Quasi-foreign corporation

A quasi-foreign corporation (also known as a pseudo-foreign corporation) is a corporation incorporated in a jurisdiction with which it has minimal business contacts. Corporations may incorporate in foreign jurisdictions in order to minimize liability, taxes, or regulatory interference.

Offshore corporations are a common example, as are Delaware corporations and Nevada corporations in the United States.

Legal regimes

Generally, the internal affairs doctrine provides that a corporation's internal affairs are governed by the jurisdiction in which it is incorporated. However, many jurisdictions apply local law to foreign corporations in certain determinations such as piercing the corporate veil. [ [http://www.nvinc.com/ApplicationOfForumLaw.htm The Application of Forum Law to "Pseudo-Foreign" Corporations] , Nevada Corporate Planners.]

Some jurisdictions have gone further in attempting to control the activities of quasi-foreign corporations.

California

[http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=02001-03000&file=2100-2117.1 Section 2115] of the California Corporations Code applies many aspects of California corporate law to foreign corporations operating in California under Californian ownership, including many provisions dealing with director liability and shareholder authority. While these rules may apply in suits brought against foreign corporations in California courts, Delaware courts refuse to apply Section 2115 in suits against Delaware corporations. [Larry Ribstein, [http://busmovie.typepad.com/ideoblog/2005/05/big_surprise_de.html Big surprise: Delaware applies the internal affairs rule] , Ideoblog, May 3, 2005.]

Japan

The Japanese corporate statute of 2006 provides that "no foreign company having its main office in Japan or the primary purpose of which is to carry on business in Japan may engage in transactions on a continuous basis in Japan" and that "any person who has engaged in transactions in violation of the provision of the preceding paragraph shall be jointly and severally liable with the foreign company to any counterparty for such transactions."Robert Alan Feldman, [http://www.morganstanley.com/GEFdata/digests/20050630-thu.html Japan: Article 821: Finest Hour of Cooperation] , Morgan Stanley Global Economic Forum, June 30, 2005.]

Before the statute was passed, many banks and other multinational corporations operated in Japan as foreign entities in order to avoid Japanese regulations requiring banking and securities businesses to be separated by Chinese walls. These companies, along with international chambers of commerce and other organizations, extensively lobbied the Japanese government to change the language of the draft bill. [David Ibison, [http://www.ft.com/cms/s/e6e8139c-e128-11d9-a3fb-00000e2511c8.html Businesses wake too late to Japan law's implications] , "Financial Times", June 20, 2005.]

The solution was for the House of Councillors, the upper house of the Diet of Japan, to add a rider to the bill calling for "all efforts... to ensure that existing foreign companies in Japan and future investments that may be made by foreign companies into Japan will not be adversely impacted."

References