Principal Place of Business vs. State of Corporation

By David Carnes

A corporation is created by the corporate law of a particular state. It is legally independent of its shareholders and management -- it can be taxed separately, and it can act as either plaintiff or defendant in a lawsuit. Although a corporation is an abstract entity, its operations are centered in a particular location, known as its principal place of business.

A corporation is created by the corporate law of a particular state. It is legally independent of its shareholders and management -- it can be taxed separately, and it can act as either plaintiff or defendant in a lawsuit. Although a corporation is an abstract entity, its operations are centered in a particular location, known as its principal place of business.

State of Incorporation

A corporation's "state of incorporation" is the state that approved its Articles of Incorporation. No matter where a corporation does business, its internal affairs are governed by the laws of the state that incorporated it. Although a corporation does not have to do business in its state of incorporation, it must appoint a registered agent who is a state resident to receive legal correspondence on behalf of the corporation. Delaware is perhaps the most popular state of incorporation, because its corporate legal system is well-developed and because its judges are experienced in corporate law. The state of incorporation levies an annual franchise tax, or its equivalent, in exchange for maintaining the company's corporate status.

Ready to incorporate your business? Get Started Now

Foreign Corporate Registration

A corporation must register as a "foreign corporation" wherever it does business outside its state of incorporation. For purposes of corporate law, "foreign" simply means "out of state" -- a Nevada corporation and a Mexican corporation would both be considered foreign corporations in California. A corporation that is incorporated in Delaware with its principal place of business in Florida, for example, must register as a foreign corporation in Florida, even if its headquarters, its factories and its customers are all located in Florida. The primary reason for requiring foreign corporations to register is to ensure that they pay state taxes on income derived from in-state activity.

Principal Place of Business

Determining a principal place of business is a simple matter for some corporations. For large or dispersed corporations, however, the determination might involve ambiguity. If a corporation is headquartered in San Diego, with most of its factories in Houston, it is not intuitively obvious which city should be selected as the corporation's principal place of business. However, most states require a corporation to select its corporate headquarters as its principal place of business and to file the address with the state Secretary of State.

Diversity Jurisdiction

The location of a corporation's principal place of business can become particularly important if the corporation becomes a party to a lawsuit. If the corporation is sued in a state court, it may wish to remove the case to a federal court for various reasons. One of the main grounds for removal of a case to a federal court is that the plaintiff and defendant are from different states. A corporation is "from" both its state of incorporation and the state where its principal place of business is located.

Ready to incorporate your business? Get Started Now
What Is a Domestic Corporation?

References

Related articles

If I Have a C Corporation, Can I Operate in Multiple States?

All corporations are formed under state law and are distinct legal entities, separate from their owners — the shareholders. A corporation's legal residence, or domicile, is the state where it is formed; it is referred to as a "domestic corporation" of that state. Any corporation can transact business in other states — referred to as "foreign" states — as long as the corporation is in good standing with its domicile state and complies with the foreign state's laws.

How to Change the State of Incorporation

Corporations have several options when it comes to expanding to new locations or relocating the home base. The state in which the corporation chooses to incorporate is known as its home base, or "domicile." The corporation is considered a citizen of that state. It is relatively easy to obtain the authority to operate in other states as a foreign corporation, while changing the domicile is a more complicated procedure.

How Does a Person Become Incorporated?

A corporation is an independent legal entity owned by shareholders, and may be incorporated by an individual. The shareholders are not personally liable for the corporation, which will continue to exist even if the shareholders change or pass away. State law regulates the formation of corporations and varies by state; however, there are some similarities.

LLCs, Corporations, Patents, Attorney Help

Related articles

How Can a Corporation Bring a Suit?

A corporation is an organization formed under state law to carry on a business. A corporation is, in essence, a legally ...

How to Distinguish a Publicly Traded Partnership From a Public Corporation

The law in the United States protects the public by requiring all businesses to fully and correctly identify themselves ...

Kansas Incorporation Information

State law governs the formation of businesses in the United States; there is no federal law regulating general business ...

Terminating a New York S Corp

A corporation is considered an independent legal entity under New York state law. S corporation status is an IRS tax ...

Browse by category