Flag of convenience (business)
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In business and commerce, the term flag of convenience is the use of a place, jurisdiction, state or country as a nominal (in name only) "home base" for one's operations or charter, even though either no or virtually no operations or business are conducted there. It is also used where the organization operates in one place even though nearly all of its customers are from elsewhere. It is a type of jurisdiction shopping. There are several reasons for doing this.


Corporation requirements

The most common use of a flag of convenience is a U.S. corporation being chartered as a
domestic corporation Foreign corporation is a term used in the United States to describe an existing corporation (or other type of corporate entity, such as a limited liability company or LLC) that conducts business in a state or jurisdiction other than where it was ...
in
Nevada Nevada ( ; ) is a U.S. state, state in the Western United States, Western region of the United States. It is bordered by Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast, and Utah to the east. N ...
or
Delaware Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent Del ...
because of favorable corporate governance rules. The reason for this sort of a choice is that, in general, in the United States, a corporation which operates in more than one state (or country) has a particular state where it is incorporated, to which it is a
domestic corporation Foreign corporation is a term used in the United States to describe an existing corporation (or other type of corporate entity, such as a limited liability company or LLC) that conducts business in a state or jurisdiction other than where it was ...
. In all other states where it operates and has filed papers to be allowed to operate, it is a
foreign corporation Foreign corporation is a term used in the United States to describe an existing corporation (or other type of corporate entity, such as a limited liability company or LLC) that conducts business in a state or jurisdiction other than where it was ...
, and the requirements for corporate governance in the case of a lawsuit do not use the law where the corporation is sued, but instead, the law where the corporation is a domestic corporation. For example, because the provisions on "
piercing the corporate veil Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is so ...
" are corporate governance matters, if a corporation is chartered in California, for example, (which has much more creditor friendly provisions permitting this) is sued anywhere, California law applies, but a corporation chartered in Nevada, which operates only in California, is sued in a California court, the California court would use Nevada law in determining what the requirements permitting this, and in this issue Nevada law applies (which is much more supportive of the corporation's interest), even if the corporation only operates in California and has never had any other contact with Nevada and is simply chartered there as a flag of convenience. Another use is for tax reasons. At least one major software development company licenses its software through a
subsidiary A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a s ...
Nevada corporation, which has no state income tax, rather than licensing through the parent corporation (chartered in a different state that does have a state income tax), saving millions of dollars in taxes.


Legal restrictions on operations

Use of a different base of operations than one normally operates within can often be done because of legal restrictions on operations in one area which are avoided by changing the nominal base of operations.


Television

''See
city of license In American, Canadian, and Mexican broadcasting, a city of license or community of license is the community that a radio station or television station is officially licensed to serve by that country's broadcast regulator. In North American broa ...
for more information on television and radio.'' *Television station
WPCW WPCW (channel 19), branded on-air as Pittsburgh's CW, is a television station licensed to Jeannette, Pennsylvania, United States, serving as the CW affiliate for the Pittsburgh area. It is owned by the CBS News and Stations group alongside CB ...
is licensed to
Jeannette, Pennsylvania Jeannette is a city in Westmoreland County, Pennsylvania, United States. Jeannette was founded in 1888. The city got its name from one of the original city fathers, who wished to honor his wife, Jeannette McLaughlin, by giving the new town her fi ...
, even though it serves the city of
Pittsburgh Pittsburgh ( ) is a city in the Commonwealth (U.S. state), Commonwealth of Pennsylvania, United States, and the county seat of Allegheny County, Pennsylvania, Allegheny County. It is the most populous city in both Allegheny County and Wester ...
because no station allocation slots are available for the latter. *During the 1960s, it was noted that
San Diego San Diego ( , ; ) is a city on the Pacific Ocean coast of Southern California located immediately adjacent to the Mexico–United States border. With a 2020 population of 1,386,932, it is the List of United States cities by population, eigh ...
could support another television station, but because of allocations already given to Los Angeles, and the Mexican Government having two channels allocated to it for the neighboring city of
Tijuana Tijuana ( ,"Tijuana"
(US) and
< ...
, there were no channel spaces available, so a Mexican corporation obtained a license from that government to operate
XETV XETV-TDT (channels 6 and 16) is a television station located in Tijuana, Baja California, Mexico, broadcasting programs from Canal 5 and NU9VE. Its terrestrial signal also covers the San Diego, California area across the international border in ...
, Channel 6, which operates exclusively in English and basically serves the city of San Diego even though it broadcasts from Tijuana. *
RKO General RKO General, Inc. (previously General Teleradio, RKO Teleradio Pictures, and RKO Teleradio) was, from 1952 through 1991, the main holding company for the noncore businesses of the General Tire, General Tire and Rubber Company and, after General Ti ...
was the owner of
New York City New York, often called New York City or NYC, is the List of United States cities by population, most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the L ...
television station
WOR-TV WWOR-TV (channel 9) is a television station licensed to Secaucus, New Jersey, United States, serving the New York City area as the flagship of MyNetworkTV. It is owned and operated by Fox Television Stations alongside Fox flagship WNYW (ch ...
, channel 9, when a series of scandals broke involving its parent company,
General Tire Continental Tire the Americas, LLC, d.b.a. General Tire, is an American manufacturer of tires for motor vehicles. Founded in 1915 in Akron, Ohio by William Francis O'Neil, Winfred E. Fouse, Charles J. Jahant, Robert Iredell, & H.B. Pushee as ...
. As part of the settlement of issues, Channel 9 moved from New York City to
Secaucus, New Jersey Secaucus ( ) is a town in Hudson County, New Jersey, United States. As of the 2010 United States census, the town's population was 16,264,Newark Newark most commonly refers to: * Newark, New Jersey, city in the United States * Newark Liberty International Airport, New Jersey; a major air hub in the New York metropolitan area Newark may also refer to: Places Canada * Niagara-on-the ...
's original independent WATV 13 had become what is now
WNET WNET (channel 13), branded on-air as "Thirteen" (stylized as "THIRTEEN"), is a primary PBS member television station licensed to Newark, New Jersey, United States, serving the New York City area. Owned by The WNET Group (formerly known as the ...
). Nonetheless, the station's market is almost exclusively the New York City area. Channel 9's renewal was approaching, and at the time, a federal law had been passed that gave automatic renewal to any station that moved to a state that did not have a TV station. The only states this applied to were New Jersey and Delaware{{Citation needed, date=November 2008, so to get around its licensing problems, RKO moved its station from New York to New Jersey to take advantage of the automatic approval of renewal.


Fireworks

*The
tourist attraction A tourist attraction is a place of interest that tourists visit, typically for its inherent or an exhibited natural or cultural value, historical significance, natural or built beauty, offering leisure and amusement. Types Places of natural b ...
South of the Border, is located in
Dillon, South Carolina Dillon is a city in Dillon County in eastern South Carolina, United States. It is the county seat and largest city of Dillon County. It was established on December 22, 1888. Both the name of the city and county comes from James W. Dillon, an earl ...
, about 300 feet from the border between
North Carolina North Carolina () is a state in the Southeastern region of the United States. The state is the 28th largest and 9th-most populous of the United States. It is bordered by Virginia to the north, the Atlantic Ocean to the east, Georgia and So ...
and
South Carolina )''Animis opibusque parati'' ( for, , Latin, Prepared in mind and resources, links=no) , anthem = " Carolina";" South Carolina On My Mind" , Former = Province of South Carolina , seat = Columbia , LargestCity = Charleston , LargestMetro = ...
, and sells tremendous amounts of
fireworks Fireworks are a class of Explosive, low explosive Pyrotechnics, pyrotechnic devices used for aesthetic and entertainment purposes. They are most commonly used in fireworks displays (also called a fireworks show or pyrotechnics), combining a l ...
to people from other states, including North Carolina, where such sales are illegal. *It is illegal in the
Commonwealth A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with "republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the ...
of
Pennsylvania Pennsylvania (; ( Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, ...
for residents of the state to have fireworks and it is illegal to sell fireworks in Pennsylvania to a resident, however, it is legal to sell fireworks to non-residents of Pennsylvania who are buying them to take them out of the state, thus a number of fireworks stores in Pennsylvania operate to sell fireworks only to non-residents, who must show an out-of-state license. *A number of small towns in California permit some fireworks to be sold, while the nearby larger communities forbid them, so residents will often visit small towns nearby to buy fireworks to take home and use. *
Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall, United States Capitol, Logan Circle, Jefferson Memorial, White House, Adams Morgan, ...
permits the sale of fireworks while the neighboring jurisdictions of Montgomery and Prince George's counties in
Maryland Maryland ( ) is a state in the Mid-Atlantic region of the United States. It shares borders with Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware and the Atlantic Ocean to ...
do not; in some cases, police from those jurisdictions would watch fireworks stands outside of the state, collect license tag numbers of cars that visited them, and if the person drove into Maryland, would stop and ticket them for having illegal fireworks.


Alcohol

*In some parts of the United States the local community has banned the sale, and possibly, the use of alcohol in a so-called
dry county A dry county is a county in the United States whose government forbids the sale of any kind of alcoholic beverages. Some prohibit off-premises sale, some prohibit on-premises sale, and some prohibit both. Dozens of dry counties exist across the ...
. In this case, a nearby county which is not dry will have a liquor store which is much larger than that county could actually support because it also provides alcohol for the residents of the (one or more) dry counties near it. *Very high
excise tax file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
es on alcohol in the
Nordic countries The Nordic countries (also known as the Nordics or ''Norden''; literal translation, lit. 'the North') are a geographical and cultural region in Northern Europe and the Atlantic Ocean, North Atlantic. It includes the sovereign states of Denmar ...
has resulted in considerable reimportation of alcohol and conflicts with
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
legislation. For example,
Åland Åland ( fi, Ahvenanmaa: ; ; ) is an Federacy, autonomous and Demilitarized zone, demilitarised region of Finland since 1920 by a decision of the League of Nations. It is the smallest region of Finland by area and population, with a size of 1 ...
, an autonomous province of Finland, is not a part of the EU
VAT A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the en ...
area and ships stopping at any of the ports of Åland can sell tax-free alcohol, much of which is often Finnish-produced.


Excise goods

*Items which are subject to heavy taxes at point of sale (such as motor fuels, alcohol and tobacco, perfumes and luxury items) often are offered for sale at border crossings. Some are the staples of "
duty-free shop A duty-free shop (or store) is a retail outlet whose goods are exempt from the payment of certain local or national taxes and duties, on the requirement that the goods sold will be sold to travelers who will take them out of the country, who ...
s", which sell solely to clients who are leaving the country and who otherwise would need to pay a higher price for the identical commodities at their intended destination. One of the rare instances in which a
Petro-Canada Petro-Canada is a retail and wholesale marketing brand subsidiary of Suncor Energy. Until 1991, it was a federal Crown corporation (a state-owned enterprise). In August 2009, Petro-Canada merged with Suncor Energy, with Suncor shareholders rece ...
station has operated abroad was to serve a busy interstate highway at a Québec border crossing near St. Albans, Vermont.


Merchandising

*Due to opposition from residents in the community in which it would normally operate, some operators of
big-box store A big-box store (also hyperstore, supercenter, superstore, or megastore) is a physically large retail establishment, usually part of a chain of stores. The term sometimes also refers, by extension, to the company that operates the store. The t ...
s will move into a small community or
unincorporated Unincorporated may refer to: * Unincorporated area, land not governed by a local municipality * Unincorporated entity, a type of organization * Unincorporated territories of the United States, territories under U.S. jurisdiction, to which Congress ...
township A township is a kind of human settlement or administrative subdivision, with its meaning varying in different countries. Although the term is occasionally associated with an urban area, that tends to be an exception to the rule. In Australia, Ca ...
and operate there, even though the general customer base of the store is the much larger (intended) community. Builders of large factories and shopping centres have often chosen locations just outside a community's city limits to take advantage of more favourable municipal tax rates or less stringent or non-existent
urban planning Urban planning, also known as town planning, city planning, regional planning, or rural planning, is a technical and political process that is focused on the development and design of land use and the built environment, including air, water, ...
restrictions in an adjacent municipality or semi-rural area.


In fiction

* In the movie ''
Footloose Footloose may refer to: * ''Footloose'' (1984 film), a musical film ** ''Footloose'' (1984 soundtrack) ** "Footloose" (song), performed by Kenny Loggins * ''Footloose'' (2011 film), a remake of the 1984 film ** ''Footloose'' (2011 soundtrack) ...
'' the particular town where all the high school students in the movie live, has outlawed public dancing, so one student decides to hold the dance (with the suggestion of the owner) in the flour warehouse located immediately next to the town in the town of Basin which does not have a ban on dancing.


See also

*
Dépeçage In law, ''dépeçage'' is a concept within the field of conflict of laws whereby different issues within a single case are governed by the laws of different jurisdictions. In common law countries, ''dépeçage'' can be used when a single contract ...
*
Choice of law clause A choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction. An example is "This Agreeme ...
Business terms