Looks like I`m coming in on this conversation a little bit late ;-)
You actually have not two, but three options - and the third thus-far unmentioned option I think might be the best for both of you... (although without knowing your specific situation, it is impossible to give you my specific thoughts). It appears from your profiles that Steve, you make and sell cookies (manufacturing) and CollegeCoach, you do consulting, so we`ll go with that ;-)
1. Dissolve your existing entity and form a new on in your new state.
2. Foreign qualify your existing entity in your new state.
3. REDOMICILE your existing entity in your new state.
The problem with #1 is that you would lose your original incorporation date. If you`ve had your business entity for even a year, it would be a shame to lose it date since banks, customers, and vendors considering giving you credit all generally look at this date. Think about it this way... would you rather loan money or do business with an entity who`s business was incorporated last month? or three years ago? (There is a reason that people put "Since 1995" or "25th Anniversary" in their advertisements! Not to mention that legally dissolving and then re-incorporating an entity - and potentially having to do taxes for both entities in the year you move is a lot of work and probably a lot of filing fees, accounting fees, etc. Not to mention there could be tax and other complications as well depending on where you are moving from or to. For example, if you did this at the end of the year moving into another state with an annual fee (which could be $500+), you might be liable for that minimum annual fee even though you were only there a month - and maybe didn`t even do business yet!
Option 2 only makes sense if you currently reside in a tax or business entity friendly state such as Nevada, Wyoming, Delaware, or even Florida. You could then foreign qualify your business in the new state you`re moving to - or depending on your business type, you may be able to just keep your existing business where it is, then form a new entity in your new state to do work for your currently existing entity in the "tax friendly" jurisdiction. This can get complex. It is 100% legal, but you must find a CPA that absolutely knows what they are doing! Also, for manufacturing and consulting, it is not apparent that this would make immediate sense.
3rd option, just redomicile your existing entity in your new state. If you are moving to Nevada or Wyoming - or somewhere it is actually desirable to incorporate, then all the better! (LOL) Basically, when you redomicile, everything stays the same except your business entity is just "moved" to your new state. There may be some extra fees involved in this initially, but it is worth it for the older incorporation date in most cases - after all, age on your business entity is very difficult (but not impossible) to purchase!
I 100% agree with BrianTheAccountant`s suggestion that you consider a tax-friendly jurisdiction for your entity IF POSSIBLE. Note that no matter where you are incorporated, the general rule is that if you have employees or assets in a state, you must be either foreign qualified to do business in that state, or incorporated there.
For a consultant such as CollegeCoach, if she is the only consultant in her business, and is doing all of her consulting in California, it would be a very interesting exercise to attempt to convince the California State Tax authority that its all your Nevada LLC ;-). I would not suggest you go there.
For Steve, I assume he`s doing all of his cookie manufacturing himself now, but in the future once he`s shipping tons of cookies every month, using the same example of California, it might make a lot of sense to move the manufacturing and shipping operations to another tax-friendly state. He could then consult for that seperate cookie manufacturing company and send whatever % of profits he likes to be taxed in his home state using a seperate consulting company. (Again, note that this exercise is not for the neophyte, so you should get help setting up a strategy like this!).
Good luck! (and send me some cookies!)
Author of LLCs for Dummies and Founder of MyLLC.com