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.

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.

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.

Ready to incorporate your business? Get Started Now

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.

Ready to incorporate your business? Get Started Now
Can a C-Corporation Be a Partner in a Partnership?

References

Related articles

Tax Differences of LLCs & PCs

A limited liability company is a company, typically with a small number of owners, known as members, that enjoys the same limited liability benefits as a corporation. All states now allow one-member LLCs; some states allow professionals to form professional limited liability companies, or PLLCs. A professional corporation, or PC is a special type of corporation designed for professionals such as lawyers and accountants. LLCs and PCs are taxed quite differently.

S-Corporation Meeting Minutes Requirements

All corporations are formed under state law and are considered C corporations when first formed. In order to maintain good standing with the state, corporations must comply with state laws governing the management of the corporation, which include the requirement that meeting minutes be kept with the corporation’s books and records. For federal income tax purposes, a C corporation can elect to be taxed under Subchapter S of the Internal Revenue Code -- after which it is considered an S corporation. Although there is a significant difference in taxation between C and S corporations, there is no difference between the two types of corporations regarding compliance with state laws governing meeting minutes.

How do I Register an LLC for Multiple Members?

A limited liability company, or LLC, is a “hybrid” business organization that combines the limited liability benefits of a corporation with the pass-through federal taxation and easier filing requirements of a partnership. The owners of an LLC are called members. State laws uniformly permit the creation of LLC’s with multiple members. Creating an LLC with multiple members requires filing a document, called the articles of organization, with the state agency responsible for registering business organizations.

LLCs, Corporations, Patents, Attorney Help

Related articles

Corporation: Withdrawal Vs. Dissolution

A corporation is an independent business entity, formed under state law by filing articles of incorporation. The state ...

Principal Place of Business vs. State of Corporation

A corporation is created by the corporate law of a particular state. It is legally independent of its shareholders and ...

What Is a Disadvantage of the Corporate Form of Business Entity?

Compared to other business entities, corporations offer many advantages, such as liability protection and ease of ...

Advantages of LLC vs. an S-Corporation

A limited liability company (LLC) is a form of business organization authorized by state statutes to accommodate ...

Browse by category
Ready to Begin? GET STARTED