Corporate Domicile: Everything You Need to Know
Corporate domicile refers to the legal home of a corporation. By law, this is a company‘s corporate affair center.3 min read
Corporate domicile refers to the legal home of a corporation. By law, this is a company‘s corporate affair center.
Corporate Domicile Law and Legal Definition
A corporation is considered a citizen in both the state of incorporation and the state where a company‘s affairs are primarily completed. Corporate domicile helps determine taxes on companies and the legal status of a corporation.
Where Is a Corporation Domiciled?
When starting a business, one of the biggest decisions is determining where the company will be incorporated. This decision will influence many factors, especially the state laws that will govern the business. In turn, this will shape the rights of the shareholders, corporate officers, board of directors, and creditors. In addition, the choice of what state to incorporate in will influence how much state tax a corporation must pay, as tax rates greatly vary by state. Remember, the state of incorporation needs to be where the company‘s principal affairs will take place.
State of Incorporation
The way by which a corporation, under state law, is identified as a valid legal entity is called incorporation. In order to incorporate, several actions must occur, including:
- Articles of Incorporation must be drafted by the founders.
- Paperwork must be filed with the associated state agency (typically the Secretary of State or Commerce department).
- Any filing fees must be paid.
After these steps are completed, the corporation will be acknowledged by the state. A meeting should be held in which members of the newly formed corporation adopt bylaws and issue stock, if appropriate. At this time, directors may be elected unless they were previously identified in the Articles of Incorporation.
Legally, corporations are required to maintain a head office and a registered agent in each incorporated state. However, most companies incorporate in one state and register to perform business in other states.
Operation in Multiple States
Just because a company is domiciled in one state doesn't restrict operations to occur only within that state. Corporations may do business outside its home state as long as it follows the other state's guidelines and protocols. This includes registering as a foreign corporation that is carrying out business within that state.
Normally, registration will require:
- Filing forms
- Submitting copies of the Articles of Incorporation
- Providing a certificate of corporate standing
Please keep in mind that the majority of states charge foreign corporation registration fees.
It can be a difficult process for a company to switch its domicile. Internal procedures need to be followed in order for a company to make this adjustment. In some cases, this determination may need to be decided by stockholders, but it depends on how the bylaws and Articles of Incorporation were created.
If approved, the home state's laws will determine how the corporation will be dissolved. The corporation will need to pay any necessary filing fees and for the Articles of Incorporation with the newly selected domicile state.
Most Popular State
Most companies that are traded on the NYSE are domiciled in Delaware. Delaware is frequently utilized as the basis for examining corporate law. Delaware has numerous incorporations, which indicates that it has a friendly business environment. For example, there are significantly lower fees to incorporate in Delaware, and the state does not impose personal property or sales tax.
It is also acceptable for a corporation to act only as a registered agent because it is not necessary to manage an office within the state. In other words, Delaware requires corporations to only have a minimum presence in the state.
Domicile vs. Incorporation: Introduction
Jurisdiction in U.S. state courts requires significant contact between the corporation, or the individual, and the state in which the other party is being sued. Incorporation and domicile help a court to determine whether they have constitutional authority to hold a corporation or an individual liable within a specific state.
Domicile vs. Incorporation: Constitutional Issues
Applicable state law will determine a plaintiff‘s decision on where to bring the lawsuit. In order for a court to hear cases under U.S. constitutional law, the defendant needs to have satisfactory contact with the state in which the case will be tried. Certain states will use domicile and incorporation as measurements by which courts will typically find assertion of that state's jurisdiction to be constitutionally acceptable. Seeking legal advice is advisable because each state has its own rules of civil procedure with regards to domicile and incorporation procedures.
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