A lot of people reading, already have a company setup! Reorganizing, or restructuring your business is a big headache, but it part of business development just like any other part of a company’s evolution.
My “Quick” Journal of Restructuring
I don’t want to bore you too much with my story of opening and closing companies, but let’s start with how it began
I remember my first company set up, it was in New York City while I was working on Wall Street. Selling on eBay in my personal name, I took a free consultation from the SCORE. He was a nice older gentlemen who had done a lot of business in his lifetime and was donating his time to help small new guys like me. So I greatly appreciate him. Yet, he almost fell out of his seat when he heard I didn’t have a business. He walked me to the front of the building, we were in City Hall district of Manhattan. He pointed me to the building across the street and said go to the basement there and register yourself a company!
I did as instructed, and filled out a form downstairs and had a 50/50 partnership with one of my best friends. It was a general partnership. I had no idea what I was doing.
Later as business grew, I got an email from a customer who hurt her hand when using the lemon squeezer. She threatened us that she would escalate this. I called up a talk show, Bruce Williams, to ask for help. I was put on LIVE radio, and he heard the issue and said:
“Wait a minute, you opened up an online business in New York City, as a general partnership! You just put yourself in the highest tax location for your business, and at the same time also don’t have any liability protection.”
The lecture continued, and he told me to close that down immediately and open up a Delaware corp ASAP. I was really afraid to be honest, and I was so nice to that Ebay customer giving her a 100% refund. She was so happy that I guess she forgot about the cut on her hand and gave us a 5 star rating. Nice!
I then dug into the case of restructuring the business. Which is something that evolved from NYC to New Jersey (our NY accountant also could help in NJ) and then to Florida and now to Hong Kong!
Yes, quite the journey. So I’ll now dig into some of the parts of restructuring your business in a new jurisdiction.
Disclaimer – Please Ask Your Local Tax Advisor
All of these guides are under our general terms and conditions, but I want to make this post 100% clear. Please do your own due diligence. Work with an expert who understands your exact situation of where you’re currently incorporated and where you want to move to.
This is a free post to help you understand some of the parts and the overall process. Use this as an outline and a starting point for the rather long (and most of the times, painful) process of closing an old company and moving things to a new one.
Now that we have that out of our way, let’s go!
Keep Your Business Operating Like Normal
Similar to selling your company or making big changes in your business, do it in stages. When you first get this idea, don’t plan to turn off the switch at the old company and then move everything over immediately.
Maybe you’re reading this with 1 more month left in your fiscal year and want to close these books and start with a fresh new company.
I really don’t advise this, it is dangerous to rush. Just like anything in life, when you rush it, you risk missing something. And if you close a company while you have a bank account or merchant account or other company account – it can become a big issue to access those later on.
So stay calm, and prepare to balance having the old company going and the new company at the same time.
Register The New Company
Next you’ll want to pick where in the world you want to incorporate. As many readers are online businesses, location may not be as relevant to them.
I always recommend picking a place that is easy for your customers to pay you. Getting cash flow should be your first priority, and you don’t want to make it difficult for them to pay you!
Other factors are of course taxes, everyone wants to pay less taxes. But also where are your suppliers based, is it easy to pay them too? And staff, will you hire people in a certain location, do you need a company there to hire them? And another factor is your own residence visa, do you plan to live in a foreign country and by having a company there it helps build your case to get a long term visa or more?
Once you pick the place, register the company. Anywhere in the world it will take a few weeks at least to get the company set up, the bank, the merchant account, Paypal, and other items. Take it step by step.
Buy, Sell, and Transfer From The Old to The New
Make a contract from one company to another. This is where you should work closely with a tax attorney. How do you value the different assets you are moving over from one to another? Will the old country’s tax department scrutinize that you valued a certain item on your balance sheet lower than market rate?
I know some of you are thinking you can just make the switch and no one will know the better. Especially in today’s online business world, accountants and governments are not catching up as fast with the value of domains and websites and other digital assets. It is up to you how much you formally transfer versus just go to your Godaddy and make a domain switch. The main difference is – will you buy/sell it from the old company to the new company or just do it for free.
Again, talk to your accountant, please! Digital is not invisible!
More The Easier Parts of the Business First
This is where things get delicate. You’ll need to “rewire” your business. If you have a shopping cart, you’ll need to update the merchant account and Paypal.
Because it’s a new company in a new state or country, you’ll need to open a fresh new Paypal account. Get it all verified up and make sure your customers know this change and trust you.
I know it is sloppy, but you can just give yourself a week or so to make sure the new one is working before you file to close the old one. While it might make bookkeeping a mess, you want to still be able to receive money from customers.
If customers are wiring you money, make sure they know that you’re switching your bank. And depending on how big these customers are, having them update things on their side may take time. Another reason to just be patient and balance both of these companies for at least a couple months.
Make A Public Announcement
Yes, a hassle! Some do it slowly over time, others just get ‘er done and find everywhere in their business that they can update. The style is up to you.
Confirm All Assets and Operations Are Moved Over
Now, this really depends on how complex your business is. And if you have proper full-time employees or not. But people and other third party businesses have contracts. If you close the company you’ll need to be 100% sure nothing outstanding is still there. Believe me, I have been through it.
But if you do forget, of course there is always a way to fix it. Really depends on how serious the contract is, who the counterpart is, and how long the company has been closed.
Close Old Bank Account, File To Deregister the Company
Now for the nerve racking part. What I like to recommend is that your old company’s bank account doesn’t have any activity in it for a full month. That is because most of the recurring payments or deposits happen on a month to month basis.
Once you are sure there won’t be any more financial activity in the bank, then you can file to close the business. You’ll need to prepare your taxes and wrap up that fiscal year.
Another idea is to keep the bank and the company open until it gets close to the end of the fiscal (company) year. You may get some monthly bank fees for not having a balance in there, you could also just keep the minimum deposit to avoid the monthly fee. The main point is that there isn’t any (or very little) activity so that you can rest assured the business will really wrap up once the end of that accounting year is up.
As far as how to close a company, it depends on the jurisdiction. In Florida when I closed, I just stopped filing the annual return and they closed it for me automatically. For other states it was a more formal process. In Hong Kong, you also need to formally file to deregister.
Then you’ll pay your taxes for that year and should be the final nail in the coffin! Depending on how big your company is, the tax department may question things and let’s just hope it is smooth and you have all your documentation and contracts ready to show them.
Done, Now You Can Use Your New Company
There it is, the old company is closed, the assets, customers, and staff are moved over to the new company. Congratulations!
While it is tempting to just “let things go” on the old company, it will come back to bite you if you don’t follow the local procedures on doing it. It’s the last year you’ll need to do it, so try to think positively and get it finished.
Maybe You Want To Keep Both Companies?
Another idea, maybe you can’t close down the old company. Maybe there are customers who refuse to send money to this new company outside of their home country. There are ways you can open bank accounts in those locations near those customers, but they may still be difficult about it.
You need to decide, is it worth it to keep this old company operating for that revenue? Or maybe it’s another thing like investors, or some long term contracts you have that can’t be transferred.
Many of us, global entrepreneurs, end up having a handful of companies around the world. It can become quite a headache and cost a bit of change, so I still recommend to try your best to keep 1 company open for everything.
Or maybe it can take a couple years. Maybe you’re just nervous to leave your home country 100% as well. I have been there, it is a strange feeling! To cut off your business ties to the place you were born and raised. But think long term, think global. And remember the competitor landscape is not just your neighbors, but people from around the globe. Starting right on day 1 now!
How About You?
How about your experience, have you opened a company one place, and then years later wanted to switch out and to a new place?
Maybe you found today’s guide because you’re going through this restructuring process now. Well, then I’d love to hear from you! What questions or concerns to you have? Issues closing the old company? Not sure if your accountant knows both sides of the 2 countries borders. Yes, it is quite scary.
Please leave a comment below, let’s help each other solve this problem! To our global business success