A domestic corporation is a corporation that does business in the jurisdiction in which it is incorporated. This can be compared to a Foreign Corporation which conducts business in a jurisdiction other than its place of incorporation. The concept of domestic and foreign corporations applies not only between different countries but also between different regional jurisdictions, such as provinces or states. In order to form a corporation, a filing must be made with the Secretary of State in the state where the business wishes to be incorporated. Businesses are free to choose where to incorporate in order to become official corporations. Business owners typically examine all the possibilities and choose which jurisdiction they deem the most suitable or beneficial for them. For some, it may be a matter of convenience, and many smaller business owners will just incorporate in the province or state in which their company operates. Other owners will examine differing state laws to determine which jurisdiction offers the best business-friendly tax laws. Another consideration is that corporations are domiciled or considered citizens of the state in which they are incorporated. This means that this is where a court will have jurisdiction over the corporation in the event that the corporation is sued. Thus, when forming a corporation some will consider what state laws will be most beneficial to the corporation in the event of a lawsuit and will form the corporation in that jurisdiction. For example, the state of Delaware in the United States is a popular place of incorporation for many businesses due to its unique, pro-business tax laws.
[Last updated in September of 2022 by the Wex Definitions Team]
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