principal place of business

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A principal place of business generally refers to where a corporation's officers direct, control, and coordinate the corporation's activities. It is also often referred to as the corporation's "nerve center." Determining a corporation's principal place of business is important for the purposes of asserting diversity jurisdiction. Under 28 U.S.C.A. § 1332(c) "a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business." 

Although courts initially applied a variety of tests to determine a corporation's principal place of business, the Supreme Court in Hertz Corp. v. Friend determined that the "nerve center" test be the single dominant approach. In Hertz, Justice Breyer explained that a corporations "nerve center" refers to the place where "a corporation's officers direct, control, and coordinate the corporation's activities." It is further explained that practically, this location should be the headquarters provided that "the headquarters is the actual center of direction, control, and coordination[, and] not simply an office where the corporation holds its board meetings." For example, if a company's officers direct the company's business activities in New York, then its principal place of business is New York regardless of the company's degree of activity in any other state.

Under the Hertz standard, a corporation can only have one principal place of business. But this does not preclude the corporation from being a citizen of multiple states. For example, when a corporation is incorporated in a different state than where its headquarters are located, it is a citizen and under the jurisdiction of both states. 

However, for the purposes of establishing diversity jurisdiction, a party does not need to pinpoint a corporation's principal place of business. Rather, jurisdiction will be upheld so long that it is established that diversity of citizenship exists among the parties. 

[Last updated in July of 2020 by the Wex Definitions Team]