas.html

[4] https://apnews.com/article/houston-california-greg-abbott-texas-1ce5ef41c6e20e84b5954de11fa3c8a7

[5] https://www.bbc.com/news/technology-55246148#:~:text=the%20final%20straw.-,Tesla%20will%20now%20move%20its%20HQ,programs%20to%20Texas%2FNevada%20immediately.&text=Last%20week%2C%20the%20business%2Dfocused,its%20headquarters%20to%20Houston%2C%20Texas.

[6] California Corporations Code Section 17710.02

[7] TBOC 10.102

[8] https://bpd.cdn.sos.ca.gov/corp/pdf/obeconv.pdf

[9] TBOC 10.103

[10] Id.

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