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The use of foreign corporation registration allows a corporation to operate in multiple jurisdictions as the same organization in all of them. The only alternative would be to register a separate corporation in each jurisdiction, and separate every operation according to the particular jurisdiction to which the operations are taking place. This would mean, for example, a corporation operating in 5 U.S. states would have to have separate domestic corporations in each of the five states, as opposed to having a single corporation registered in one state, and being registered as a foreign corporation in the other four. For example, many public corporations in the United States are registered in the State of Delaware (because of better corporate governance regulations), or Nevada (because of better tax provisions, privacy and corporate officer liability protection) and then are registered as foreign corporations in all the other states that they do business in. Thus the corporation is a ''domestic corporation'' in Delaware or Nevada, and is a ''foreign corporation'' in any other state (or country) with which it registers. There may be tax benefits as a result of choosing where a corporation's domestic jurisdiction is located. For example, Texas and Nevada, for example, have no state income tax. The two basic ways to organize a corporation which operates in multiple jurisdictions is
Operating a corporation as a holding company and separate corporations in each state, or operating as a single corporation with registrations as foreign corporations in all the other states than its home state, is a matter of choice for the corporation's directors and officers depending on how it operates, damage liability and tax consequences. A corporation may find it more advantageous operating as separate companies in each state or jurisdiction, or it may find that operating as a single organization may make more sense. One reason for operating as a single corporation having foreign corporation status in other states is because of corporate governance rules which dictate that the rules of the state where the corporation is a domestic corporation apply for certain provisions such as voting rights, officer and director protection, and liability for misconduct. If a corporation is sued and is considered to have operated in a fraudulent manner such as essentially acting as the alter ego of the stockholders (especially in the case of a corporation having only one stockholder) the corporation's existence may be disregarded by the court. This is referred to as '' Piercing The Corporate Veil '', and is subject to the rules of the home state where the corporation is a domestic corporation. In the case of corporations domesticated in Nevada, for example, over the last twenty years, only twice has the corporate veil been pierced, and in both cases the corporation's owners engaged in fraud. One reason for operating as a holding company with separate domestic corporations is because of potential liability issues such as in operating facilities which have high potential liabilities in the event of accident or failure. Thus only the assets of the particular corporation in the particular state are at risk in the event of a lawsuit, as opposed to the assets of the entire corporate entity. In some cases, because of ownership rules, the laws of a jurisdiction may require separate businesses to be operated by subsidiaries in order to protect the business of the subsidiary from the operations of the parent. This is most prevalent in the case of subsidiaries which are banks or public utilities such as electric power companies. An issue that occurred during the 1990s for some larger companies involved tax treaties which allowed a corporation to change its jurisdiction as a domestic corporation from a U.S. State to Bermuda , allowing it to save huge amounts of tax payments. Some corporations took advantage of this provision, while others did not because of concerns by stockholders as to whether it would be to their advantage to allow the corporation to move its nominal home jurisdiction. |
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