What Is a Domestic Corporation?

By Joe Stone

All corporations are considered a domestic corporation in the state where the corporation is formed. For example, a corporation formed under South Carolina law is considered a domestic corporation in South Carolina. This same corporation would be considered a foreign corporation in all other states. A business owner can choose in which state to domesticate his corporation.

All corporations are considered a domestic corporation in the state where the corporation is formed. For example, a corporation formed under South Carolina law is considered a domestic corporation in South Carolina. This same corporation would be considered a foreign corporation in all other states. A business owner can choose in which state to domesticate his corporation.

Forming a Domestic Corporation

Corporations are formed under state law. The basic requirements include filing the appropriate form -- usually called the articles of incorporation -- with the proper state agency -- usually the secretary of state. Complying with these requirements forms a domestic corporation under that state's law. The conduct of the corporation's internal affairs, such as election of officers and directors, will be subject to the state law where it was formed, regardless of where the corporation may be conducting its business.

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Domesticating a Foreign Corporation

An existing corporation that wants to conduct business in a state other than where it was formed must qualify to do business as a foreign corporation in that state. The requirements for qualifications are similar to forming the corporation -- the appropriate form must be filed with the proper state agency. The corporation also has the option of domesticating in that state, rather than operating as a foreign corporation. The requirements for domesticating the corporation include, not only filing appropriate forms for domestication, but dissolving or ceasing existence in the state where the corporation was originally formed.

Legal Considerations

A business owner deciding where to domesticate his corporation will generally consider the advantages the corporate laws of a certain state may have for the corporation and its shareholders. For example, corporations are frequently domesticated in Delaware because of its unique court system, called the Court of Chancery, that handles corporate disputes among shareholders. In this situation, a corporation domesticated under Delaware law will have to qualify as a foreign corporation in all other states where it conducts business.

Taxation

In the absence of compelling legal reasons, domesticating a corporation in a state with a lower corporate tax rate than the one in which the business is located is generally of little value. Under federal law a state can tax all income derived within its borders. So a business located in a state with a high corporate tax rate would gain no benefit from incorporating in a state with little or no corporate tax, if the company derived all its income within its home state.

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Principal Place of Business vs. State of Corporation

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Kansas Incorporation Information

State law governs the formation of businesses in the United States; there is no federal law regulating general business forms. Kansas has an organized process for creating and maintaining for-profit, non-profit and professional corporations. Like other states, it also allows foreign corporations to register in Kansas so they may lawfully conduct business in the state.

The Forming & Dissolving of Corporations

All 50 states allow individuals and preexisting business entities to create corporations, but each jurisdiction has the authority to draft its own corporate formation and dissolution laws. Although there may be differences in the formal requirements to create and dissolve a corporation in each state, some general similarities exist across jurisdictions.

How to Incorporate in Nevada and Delaware

Both Nevada and Delaware are popular choices for incorporating a business, due to tax benefits and other beneficial corporate laws. As a new business, you have the option to incorporate in either state, or to register as a domestic corporation in one state and as a foreign corporation in the other. Each state has unique filing requirements, as well as permitting and licensing requirements for all businesses.

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