Domestic Corporation

What it is

A domestic corporation is a company that is incorporated under and governed by the laws of its home state or country. It is considered “domestic” where it was formed and “foreign” in any other jurisdiction where it operates but was not incorporated.

Example: A corporation incorporated in Delaware is a domestic corporation in Delaware and a foreign corporation in every other U.S. state.

Formation and legal domicile

• A corporation becomes domestic by filing articles of incorporation (or equivalent) with the state or national authority where it chooses to incorporate.
• From that point, the corporation is subject to the laws of the state or country of incorporation for matters of corporate governance and internal affairs.
• To change domicile, a company may use a statutory domestication process where available; otherwise it typically must dissolve in the original jurisdiction and reincorporate in the new one.

Domestic vs. foreign corporations

• Domestic corporation: Incorporated and governed by the laws of the jurisdiction of formation.
• Foreign corporation: Any corporation that conducts business in a jurisdiction other than its place of incorporation. (This can mean a different state within a country or a different country altogether.)
• Corporations doing business outside their state of incorporation normally must register as foreign corporations in those jurisdictions.

Why incorporation choice matters

• Legal framework: Businesses often choose their state of incorporation based on favorable corporate law, court systems, and predictability in resolving shareholder disputes. Delaware is a common choice because of its specialized Court of Chancery and well-developed corporate case law.
• Practical operations: Taxation and many regulatory obligations depend on where the business actually conducts activities, not just where it’s incorporated.

Quick fact: A large share of major U.S. companies are incorporated in Delaware due to its business-friendly legal infrastructure.

Tax and regulatory considerations

• Federal corporate tax: Corporations pay federal corporate income tax on profits (21% under current federal rules).
• State taxation: Corporations are generally subject to taxes and fees in every state where they do business. Incorporating in a low-tax state does not automatically exempt a company from higher taxes in states where it operates.
• Registration requirements: When operating in other states, a corporation must typically register as a foreign corporation and comply with local filing and tax rules.

Practical steps for businesses operating across jurisdictions

• Choose incorporation state after weighing corporate law, litigation environment, and administrative rules—not just headline tax rates.
• Register as a foreign corporation and obtain any required licenses in states where the company conducts business.
• Consult tax and legal advisers to understand multistate tax obligations and the mechanics of domestication if you plan to change domicile.

Key takeaways

• “Domestic” refers to the jurisdiction of incorporation; “foreign” refers to other jurisdictions.
• Corporate governance is governed primarily by the law of the state or country of incorporation.
• Tax obligations arise where the company does business, so incorporation location does not eliminate multistate taxation.
• Many companies choose certain jurisdictions (e.g., Delaware) for favorable corporate law and dispute-resolution systems.