Commercial Domicile: Everything You Need to Know
Definition of Commercial Domicile
Commercial domicile is defined as the main location from which the management of a company's business activities takes place. The domicile of an organization is often known as its headquarters. It may be an office or a general location where the principal officers, regular employees, and shareholders hold meetings about how to run the company.
What if a Company Has no Commercial Domicile?
If an organization has a domicile only on paper, the domicile of the company is the state that hosts the company's largest share of control.
For example, if a food company was incorporated in Michigan but can't do business in the state, but is active in seven other states with New York accounting for over 50 percent of its activities, then New York is the commercial domicile.
Where Should a Company Be Domiciled?
During the preliminary stages of starting a business, one of the major concerns of entrepreneurs is the choice of where to incorporate the new company. The decision is vital for the success of the business in the present and the future as it plays a major role in the types of laws that apply to the corporation, its principal officers, shareholders, as well as the rights and privileges of the corporation's creditors.
Most importantly, the state of incorporation of a company determines the amount of its revenue that will go into taxes. Corporations try to find a balance between favorable tax regimes and corporate law to ensure optimal use of company resources.
Often, the state where a company is incorporated also serves as its commercial domicile, however, this is not always the case.
Can a Company Operate in other States Apart from its Domicile?
The business activities of a corporation is not limited to its state of incorporation. If an organization wishes to operate in another state, all that it requires is to register as a foreign corporation running its business activities under the state's corporate laws.
What Does Registration as a Foreign Corporation Entail?
A typical registration for a corporation which intends to operate in multiple states include:
- Filling of forms to provide information about the company's business operations.
- Providing copies of the company's Articles of Incorporation.
- Most states also require a certificate of good corporate standing issued by the state of incorporation.
- Payment of a registration fee which varies according to the state.
Can a Corporation Change its Domicile?
It is possible for a corporation to change its domicile, but the process is extremely difficult. You have to find a state that supports domestication and make the stakeholders in the company agree to the move. Here are some of the steps a company needs to take when it is trying to change its domicile:
- Before a company can change its domicile, it has to make wide consultations within the organization.
- The principal officers and shareholders of the company must decide on the way forward according to the provisions of the company's bylaws and articles of incorporation.
- When a decision has been made, the company is dissolved according to the laws of the home state.
- Upon dissolution, the company files a new article of incorporation with the new domicile state in addition to any filing and registration fees.
Which Is the Most Popular Domicile State?
Delaware has the highest number of commercial domiciles in the USA. In fact, Delaware is home to most corporations listed on the New York Stock Exchange and its corporate laws are the industry standard.
The large number of companies domiciled in Delaware is evidence of its favorable business environment such as its low incorporation fee. Additionally, companies domiciled in Delaware don't pay sales tax. Delaware corporate laws only require companies to have a registered agent in the state, which means it's cheaper for businesses to operate out of the state since they don't need to have a physical office.
A company's commercial domicile has a huge impact on its finances in the present and the future, which makes it imperative to choose a state with a business-friendly atmosphere.
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