What Constitutes Doing Business 2020
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WHAT CONSTITUTES DOING BUSINESS By a Corporation in States Foreign to the State of its Incorporation Articles, statutory provisions and cases dealing with the necessity of qualification by corporations doing business in foreign states, selected from the records of CT Corporation System, and presented for the convenience of members of the Bar. © 2020, C T Corporation, A Wolters Kluwer Company™. All rights reserved. CONTENTS INTRODUCTION 1 THREE KINDS OF DOING BUSINESS 3 PENALTIES FOR FAILURE TO QUALIFY 7 Suits By Unqualified Foreign Corporations 7 Effect of Subsequent Qualification 14 Defense of Suits 17 Validity of Corporate Acts 19 Counterclaims 20 Suits By Assignees and Successors 23 Personal Liability 26 Monetary Penalties 29 Statutory Citations 32 STATUTORY “DOING BUSINESS” DEFINITIONS APPLICABLE TO ORDINARY BUSINESS CORPORATIONS 35 The Model Act Provision 35 The Revised Model Act Provision 36 Alabama 37 Alaska 37 Arizona 38 Arkansas 38 California 38 Colorado 39 Connecticut 40 Delaware 40 District of Columbia 41 Florida 42 Georgia 43 Hawaii 44 Idaho 44 Illinois 45 Indiana 45 iii iv Contents Iowa 46 Kansas 46 Kentucky 47 Louisiana 47 Maine 48 Maryland 48 Massachusetts 49 Michigan 50 Minnesota 50 Mississippi 51 Missouri 51 Montana 52 Nebraska 53 Nevada 54 New Hampshire 55 New Jersey 55 New Mexico 55 New York 56 North Carolina 56 North Dakota 57 Ohio 58 Oklahoma 58 Oregon 59 Pennsylvania 59 Rhode Island 60 South Carolina 61 South Dakota 61 Tennessee 61 Texas 62 Utah 63 Vermont 64 Virginia 65 Washington 66 West Virginia 67 Wisconsin 68 Wyoming 69 Puerto Rico 69 Virgin Islands 70 Alberta 70 Contents v British Columbia 71 Manitoba 72 New Brunswick 72 Newfoundland 73 Northwest Territories 73 Nova Scotia 74 Nunavut 74 Ontario 74 Prince Edward Island 75 Quebec 75 Saskatchewan 76 Yukon Territory 76 STATUTORY “DOING BUSINESS” PROVISIONS LIMITED TO LENDING MONEY ON SECURITY 79 SPECIFIC DOING BUSINESS ACTIVITIES 81 Introduction 81 Interstate and Foreign Commerce 82 Isolated Transactions 88 Corporate Secondary Activities 93 In General 93 Advertising 94 Bank Accounts 96 Books And Records 97 Maintaining an Office 98 Maintaining and Defending Suits 100 Meetings in State 101 Preliminary Acts 102 Holding Interests in Resident Businesses 104 Franchise Operations 104 Holding Companies 107 Parent And Subsidiary Corporations 108 Partnerships, LLCs, and Joint Ventures 111 Contracting 114 Federal Contracts 117 Subcontracting 119 Submitting Bids 120 vi Contents Credit 121 Collecting Debts 121 Extending Credit 123 Lending Money On Security 124 Entertainment 130 Broadcasting 130 Exhibition of Films 131 Professional Sporting Exhibitions And Games 131 Production of Films and Shows 132 Leasing 133 Leasing Personal Property 133 Leasing Real Property 137 Oil and Gas Leases 139 Manufacturing 141 Performing Services 142 In General 142 Correspondence Schools 146 Field Warehousing 146 Installation of Machinery and Equipment 147 Research Work 150 Transportation Companies 151 Property Ownership 153 Personal Property Ownership 153 Processing 155 Purchasing 156 Real Property Ownership 158 Sales 161 Commission Merchants and Brokers 161 Conditional Sales 161 Sales from Trucks 162 Sales of Repossessed Goods 163 Sales of Samples 165 Sales of Securities 166 Sales Through Brokers 168 Shipments on Consignment 169 Show Rooms 173 Solicitation 173 Contents vii Specialty Salesmen 177 Subscription Sales 180 Selling Over the Internet 180 DOING BUSINESS IN 183 Canada 183 Guam 184 Puerto Rico 184 The Virgin Islands 185 LIMITED LIABILITY COMPANIES 187 INTRODUCTION When a corporation does business outside of the state in which it was organized, it may be required to “qualify”—i.e., to obtain a certificate of authority and to appoint a resident agent upon whom process may be served. Although the corporation laws of every state require foreign cor- porations doing business in the state to qualify, no law contains a com- prehensive definition of the term “doing business.” What constitutes doing business within the meaning of qualification requirements is the question which this book attempts to answer. The risks of failure to qualify are great. In all states, unqualified foreign corporations doing intrastate business are denied access to state courts. An unqualified foreign corporation is also subject to fines, and, in several states, its directors, officers or agents may be fined. These sanctions are discussed under the heading “Penalties for Failure to Qualify.” The statutes of most states list certain activities in which a corporation may engage without qualifying. Some states also define activities which will require qualification. These statutory provisions are reproduced in this book and should be examined before a decision is reached as to whether or not qualification is required. Most states have adopted either the Model Business Corporation Act or the Revised Model Business Corporation Act. Therefore, the provisions of both of these Model Acts dealing with activities requiring qualification and penalties for not qualifying are set forth and discussed in the follow- ing chapters. In addition to what constitutes doing business within the United States, this book contains chapters on doing business in Canada, Guam, Puerto Rico and the Virgin Islands. The statutes defining certain activities that do or do not require qualification for Canada, the Canadian provinces, and territories, Puerto Rico and the Virgin Islands are reproduced. To a very large extent, the answers to doing business questions are found in court decisions. These decisions have been accumulated and analyzed and form the basis for the articles in the section entitled, “Spe- cific Doing Business Activities.” There are three kinds of doing business questions. One question is whether a foreign corporation doing business in a state will be subject to the personal jurisdiction of the state’s courts. The second is whether a foreign corporation will be subject to taxation. The third is whether it will be subject to the state’s qualification requirements. The first chapter, 1 2 Introduction “Three Kinds of Doing Business,” looks at the differences between these three types. It may be noted that business corporations are not the only type of business entity that are required to qualify before doing business in a for- eign state. Nonprofit corporations, limited liability companies, limited partnerships and limited liability partnerships are among others that are subject to a qualification requirement. The chapter entitled “Limited Lia- bility Companies” addresses some doing business issues related to that type of business entity. However, this book deals mainly with foreign business corporations. When dealing with any other business entity the statutes and case law dealing with the issue of what constitutes doing business and the penalties for failure to qualify for that specific business entity type must be consulted. WHAT CONSTITUTES DOING BUSINESS is presented as a service to the Bar. The information it contains has been gathered together to provide a con- venient reference in a difficult area. It is hoped that it will prove helpful both to the attorney familiar with the field and to the attorney who is only occasionally concerned with corporate work. THREE KINDS OF DOING BUSINESS When a corporation does business outside of its state of incorporation, it may find itself: (1) subject to taxation by the state, (2) subject to service of process and suit in the state, or (3) required to qualify to do business in the state. The level of business activity that will constitute doing business is different for each category. In Filmakers Releasing Organ. v. Realart Pictures,1 the court noted that “This much seems to be clear . the greatest amount of business activity is required to subject a corporation to the state’s statutory qualification requirements.”2 Therefore, where a corporation’s activities in a state are sufficient to require qualification, it follows that the corporation will also be amenable to service of process and to being taxed by the state. Some corporation laws specifically state that their doing business defi- nitions should not be used in determining if a corporation is doing busi- ness for any other purpose. Georgia, Kentucky, Michigan, Nebraska, New Jersey, North Dakota, Oklahoma, and Vermont provide that their doing business definition sections do not apply in determining the contacts or activities that may subject a foreign corporation to service of process or taxation in the state.3 Colorado, Delaware, and Utah state that their doing business definitions do not apply to the question of whether a foreign corporation is subject to service of process and suit.4 Nevada and Virginia exclude personal jurisdiction from their definition.5 Minnesota and New Hampshire exclude taxation.6 The District of Columbia, Florida, Idaho, Kansas, Pennsylvania, and Washington exclude service of process, taxa- tion or regulation under state law and New York excludes service of 1. 374 S.W. 2d 535 (Mo. App. 1964). 2. See also: Wagner and Wagner Auto Sales, Inc. v. Tarro, 889 A.2d 875 (Conn. App. 2006), Si- newellan Corp. v. Farmers Bank of Delaware, 345 A. 2d 430 (Del. Super. 1975); Alliance Steel, Inc. v. Piland, 134 P.3d 669 (Kan. App. 2006); Marco Leather Co. v. Argentinas, 617 N.Y.S. 2d 617 (Sup. 1994); Ronson Art Metal Works, Inc. v. Brown & Bigelow, Inc., 104 F. Supp. 716 (S.D.N.Y. 1952); State v. Ford Motor Co., 38 S.E. 2d 242 (S.C. 1946); Questech, Inc. v. Liteco, AG, 735 F.Supp. 187 (E.D. Va. 1990); contra; Marcus v. J.R. Watkins Co., 188 So. 2d 543 (Ala. 1966). 3. Code of Georgia Annotated, Sec. 14-2-1501; Kentucky Revised Statutes, Sec. 14A.9-010; Michigan Compiled Laws, Sec. 450.2012; Revised Statutes of Nebraska, Sec. 21-20,105; New Jer- sey Statutes Annotated, Sec. 14A:13-3; North Dakota Century Code Annotated, Sec. 10-19.1-143; Oklahoma Statutes Annotated, Title 18, Sec. 1132; Vermont Statutes Annotated, Title 11A, Sec. 15.01.