DEFINITION of 'Principal Place of Business'

A company's principal place of business is the primary location where its business is performed. This is generally where the business's books and records are kept and is often where the head of the firm – or, at least, upper management – is located. Corporations are usually required to report their principal place of business to the U.S. Secretary of State.

BREAKING DOWN 'Principal Place of Business'

Taxpayers who work from home must be able to prove that their residence is their principal place of business. Two criteria must be met in order for this to be true:

  1. The designated place of business within the home must be used exclusively and regularly for the performance and administration of the taxpayer's business.
  2. There can be no other location where the taxpayer substantially performs these operations.

For solo practitioners who use part of their homes as their principal place of business, certain tax deductions are permitted. This can include portions of rent or mortgage payments, and a percentage of utility costs that reflects the scope of the area dedicated to business usage.

The principal place of business plays a role not only in tax purposes but also in litigation. Where a company is based can affect legal jurisdiction and determine which court will hear legal matters involving the company.

What Principal Place of Business Means to Courts

The United States Supreme Court has defined the principal place of business as the place where a corporation's officers direct, control, and coordinate the company's activities. This is also described as the company's nerve center, where the primary functions and decision making of the enterprise occur. Under normal circumstances, this is also the location where the headquarters of a company is situated. However, this might not be the case if the headquarters is largely an office just for board meetings for officers and directors of the company while a remote location serves as the epicenter for control, direction, and coordination of the company.

Depending on the type of business, transactions and operations that are integral to the company may be conducted at the principal place of business. For example, a single-store retailer's principal place of business would be the store where they sell products, train and manage staff, maintain inventory, and run an office to oversee the operation. A dentist could list their office where they perform exams and treat patients as their principal place of business. The garage where a mechanic services vehicles and maintains tools and parts also qualifies for this designation.

  1. Dual Currency Issue

    A bond that pays interest in one currency but pays the principal ...
  2. Agency Theory

    The agency theory is a supposition that explains the relationship ...
  3. Senior Registered Options Principal ...

    A senior registered options principal is an officer or partner ...
  4. Tax Home

    A tax home is the city where a worker's primary place of business ...
  5. Principal Reduction

    A principal reduction is a decrease granted toward the principal ...
  6. Power of Attorney of Property

    Power of attorney of property is a legal document that transfers ...
Related Articles
  1. Financial Advisor

    What The Series 24 Exam Won't Teach You

    Can you handle being the judge and jury in your firm? Find out what surprising tasks a job as a principal entails.
  2. Investing

    Brokerage Functions: Underwriting and Agency Roles

    Learning about underwriting and agency roles at a brokerage can give insight into how securities are issued and traded.
  3. IPF - Mortgage

    Understanding the Mortgage Payment Structure

    When you get a mortgage to buy a home, you need to understand the structure of your payments, so you know how expensive the whole thing will ultimately be.
  4. Personal Finance

    Interest-Only Mortgages: Home Free or Homeless?

    These loans can be beneficial, but for many borrowers, they present a financial trap.
  5. Taxes

    Creating a Tax-Deductible Canadian Mortgage

    Canada may not offer a deduction for home loans, but there are ways to make the system work for you. Learn how to create a tax-deductible mortgage.
  6. Taxes

    How To Claim Home Office Expenses

    There are many factors to determine what home office deductions can be made towards your small business. Planning ensures high deductions.
  7. Financial Advisor

    On The Record: Communications With The Public

    NASD Rule 2211 can make or break your career as a registered principal.
  1. What are the responsibilities of the principal in a company?

    Learn what a principal is as it relates to business management, and the differences between all the meanings. Find out what ... Read Answer >>
Trading Center