What are Domestic and Foreign Corporations
Any business that was established locally in any particular state where it is
operating is what is called as a Domestic Corporation, while businesses that
operate locally in a particular state but has its base of incorporation in another
state or country is what is called as a Foreign Corporation.
Many business owners normally prefer to incorporate or establish their
businesses in their own home state as it offers them the convenience and
familiarity of operating in their own community or locality. In some cases where
companies do not want to “do business” locally, then this is when they choose to
incorporate in another state or country (e.g. A New York cab company who has its
base of operation in New Jersey. A heavy equipment company in California with a
base of operation in Texas). The term “Doing Business” does not only refer to the
act of selling/moving products and gaining profit from that business within the
state, but it also refers to having an actual physical business presence or
establishment within that state.
Since the 19 th century, the state of Delaware has established its business and
taxation laws that has attracted a lot of businesses outside of the state. Delaware
is known to have the most business-friendly usury laws. Usury laws are legislation that places a cap or limit on the amount of interest that can be placed on loans or other types of financing. This is a form of consumer protection that controls the amount of interest that can be charged on consumers.
Delaware usury laws give banks and credit card companies the freedom to charge high interest rates on loans, this in turn gives lenders the leeway to charge
interest on their local customers. For this reason, some businesses outside of the
state opt to incorporate in the state of Delaware. This is common among large
U.S. companies, especially those who belong to the S&P 500 list. What this means is that these businesses incorporated in Delaware are allowed to charge interest according to Delaware usury laws even if they are conducting businesses outside of the state. These companies that are incorporated in the state of Nevada but conduct business outside of the state are what is referred to as Delaware Corporations.
The state of Nevada is the only state in the US that does not charge corporate or
individual state taxes. It is also one of only two states (the other is Texas), that
does not have an information sharing agreement with the IRS. What this offers to
individuals and companies is the protection of their personal assets and their
information. Because of these laws, Nevada has in turn become a well-known
corporate haven for businesses.
In recent years, a large number of West Coast based companies that have
headquarters in a different state, have been drawn to incorporate their
businesses in the state of Nevada. The state of Nevada has thus become
somewhat of a “tax-haven” for these companies that are attracted by its fierce
protection laws against hostile takeovers. These companies who are incorporated
in the state of Nevada, but have headquarters and operations outside of the state
are what is referred to as Nevada Corporations.
Among the considerations you should take when thinking about incorporating in a
state outside of where your business is located, is the fact that you have to
register your company as a foreign company doing business locally in the state
where your business is located. With this, you would be needing an agent or a
physical address or headquarters in that state, this will prove to be more
expensive and complicated in comparison to incorporating your business in your
own state. In cases wherein a lawsuit would be filed against you or your company
in the state where you are incorporated, these type of lawsuits are for more
expensive as compared to lawsuits that are filed in the state where you are