CT KNOWLEDGE SHARE WHAT CONSTITUTES DOING BUSINESS 2016 | EDITION CT WHAT CONSTITUTES DOING BUSINESS BY A CORPORATION IN STATES FOREIGN TO THE STATE OF ITS INCORPORATION 2016 EDITION © 2016, CT. 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 22 Personal Liability 26 Monetary Penalties 28 Statutory Citations 31 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 39 Delaware 39 District of Columbia 40 Florida 41 Georgia 41 Hawaii 42 Idaho 42 Illinois 43 Indiana 43 iii iv Contents Iowa 44 Kansas 44 Kentucky 45 Louisiana 45 Maine 45 Maryland 46 Massachusetts 46 Michigan 47 Minnesota 47 Mississippi 48 Missouri 48 Montana 49 Nebraska 49 Nevada 50 New Hampshire 51 New Jersey 51 New Mexico 51 New York 52 North Carolina 52 North Dakota 53 Ohio 53 Oklahoma 54 Oregon 55 Pennsylvania 55 Rhode Island 55 South Carolina 56 South Dakota 56 Tennessee 56 Texas 57 Utah 58 Vermont 59 Virginia 60 Washington 60 West Virginia 62 Wisconsin 63 Wyoming 63 Puerto Rico 64 Virgin Islands 64 Alberta 65 Contents v British Columbia 65 Manitoba 66 New Brunswick 66 Newfoundland 67 Northwest Territories 68 Nova Scotia 68 Nunavut 68 Ontario 68 Prince Edward Island 69 Quebec 69 Saskatchewan 70 Yukon Territory 70 STATUTORY “DOING BUSINESS” PROVISIONS LIMITED TO LENDING MONEY ON SECURITY 73 SPECIFIC DOING BUSINESS ACTIVITIES 75 Introduction 75 Interstate and Foreign Commerce 76 Isolated Transactions 82 Corporate Secondary Activities 87 In General 87 Advertising 88 Bank Accounts 91 Books And Records 91 Maintaining an Office 92 Maintaining and Defending Suits 94 Meetings in State 96 Preliminary Acts 96 Holding Interests in Resident Businesses 98 Franchise Operations 99 Holding Companies 101 Parent And Subsidiary Corporations 102 Partnerships, LLCs, and Joint Ventures 105 Contracting 108 Federal Contracts 111 Subcontracting 113 Submitting Bids 114 vi Contents Credit 115 Collecting Debts 115 Extending Credit 117 Lending Money On Security 118 Entertainment 124 Broadcasting 124 Exhibition of Films 125 Professional Sporting Exhibitions And Games 125 Production of Films and Shows 126 Leasing 127 Leasing Personal Property 127 Leasing Real Property 131 Oil and Gas Leases 133 Manufacturing 135 Performing Services 135 In General 135 Correspondence Schools 139 Field Warehousing 140 Installation of Machinery and Equipment 140 Research Work 144 Transportation Companies 145 Property Ownership 146 Personal Property Ownership 146 Processing 149 Purchasing 150 Real Property Ownership 151 Sales 154 Commission Merchants and Brokers 154 Conditional Sales 155 Sales from Trucks 156 Sales of Repossessed Goods 156 Sales of Samples 158 Sales of Securities 160 Sales Through Brokers 161 Shipments on Consignment 162 Show Rooms 166 Solicitation 166 Contents vii Specialty Salesmen 171 Subscription Sales 173 Selling Over the Internet 174 DOING BUSINESS IN 175 Canada 175 Guam 176 Puerto Rico 176 The Virgin Islands 177 PERSONAL JURISDICTION 179 LIMITED LIABILITY COMPANIES 185 INTRODUCTION When a corporation does busi- sion is reached as to whether or not ness outside of the state in which it qualification is required. was organized, it may be required Most states have adopted either to “qualify”—i.e., to obtain a cer- the Model Business Corporation tificate of authority and to appoint Act or the Revised Model Business a resident agent upon whom pro- Corporation Act. Therefore, the cess may be served. Although the provisions of both of these Model corporation laws of every state Acts dealing with activities requir- require foreign corporations doing ing qualification and penalties for business in the state to qualify, no not qualifying are set forth and law contains a comprehensive def- discussed in the following chap- inition of the term “doing busi- ters. ness.” What constitutes doing In addition to what constitutes business within the meaning of doing business within the United qualification requirements is the States, this book contains chapters question which this book attempts on doing business in Canada, to answer. Guam, Puerto Rico and the Virgin The risks of failure to qualify Islands. The statutes defining cer- are great. In all states, unqualified tain activities that do or do not re- foreign corporations doing intra- quire qualification for Canada, the state business are denied access to Canadian provinces, and terri- state courts. An unqualified foreign tories, Puerto Rico and the Virgin corporation is also subject to fines, Islands are reproduced. and, in several states, its directors, To a very large extent, the an- officers or agents may be fined. swers to doing business questions These sanctions are discussed un- are found in court decisions. These der the heading “Penalties for Fail- decisions have been accumulated ure to Qualify.” and analyzed and form the basis The statutes of most states list for the articles in the section enti- certain activities in which a corpo- tled, “Specific Doing Business ration may engage without qualify- Activities.” ing. Some states also define There are three kinds of doing activities which will require quali- business questions. One question is fication. These statutory provisions whether a foreign corporation do- are reproduced in this book and ing business in a state will be sub- should be examined before a deci- ject to service of process in that 1 2 Introduction state. The second is whether a for- others that are subject to a qualifi- eign corporation will be subject to cation requirement. The chapter taxation. The third is whether it entitled “Limited Liability Compa- will be subject to the state’s quali- nies” addresses some doing busi- fication requirements. The first ness issues related to that type of chapter, “Three Kinds of Doing business entity. However, this Business,” looks at the differences book deals mainly with foreign between these three types. The business corporations. When deal- final chapter takes a more in-depth ing with any other business entity look at a state’s power to subject a the statutes and case law dealing foreign corporation to the in with the issue of what constitutes personam jurisdiction of its courts. doing business and the penalties Members of the Bar may feel for failure to qualify for that spe- free to call upon the nearest office cific business entity type must be of CT Corporation System for ad- consulted. ditional information on doing WHAT CONSTITUTES DOING business or for statutory changes BUSINESS is presented as a service enacted after the publication of this to the Bar. The information it con- book. tains has been gathered together to It may be noted that business provide a convenient reference in corporations are not the only type a difficult area. It is hoped that it of business entity that are required will prove helpful both to the at- to qualify before doing business in torney familiar with the field and a foreign state. Nonprofit corpora- to the attorney who is only occa- tions, limited liability companies, sionally concerned with corporate limited partnerships and limited work. liability partnerships are among THREE KINDS OF DOING BUSINESS When a corporation does busi- Some corporation laws specifi- ness outside of its state of incorpo- cally state that their doing business ration, it may find itself: (1) subject definitions should not be used in to taxation by the state, (2) subject determining if a corporation is do- to service of process and suit in the ing business for any other purpose. state, or (3) required to qualify to Georgia, Kentucky, Michigan, Ne- do business in the state. The level braska, New Jersey, North Dakota, of business activity that will con- Oklahoma, and Vermont provide stitute doing business is dif- that their doing business definition ferent for each category. In sections do not apply in determin- Filmakers Releasing Organ. v. ing the contacts or activities that Realart Pictures, 1 the court noted may subject a foreign corporation that “This much seems to be to service of process or taxation in clear. .the greatest amount of the state. 3 Colorado, Delaware, business activity is required to sub- Florida and Utah state that their ject a corporation to the state’s doing business definitions do not statutory qualification require- apply to the question of whether a ments.” 2 Therefore, where a corpo- foreign corporation is subject to ration’s activities in a state are service of process and suit. 4 Neva- sufficient to require qualification, it da and Virginia exclude personal follows that the corporation will jurisdiction from their definition. 5 also be amenable to service of pro- Minnesota and New Hampshire cess and to being taxed by the state. 3. Code of Georgia Annotated, Sec. 14-2- 1. 374 S.W. 2d 535 (Mo. App. 1964). 1501; Kentucky Revised Statutes, Sec. 14A.9- 2. See also: Wagner and Wagner Auto 010; Michigan Compiled Laws, Sec. Sales, Inc. v. Tarro, 889 A.2d 875 (Conn. 450.2012; Revised Statutes of Nebraska, Sec. App. 2006), Sinewellan Corp. v. Farmers 21-20,105; New Jersey Statutes Annotated, Bank of Delaware , 345 A. 2d 430 (Del. Super. Sec. 14A:13-3; North Dakota Century Code 1975); Alliance Steel, Inc. v. Piland , 134 P.3d Annotated, Sec. 10-19.1-143; Oklahoma 669 (Kan. App. 2006); Marco Leather Co. v. Statutes Annotated, Title 18, Sec. 1132; Ver- Argentinas , 617 N.Y.S. 2d 617 (Sup. 1994); mont Statutes Annotated, Title 11A, Sec. Ronson Art Metal Works, Inc. v. Brown & 15.01. Bigelow, Inc. , 104 F. Supp. 716 (S.D.N.Y.