Principal Place of Business vs. State of Corporation

By Jennifer Kiesewetter, J.D.

Principal Place of Business vs. State of Corporation

By Jennifer Kiesewetter, J.D.

When you form a corporation, your state law governs the documents needed to do so. After you complete the process, your company becomes an independent entity, separate from its owners. Additionally, your business will be taxed according to its where it is registered. For this reason, owners should consider their options when it comes to choosing a location, particularly with regard to applicable corporate and tax laws in each state.

Woman smiling while using her laptop as her coworkers collaborate in the background

Principal Place of Business

During formation, you must choose a principal place of business, which will be the primary location where you will operate. This will be a physical place where the owners make corporate decisions, keep the books and records, and where they hold an annual meeting. Keep in mind that this will impact how you pay taxes at both the state and federal level, as well as the jurisdiction where other individual and entities can bring potential legal suits.

If you operate a large company with several locations, it's prudent for you to examine which one of the sites would be most beneficial in terms of your short and long-term goals. However, if you own a small entity, or even a one-person shop, you won't necessarily have the same options as large, multi-location companies.

State of Incorporation

This is where the owners register the business with the corresponding Secretary of State. They can choose to register where they operate or in a geographical location that offers greater options, such as flexible corporate and tax laws. Delaware is a prime example of a jurisdiction that offers great flexibility and corporate advantages for business owners.

Each state has its laws, rules, and forms for corporate registration. For example, some have a minimum number of owners you must have whereas others may require a specific amount of money be invested in the company before beginning to operate. Further, some states may vary on privacy laws or record-keeping. Be sure to understand the differences so that you can choose one that is right for you.

Foreign Entities

If you register in one state and want to provide services or sell products in another state, you must register as a “foreign corporation." In this case, foreign merely means that you registered in another state.

For example, if you incorporate in Delaware but want to sell products in New York, your entity will be considered a foreign corporation within New York. And to do business there, you will have to register with the Secretary of State's office. For this reason, it's important to be aware of the other applicable laws before operating in various jurisdictions.

For small or solo companies, deciding where to incorporate or create a principal place of business may be a simple decision. However, for larger companies, especially those with multiple locations, the choices are more complicated. Understand your city, county, and state laws before you consider choosing another state. By doing so, you'll be knowledgeable on specific critical issues as you consider the option of being governed by another state's corporate and tax laws.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.

Ready to incorporate your business?

Get started now