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What is Reincorporation?

Image of moving van, symbolizing reincorporationIn How Can I Move My Corporation to Another State?, I explained that there are three ways to move a corporation from one state to another. This post describes one of those ways: Reincorporation.

Three Ways to Move among States

That earlier post described those three ways to move a corporation to another state as follows:

  1. Form the new-state corporation. Transfer assets and liabilities of the existing corporation to the new-state corporation. Dissolve the existing corporation. (This sometimes is called reincorporation.)
  2. Form the new-state corporation. Merge the existing corporation into the new-state corporation.
  3. Convert the existing corporation to a new-state corporation. (This sometimes is called redomestication or redomiciliation.)

Earlier this year I was engaged by a client that was formed as a California corporation. Its founders wanted to convert to a Delaware corporation to make it easier to attract institutional investors.

The corporation still was early-stage, thus reincorporation would not have significant adverse tax effects. Accordingly, the founders asked me to help with that approach, which would be simpler than a merger.

Reincorporation – Documents and Procedural Steps

The founders already had reserved the same corporate name in Delaware. Here are the documents and procedural steps that will be required to complete this particular reincorporation:

  1. The board of directors approves resolutions pertaining to the reincorporation process, including a Reincorporation Agreement by which the shareholders approve reincorporation as well as dissolution of the existing corporation once reincorporation takes place.
  2. The corporation and the shareholders sign that agreement.
  3. The existing California corporation’s officers form the new Delaware corporation, which has the same directors and officers as the existing corporation.
  4. The existing corporation assigns its assets and liabilities to the new corporation. The existing shareholders then become shareholders of the new corporation, and they no longer are shareholders of the existing corporation.
  5. The officers dissolve the existing corporation.

Not every reincorporation necessarily will take place this way, but the foregoing summary provides a good idea of that major tasks that one needs to address.

Photo credit: Arizona Department of Economic Security

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
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