The Law of Corporations and Other Business Organizations

Lecture Notes

Determining When Foreign Corporation
Qualification Is Necessary
1. The state of the corporation’s charter or incorporation
is the corporation’s state of
domicile, regardless of where the corporation
transacts its business.
2. A corporation is considered a foreign corporation
in every state or jurisdiction other
than its state of domicile.
3. If a corporation is to transact business as a
foreign corporation, it must first obtain
permission from the proper state official of
the foreign state.
4. State long-arm statutes give the courts of
each state personal jurisdiction over corporations
and other business organizations
that voluntarily go into that state for the
purpose of transacting business.
5. A defendant corporation need not be physically
present in a foreign state for the
courts to have jurisdiction over it, but it
must have certain minimum contacts within
the state.
6. Because foreign corporations are subject to
the jurisdiction of any state in which they
transact business, they must provide an
agent in each foreign state to accept service
of process.
7. Guidance can be found in the statutes of
the foreign state for determining when a
corporation is considered to be transacting
business in a particular state, and therefore
is subject to foreign corporation qualification
requirements.
8. Like the Model Business Corporation Act
(MBCA), the statutes of many states provide
a list of activities that do not necessarily
constitute transacting business in that
state, but remain silent on exactly what
does constitute transacting business.
9. When deciding whether it is necessary to
qualify a corporation to do business in a
particular foreign state, the following factors
should be considered:
• The extent, duration, and nature of the
corporation’s involvement in the foreign
state
• The foreign state’s statutory interpretation
of what does, or does not, constitute
transacting business in that state
• The cost of qualification and the penalties
for transacting business in the foreign
state without authority
Rights, Privileges, and Responsibilities of a
Foreign Corporation
10. State door-closing statutes provide that
corporations that do business in a state
without the necessary authority are precluded
from maintaining an action in that
state.
11. Qualified foreign corporations are subject
to the statutes of the foreign states in which
they are qualified. However, the internal
affairs of the corporation are usually governed
by the laws of the corporation’s state
of domicile.
Qualification Requirements
12. An application for a certificate of authority,
along with any other required documents,
is usually filed with the appropriate state
authority to qualify a corporation or other
business organization to do business in a
foreign state.
13. A certificate of good standing from the
corporation’s state of domicile is often required
for filing with the application for
certificate of authority.
14. Each state has its own name requirements
for corporations that transact business in
that state. If the foreign corporation’s name
does not meet with those requirements, it
may have to adopt an assumed name for
transacting business in that state.
Amending the Certificate of Authority
15. Whenever any significant information included
in the certificate of authority changes,
such as a change in the registered office
or agent in a given foreign state, the corporation
must immediately notify the secretary
of state in the foreign state by filing an
application for amended certificate of authority.
Maintaining the Good Standing of the Foreign
Corporation
16. Foreign corporations are usually subject to
annual reporting requirements in the foreign
state. Annual reports are typically
filed with the secretary of state on forms
generated by the secretary of state.
17. Foreign corporations may also be subject
to taxation by the foreign state. Often, taxes
are calculated on the annual form filed with
the secretary of state. In some instances, a
separate tax report is required.
Withdrawing from Doing Business as a Foreign
Corporation
18. When a corporation is no longer transacting
business in any given state, it may
withdraw as a foreign corporation by filing
an application for a certificate of withdrawal.
The Paralegal’s Role
19. Paralegals are often responsible for qualifying
foreign corporations and for seeing
that annual reports are filed in the foreign
state.
20. Important resources for paralegals who are
assisting with foreign corporation qualifications
include the following:
• Corporate statutes from the foreign state
• Information available from the secretary
of state, or other appropriate state
official, in the foreign state
• Corporation service companies
21. Corporation service companies provide
incorporation and foreign corporation qualification
services in every state in the country.
Corporation service companies can be
very helpful, especially when foreign corporation
qualification is necessary in several
states.
CASE BRIEFS
Harold Lang Jewelers, Inc. v. Johnson, et al.,
576 S.E.2d 360 (N.C. 2003)
Purpose: This case provides an example of
when a corporation must qualify to transact
business as a foreign corporation, and the possible
consequences of not qualifying when necessary.
Cause of Action: Breach of contract
Facts: Harold Lang Jewelers (“Lang”), the
plaintiff and appellant in this suit, was a Florida
corporation that brought a suit against the defendant
in North Carolina to collect money the
defendant allegedly owed for jewelry sold or
consigned. At trial, the defendant, Jerger Johnson,
d/b/a Johnson Jewelers (“Johnson”),
brought a motion for dismissal, arguing that
Lang could not sue in a North Carolina court
because Lang was a Florida corporation transacting
business in North Carolina without a license
and certificate of authority to transact
business. The district court granted the motion
for dismissal and Lang appealed.
The lower court found that Lang,
through its employee, had sold and consigned
merchandise to jewelry stores in several North
Carolina cities for more than 20 years. Lang’s
employee came to North Carolina at least once
or twice a month for the purpose of transacting
business. The employee always brought jewelry
with him for delivery. When he visited jewelry
stores in the state he would either make a direct
sale or consign the jewelry. The lower court determined
that this constituted the transaction of
business in North Carolina.
Plaintiff argued that the court did not
have sufficient facts to support its conclusion
that Lang was, in fact, transacting business in
North Carolina. Lang also claimed that the trial
court should have continued the case to permit
Lang to obtain the requisite certificate of authority.
Issues: Was the plaintiff transacting business
under the definition of the laws of the state of
North Carolina? Was the plaintiff prohibited
from bringing suit in the state of North Carolina
because the plaintiff corporation did not have a
certificate of authority to transact business in
North Carolina?
Conclusion: The Court of Appeals of North
Carolina upheld the decision of the lower court,
finding that the court acted within its discretion
in dismissing the action.
Discussion: To “transact business” is defined by
both statute and common law in North Carolina.
Similar to the Model Business Corporation Act,
North Carolina statutes set forth examples of
what is not considered transacting business.
North Carolina courts have found that transacting
business in the state is to “require the engaging
in, carrying on or exercising, in North Carolina,
some of the functions for which the corporation
was created.” The business done by the
corporation must be substantial, continuous, systematic,
and regular. Pursuant to N.C. Gen. Stat.
§ 55-15-02, a foreign corporation that transacts
business in North Carolina is barred from maintaining
an action in any state court unless it has
obtained a certificate of authority to transact
business prior to trial.
The Court of Appeals upheld the lower
court’s findings that Lang’s business activity in
North Carolina was regular, continuous, and
substantial, and that it was transacting business
in the state. The Court of Appeals further determined
that Lang’s claim that there should have
been a continuance granted for Lang to obtain a
certificate of authority was baseless, indicating
that Land had not cited, nor had the court found,
any case where a continuance was granted by a
court in similar circumstances. The Court of
Appeals also pointed out that “Lang was aware
that Johnson’s motion was pending and could
have obtained the certificate in the year and a
half that passed between the filing of the motion
and the court’s dismissal of the case.”
Bayonne Block Co., Inc. v. Porco, 654 N.Y.S.2d
961 (City of New York 1996)
Purpose: This case is an example of a business
that was conducting certain transactions within
the state, but was found not to be transacting
business under the state’s statutes concerning
foreign corporation qualification.
Cause of Action: Breach of contract
Facts: Plaintiff Bayonne Block Co., Inc. (“Bayonne”)
was a foreign corporation that brought
suit against defendant Frank T. Porco (“Porco”)
in the city of New York to collect money allegedly
owed to it for providing construction materials
to Mulford Construction Corp. Porco was
named as a defendant pursuant to a guaranty of
payment he executed. Bayonne’s business within
New York was limited to taking orders from
and delivering goods to buyers in New York
State. Plaintiff had no office in New York and
did not advertise or otherwise transact business
within the state. Porco brought a motion to strike
the complaint or, in the alternative, vacate the
Notice of Trial for lack of discovery. Defendant
Porco claimed that plaintiff was not entitled to
utilize the laws of the state of New York because
it was not licensed to transact business
within the state. New York State’s Business
Corporation Law § 1312 bars a foreign corporation
“doing business” within the state from using
the courts unless the corporation is authorized
to do business in New York State.
Issue: Was plaintiff Bayonne doing business
within the state of New York as defined by state
statutes, thereby prohibiting it from bringing suit
in New York?
Conclusion: Bayonne was not doing business
within the state of New York as that term is defined
under the laws of the state of New York.
Bayonne was not barred from bringing suit in
the state’s courts.
Discussion: The court here found that if the foreign
corporation’s contacts within the state of
New York are merely for the purpose of soliciting
business and activities incidental to the sale
and delivery of merchandise into the state, the
foreign corporation is engaged in interstate
commerce and need not be licensed or registered
by the secretary of state to utilize the state’s
courts.