What Is a Domestic Corporation?

By Bryan Driscoll, J.D.

What Is a Domestic Corporation?

By Bryan Driscoll, J.D.

A domestic corporation is a company formed under any particular state law. For example, if a company is formed in the State of Delaware, the business is a domestic corporation in that state. However, the Delaware incorporated entity is a foreign business in any other state.

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What is a Domestic Corporation?

When discussing domestic and foreign corporations in this context, it's important to remember that we're talking about states, not countries. As previously noted, a corporation formed in Delaware is domestic to Delaware but foreign to every other state.

Forming a domestic corporation varies from state to state. Typical steps for formation include:

  • Filing Articles of Incorporation;
  • Election of officers and directors;
  • Selecting a business purpose;
  • Determining taxation;
  • Paying a filing fee.

Creating a domestic corporation requires precise compliance with state law. Speak with a skilled and trusted business attorney to help you set up your corporation correctly.

Operating a Domestic Corporation in Another State

Now that you've determined which state to file your corporation in, you'll need to determine if you're going to conduct business in other states. If you are, you have another decision ahead of you.

When you decide to conduct business in other states, you have two options:

  • Conduct business as a foreign corporation;
  • Domesticate your foreign corporation in other states.

Conducting business as a foreign corporation is straightforward, though the process and requirements do vary from state to state. You must file certain forms with the state registering as a foreign corporation doing business in that state.Your other option is to domesticate your foreign corporation in the states where you want to do business. This options comes with a harsh legal ramification: You must dissolve your corporation from the state in which you originally filed. If, however, you're relocating your business, this would be a good alternative.

Considerations

Domesticating your corporation in a particular state is beneficial. Maybe you want to file in your home state for convenience. Or maybe you want to file in Delaware for corporate reasons.

Many corporations choose Delaware because of the state's unique and business friendly laws. For example, most states require business disputes to go through civil court, which can be rather time consuming due to significant backlogs of other civil-related cases. Delaware, however, provides a Court of Chancery that solely handles business disputes. Therefore, while you may not reside in Delaware, it may be beneficial to file your corporation in Delaware for other reasons.

You may also choose to file in a state with business friendly tax laws. But beware of doing this solely for tax reasons. Federal law says that states can tax all income from within its borders. While you may form your corporation in a business friendly tax state, i.e. Delaware, you might still have to pay higher taxes if all of your business income derives from your home state.

When setting up a corporation, you have options, but you need to choose carefully. After you have formed your corporation, it can be both costly and time consuming to relocate and make changes to your business structure. A trusted legal adviser can ensure you make the right decisions.

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.