A multinational corporation is often thought to be a giant business entity with operations in dozens of countries. However, the minimum requirement for a corporation to be considered multinational is that it operates in at least three different countries. This is usually accomplished by means of establishing a parent corporation and then establishing subsidiary corporations in other countries that are majority- or wholly owned by the parent corporation.
Forming the Parent Company
Decide the jurisdiction of incorporation of the parent company. One of the most popular jurisdictions is the U.S. state of Delaware, because of its favorable corporate law.
Obtain a copy of the Articles of Incorporation form used by your chosen jurisdiction. This form may or may not be available online.
Choose an available corporate name that complies with your jurisdiction's rules regarding corporate names. U.S. states generally require that the name include the word "Inc." or "Incorporated." Certain words, such as "Bank" or "Federal," are forbidden unless they genuinely apply, because of the confusion they would create in the marketplace.
Appoint the corporation's initial directors. Some states require more than one director.
Create the Articles of Incorporation and file them with the secretary of state of the state in which you wish to incorporate. This is usually a short document (sometimes only a page long) that contains basic information about your corporation, such as the identities of the owners and the directors.
Draft a set of corporate bylaws and have them approved by the directors. This is a longer document than the Articles of incorporation and functions as a corporate constitution.
Research the corporations laws of various foreign countries to see which ones allow majority foreign ownership of domestic corporations. Among these, choose the countries in which you would like to operate. Narrow down your list further by considering which of these countries offer the most favorable operating conditions (for example, many countries offer generous tax incentives to foreign investors).
Obtain detailed information regarding establishment of corporations in the countries you have selected.
Establish corporations in at least two foreign countries. The majority owner of these corporations should be the parent corporation, making them subsidiaries of the parent corporation. If possible under local law, arrange for the parent corporation to be the sole owner of its subsidiaries.
- When you establish a foreign subsidiary, you are establishing a corporation under local law. For example, a subsidiary of an American parent corporation established in China is legally considered to be a Chinese corporation, even if it is wholly owned by an American parent corporation. This can greatly complicate taxation, accounting, and other matters. Furthermore, domestic legal counsel must be obtained to avoid unintentionally violating domestic corporate law with which the parent corporation is unfamiliar.
- Make certain that your foreign subsidiaries are located in countries that have tax treaties with the parent corporation's home country, to avoid double taxation. Most countries have tax treaties with the U.S.