By Bruce L. Mailman

In my law practice I frequently receive queries from individuals and firms about starting a business in the Commonwealth of the Northern Mariana Islands (CNMI). I also get requests for assistance from people who plunged into business here without first finding out how the rules are different from the ones they learned at home. In this article we will focus on the mechanics of starting a business in the Northern Marianas.

The CNMI recognizes the more traditional forms of business entities: C-corporations, S-corporations, non-profit (including tax- exempt) corporations, general and limited partnerships, and sole proprietorships. We do not yet recognize professional corporations (PCs), limited liability companies (LLCS) or limited liability partnerships (LLPs). Although the Commonwealth Code does provide for some limited reservation of ''dba'' business names, there is no statute requiring formal filing of a fictitious name statement. Sole proprietors may simply follow the rules to obtain business licenses. A ''foreign'' (that is non-CNMl) corporation or partnership that does not wish to form CNMI subsidiaries or affiliates must first be registered with, and obtain a Certificate of Authority from, the CNMI Registrar of Corporations. A CNMI domestic corporation must first obtain a Certificate of Incorporation from the Registrar before applying for its initial business license. Foreign LLCS, LLPS and PCs, because they are types of entities that are not yet available here, may establish CNMI domestic affiliates or subsidiaries. Two important considerations in determining the type of entity are the CNMI tax laws, and laws relating to the employment of alien guest workers, both of which arise from the CNMI'S special relationship with the U.S. We are a U.S. Commonwealth, and most federal laws apply. However, the federal Immigration and Nationality Act (lNA) applies only for certain limited purposes. The CNMI controls its own borders with regard to immigration and customs matters. Although the CNMI has adopted most of the Internal Revenue Code (IRC) as a ''mirror image'' tax code, a high percentage of taxes are rebated to the taxpayers. The only tax money taxpayers send to the federal government involves Social Security taxes and, in appropriate cases, federal estate taxes.

Although there are CNMI excise, business gross revenue taxes and earnings taxes, there is no sales tax because of the intricate system of CNMI immigration and labor laws regarding the entry and employment of aliens, either as investors or nonresident workers, the most common business entity found in the CNMI is the closely held small corporation1.

No foreign corporation or partnership may ''transact business'' in the CNMI without receiving a certificate of authority from the CNMI Registrar of Corporations. The Commonwealth Code contains a laundry list of activities that do not by themselves constitute transacting business. 'These include: involvement in any legal proceeding, holding corporate meetings involving internal corporate affairs', maintaining CNMI bank accounts', maintaining offices or agencies for transfer, exchange or registration of a corporation's own securities, selling through independent contractor; soliciting or obtaining orders requiring acceptance outside the CNMI; owning debt, mortgages and other security interests in real or personal properties; securing or collecting debts or enforcing mortgages or security interests in property, owning real or personal properties, conducting an isolated transaction completed within 30 days and not part of a course or repeated transactions, or transacting business and interstate commerce. The Code specifies that this list is not exhaustive. The application for a certificate of authority is very simple. The application must state the corporation or partnership's name, its home state or country, date of incorporation or inception and duration, address and location of its principal office, address and location of registered office-and registered agent in the CNMI, and names and addresses of current directors and officers. The Code also requires that foreign corporations submit a certificate of existence or equivalent document. The Registrar may request copies of a corporation's articles and bylaws, although it is not required by Code. The Registrar's filing fee is $100. The registered entity must file an annual report with the Registrar between January 1 and March 1 of each year, for the proceeding calendar year. There are special rules for insurance companies, barks and foreign currency exchange companies, which require registration with the CNMI Department of Commerce as well as with the Registrar of Corporations. The application inquires further into the identity and character of the company's principals. Businesses that provide services or employ individuals that require professional licenses (such as doctors, dentists, attorneys, architects, professional engineers, surveyors, etc.) or engage in specialized business (for example, operating a casino on the island of Tinian, or operating gambling machines) must meet the requirements of the governmental or qausi-governmental entities that supervise such licenses and activities.

For-profit Corporations
The CNMI rules regarding for-profit corporations were modernized in 1990 to conform to the Model Business Corporations Code. They were first published as regulations by the Registrar of Corporations, but were made part of the Commonwealth Code in 1997. The Code requires that a corporation have at least one incorporator, one shareholder, one officer and one director. While there is no required number of shares, the corporation should be capitalized (or have equivalent insurance) sufficient to meet the risks normally encountered in its business. The incorporator must file articles and bylaws with the Registrar of Corporations, who then issues a certificate of incorporation. An initial corporate report must be tiled within 60 days of incorporation. Articles and bylaws should be drafted by an attorney admitted to practice in the CNMI. I have too often had to correct serious problems in these basic documents of corporations that were composed by non-attorney ''helpers'' who sometimes give out misinformation that can cause considerable mischief. Upon formation, the new corporation should hold organizational meetings of directors and shareholders, ratify the act: of the incorporator(s), issue stock, and do the usual corporate housekeeping required of new corporations.

Non-profit Corporations
Unfortunately, when the for-profit corporation rules were modernized, those for non-profit corporations were not. The current rules for forming non-profit corporations were first published by the Trust Territory of the Pacific Islands government in 1974, and have never been updated. There must be at least three incorporators, a majority of whom are CNMI residents, who present a petition for a charter of incorporation, plus a proposed charter, to the Registrar of Corporations. The corporate bylaws may be stated as part of the charter, although that is usually quite awkward, or be done separately. The<> initial and annual reports for non-profit corporations are more detailed than those required of for-profit corporations, and require the notarized signature of a corporate officer. Once the corporation is established, it follows the same rules applicable to for-profit corporations. Applications for tax-exempt status are made to the CNMI Department of Finance, Division of Revenue and Taxation, following the same form as required by Internal Revenue Code, Section 501(c)(3). The rules for tax-exempts were adopted wholesale from the IRC.

Partnerships
The rules for partnerships were published in 1974, along with the corporate rules still governing formation of non-profit corporations, and are typical of similar partnership rules in most U.S. jurisdictions. The rules recognize both general and limited partnerships. Both kinds of partnerships must file partnership certificates with the Registrar of Corporations, and file the same kind of annual statements or reports as are required of corporations.

<> Unlike many places in the U.S. where a business license is obtained merely by filling out an application and paying the fee, and perhaps fling a fictitious name statement, the CNMI government sees a business license application (especially for renewals) as an opportunity to aid the enforcement of other laws. In addition to the application, the applicant must obtain a clearance from the Department of Finance, Division of Revenue and Taxation that all taxes have been paid, and a clearance from the Workers Compensation Commission stating either that all workers are covered by workers compensation insurance, or that there are no employees subject to coverage.
Corporations and partnerships must present file-stamped copies of the company's most recent annual report. First-time corporate applicants must also provide copies of the certificate of incorporation and the articles and bylaws. Each applicant must get a separate license for each ''line of business'' for example, the typical garment factory, for example, will require licenses for garment manufacturing, import/export and wholesale sales2; if the business operates a retail outlet, it will need another license for retail sales. A grocery store would likely need not only a retail sales business license, but also a separate license from the Alcoholic Beverage and Tobacco Control Division. For most lines of business the fee is $50. But for some lines of business, such as balks, insurance companies, brokers and agents, higher fees are set by statute. Business licenses are good for one year from the date of issuance, and must be renewed annually.

Registering a foreign business entity in the CNMI, or forming a CNMI domestic company, is not complicated. We have not discussed application for one of the investor visa categories, which is somewhat more complicated. Companies intending to employ nonresident workers should obtain detailed advice before hiring. And the basic rule is the same as in every situation where you are the new kid on the block: learn the rules before you start to play the game.

Bruce L. Mailman is a partner at the Saipan-based law firm of White, Pierce, Mailman & Nutting and is also a founding shareholder of island Surety Associates, Inc. Mr. Mailman has practiced law in the CNMI since 1989. He can be reached at (670) 234-6547, Fax (670) 234-9537 or e-mail at bmailman@saipan.com. Nothing in this article is intended to be legal advice, but is offered for general informational purposes only. All legal questions should be referred to an attorney', tax matters to a qualified accountant.

1 Because the CNMI has no stock exchange and no domestic laws regulating Such securities, almost all CNMI domestic corporations are closely held, even subsidiaries of publicly traded foreign corporations. United States federal securities laws do apply lo all CNMI securities.

2 Garment manufacturers are subject to additional specific statutory application equivalents and preconditions.