State of Incorporation
Incorporation is the process by which a corporation is recognized as a separate legal entity under state law. To incorporate, the founders must draft articles of incorporation and file those with the relevant state agency – often the commerce department or Secretary of State – and pay any required filing fees. The corporation is then recognized by the state. The newly formed corporation must have an initial meeting in which bylaws are adopted and stock is issued, if applicable. Directors can also be elected at the initial meeting, unless they are named in the articles of incorporation.
Operation in Multiple States
Just because a corporation is domiciled in a particular state does not limit it to operating in only that state. For a corporation to operate in a state other than its home state, the corporation must follow the other state’s protocol to register as a “foreign” corporation that is doing business within that state. Typically, this registration involves filling out forms and providing copies of the corporation’s articles of incorporation and a certificate of good corporate standing from the home state. Most states charge a registration fee for foreign corporations.
If a company wishes to change its domicile, it is not an easy process. The company will need to follow internal procedures to make this decision, as it is a question that may need to be decided by shareholders depending on how the articles of incorporation and bylaws are written. If approved internally, the corporation will then need to dissolve the corporation by following the home state’s laws. The corporation must then file the articles of incorporation, and pay any required filing fees, with the newly selected domicile state.
Most Popular State
The majority of companies traded on the New York Stock Exchange are domiciled in Delaware. Delaware law is often used as the standard when studying corporate law. The number of incorporations in Delaware indicates that its state laws are business friendly. For example, Delaware does not impose sales or personal property taxes and the fees to incorporate are low. Corporations are also required only to have a minimum presence in Delaware, but are not required to maintain an office in the state, only a registered agent.