Corporate Domestication Under the Iowa Business Corporation Act
January 31, 2023
By: Wesley M. Greder, Michael J. Dayton
On June 8, 2021, Governor Kim Reynolds signed into law House File 844, the first major revision to Iowa’s corporate law in over 30 years. The Iowa Business Corporation Act (IBCA), based on the Model Business Corporation Act (MBCA), was revised to adopt updates made in the 2016 edition of the MBCA. The MBCA, developed by the Corporate Laws Committee of the American Bar Association, is followed by the majority of states.
The IBCA revisions include provisions for the domestication of both Iowa and foreign corporations (Iowa Code Sections 490.920–490.924). Domestication of a corporation is the process by which a corporation alters its jurisdiction of incorporation. Domestication is not to be confused with foreign registration, which is an application for authority to do business in a state but does not change the jurisdiction of incorporation. The procedure is likewise distinguished from conversion, which is a change in the entity type of a business such as a conversion from a corporation to a limited liability company, though the process of domestication, as outlined below, is similar to the process of conversion.
Domestication of a corporation into another state can offer advantages to the business. A corporation may seek to domesticate to a different jurisdiction to be subject to more favorable tax laws. Wyoming and South Dakota, for example, impose no corporate income tax. Similarly, a corporation may re-domesticate for more favorable governing corporate law. State law can differ in meaningful ways, including with respect to voting rights, officer and director protections, and corporate liability. Over two-thirds of the Fortune 500 is domiciled in Delaware in large part because the Delaware General Corporation Law, and Delaware common law, is well-established and contains advantageous corporate governance regulations.
Authority to Domesticate
As a condition of a foreign corporation (a corporation incorporated in another U.S. state) domesticating into Iowa, it must be authorized to domesticate by the governing corporate law of its current jurisdiction. For example, an Illinois corporation may become an Iowa corporation under the IBCA pursuant to the Illinois Entity Omnibus Act. A New York corporation, however, may not because New York law does not provide for domestication. Similarly, Iowa corporations may domesticate into a foreign jurisdiction, so long as the law of the proposed foreign jurisdiction allows domestication.
Process of Domestication
Approval of Domestication. For an Iowa corporation seeking to re-domesticate into a foreign jurisdiction, the first step is for approval of the domestication by the board of directors. Upon such approval, the board then submits a plan of domestication to the corporation’s shareholders. Unless the board determines a conflict of interest or other special circumstance exists, the board shall recommend the domestication to the shareholders. If shareholder approval is to be given at a meeting, each shareholder (regardless of voting rights) is notified of the meeting and that the purpose of the meeting is to discuss a potential re-domestication. This notice will include a copy of the plan of domestication (discussed below), as well as copies of the articles of incorporation and bylaws to be in effect after the domestication.
At the shareholder vote, a quorum must exist consisting of a majority of the votes entitled to cast on the plan, unless the corporation’s articles of incorporation or bylaws specify otherwise. The board may also set a required shareholder vote as a condition for approval of the plan. Additionally, unless any of these conditions are present, shareholder approval requires approval of each class or series of shares voting as a separate voting group at a meeting at which a quorum of the voting group exists (consisting of a majority of the votes entitled to be cast by that voting group).
Plan of Domestication. To satisfy Iowa law, the plan of domestication must include: (a) the name of the domesticating corporation, (b) the name and jurisdiction of the formation of the domesticated corporation, (c) the manner and basis of reclassifying the domesticating corporation’s shares, (d) the proposed articles of incorporation and bylaws of the domesticated corporation, and (e) any other terms and conditions of the domestication. For a foreign corporation seeking to re-domesticate in Iowa, the plan of domestication must satisfy the requirements of the foreign jurisdiction.
Articles of Domestication; Filings with the Iowa Secretary of State. After a plan of domestication has been approved under Iowa law or foreign law, as applicable, the corporation should effect the domestication by filing articles of domestication with the Iowa Secretary of State. The articles must set forth: (a) the name of the domesticating corporation and its jurisdiction of formation, (b) the name and jurisdiction of formation of the domesticated corporation, and (c) a statement that the domestication was approved in accordance with the jurisdiction of formation’s governing statute.
If the domesticated corporation is now an Iowa corporation, the articles of domestication must also include articles of incorporation. If the corporation is now a foreign corporation, the articles of domestication will need to attach articles of incorporation, or a similar filing, in compliance with the requirements of the foreign jurisdiction.
Effectiveness of Domestication
If the domesticated corporation is now an Iowa corporation, the domestication takes effect on the date and time of filing of the articles of domestication, or such later date specified in the articles so long as such date is not greater than 90 days after the date of filing. If the corporation was previously authorized to do business in Iowa as a foreign corporation, its foreign registration statement is canceled when the domestication becomes effective.
If the domesticated corporation will now be a foreign corporation, the domestication becomes effective on the later of: (a) the date and time provided by the law of the domesticated corporation’s new foreign jurisdiction, and (b) when the articles of domestication are effective.
A domestication only affects the jurisdiction of incorporation of the corporation. In all other ways, the corporation is the same and continues uninterrupted with all of the same assets and liabilities as it had prior to re-domesticating. A domestication is not a conveyance, transfer, or assignment. The corporation retains its existing federal tax identification number and its existing corporate structure (subject to differences in the state corporate law of the domesticating corporation and the domesticated corporation).
Domestication is a complex action for any corporation, and a relatively new procedure in Iowa. For legal advice on corporate domestication under Iowa law, please do not hesitate to contact your Nyemaster attorney.