The Law of Corporations and Other Business Organizations

Chapter Review Answers

1. Assume that Quality Liquor Company has
its main office in your home state, where it
transacts the majority of its wholesale liquor
business. Recently, Quality Liquor has
been taking orders from a neighboring
state. It has begun sending its salespeople
into the state in an attempt to increase its
business. Assuming that the neighboring
state follows the Model Business Corporation
Act, does Quality Liquor need to qualify
as a foreign corporation in that state?

No, transacting business in interstate
commerce does not constitute “transacting
business” for most purposes. However,
if Quality Liquor Company’s business
in the neighboring state becomes a
large portion of its business, the company
will want to reconsider.
What if Quality Liquor were to set up a
branch office in the neighboring state?
Yes, Quality Liquor would probably be
considered to be doing business in any
state where it has a branch office.

2. What are “door-closing” statutes as they relate
to foreign corporations?

They are state statutes that provide that
any corporation doing business in the
state without the necessary authority is
precluded from maintaining an action in
that state.

3. Explain why a foreign corporation that is
qualified in a foreign state may not be able
to transact all of the same business in the
foreign state that it is authorized to transact
in its state of domicile.

A foreign corporation can transact all of
the business conferred by its own charter
and the laws of its state of domicile,
unless those laws are in conflict with the
laws of the foreign state. If the foreign
corporation is authorized to transact a
type of business in its home state that is
considered to be illegal in the foreign
state, it will be prohibited from transacting
that type of business in the foreign
state.

4. Assume that it is your responsibility to
qualify your corporate client, Alex Enterprises,
in a foreign state that has adopted
the Model Business Corporation Act. Will
there be a problem getting a certificate of
authority issued under the name “Alex Enterprises”?

Yes, the name must comply with the
statutory requirements of the foreign
state. “Alex Enterprises” would not be
an acceptable name because it does not
include the word corporation, incorporated,
or a similar word specifically indicating
that it is a corporation.
What are the possible solutions to this
problem?

Alex Enterprises may add one of the required
words to its name for use in the
foreign state, or it may adopt an assumed
or fictitious name for the transaction
of all of its business in the foreign
state.

5. What is a fictitious name, and why is it
used?

With regard to foreign corporations, a
fictitious name is a name that may be
adopted by a corporation to transact
business in a foreign state when its name
is unavailable in that state.

6. What is the purpose of a registered agent in
a foreign state?

A registered agent must be appointed by
a foreign corporation to receive service
of process on the corporation in the foreign
state.

7. What are the possible consequences of neglecting
to file an annual registration
statement for a foreign corporation?

The foreign corporation may be subject
to a fee or a fine, or it may even lose its
certificate of authority to transact business
in that state.

8. Why do many states require that the registered
office address used in their state not
be a post office box?

The registered office is often the place
prescribed by state statute for the service
of process on a foreign corporation.
State statutes often require that service
of process be made in person.

9. In states that follow the Model Business
Corporation Act, what steps must be taken
when the corporation amends its articles of
incorporation to change its authorized
shares of stock?

In states following the Model Business
Corporation Act in this regard, the
number of authorized shares of stock is
not information required in the application
for certificate of authority. No action
need be taken in the foreign state
for this type of an amendment.

What steps must be taken when the corporation
amends its articles of incorporation
to change its corporate name?

An application for amended certificate
of authority must be filed with the secretary
of state of the foreign state to effect
the name change.

10. Under what circumstances might it be beneficial
for a corporation to register its name
in a foreign state?

If the corporation is considering doing
business in a foreign state in the future,
and would like to reserve its name, or if
a corporation would like to use its name
in a particular foreign state but it is not
considered to be “transacting business”
in that foreign state, it may be beneficial
for the corporation to register its corporate
name.