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May 12, 2016
Doing Business Outside Your
State: Foreign Qualification
Presented by:
Robert L. Symonds, Jr., Michael P. Max...
Page 1
Introduction | Meet the Presenters
Robert L. Symonds, Jr.
Potter Anderson Corroon LLP
-
Legal Advisor to
CSC® Publi...
Page 2
Introduction
Corporate activities that generally do not require qualification
Corporate activities that generally d...
Page 3
Background of Qualification Statutes
Genuine Parts Co. v. Cepec, C.A. No. N15C-02-184 (Del. April 18,
2016) (Strine...
Page 4
Introduction
Doing Business: 50 State Analysis
Doing business often defined in the negative
• Lists activities that...
Page 5
Corporate activities that generally do not require qualification
Widely accepted definition of doing business in a ...
Page 6
Corporate activities that generally do not require qualification
General Exceptions
Litigation
Board meetings or ot...
Page 7
Corporate activities that generally do require qualification
Certain corporate activities conducted in a foreign st...
Page 8
Accounting Example
“Many states have enacted licensing statues
requiring out-of-state certified public accounting
c...
Page 9
Banking Example
Most states have a statutory exception that provides that maintenance
of bank account is a business...
Page 10
Implications for internet and e-commerce activities
Limited statutory law and case law addressing the question of ...
Page 11
How corporations qualify
Overview of qualification process
Name availability
• CSC provides name check in any stat...
Page 12
How corporations cure failures and terminating qualification
Overview of curing failures to qualify
Legal perspect...
Page 13
Consequences of failing to qualify
Background
Encourage foreign corporations to qualify
Provide a vehicle for stat...
Page 14
Consequences of failing to qualify (continued)
Monetary Penalties
Legal perspective
CSC example: Below is a list o...
Page 15
Other regulation of foreign entities
Legal perspective
Common requirements
• Licenses
• Regulatory
• Taxes
Specifi...
May 12, 2016
Question and Answer
Please contact us with any questions: marketing@cscglobal.com
Explore our collection of l...
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Doing Business Outside Your State: Foreign Qualification

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What does it mean to qualify to do business in a foreign state, and is it something your company needs to do? What happens if you don’t qualify? Are there regulatory issues to be considered? Also, are you prepared to advise clients on the matter?

Not all business activities require you to qualify, but failure to do so can leave your company facing negative consequences.

Published in: Business
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Doing Business Outside Your State: Foreign Qualification

  1. 1. May 12, 2016 Doing Business Outside Your State: Foreign Qualification Presented by: Robert L. Symonds, Jr., Michael P. Maxwell, and Michael W. Whittaker of Potter Anderson & Corroon LLP; with insights from Patrick Nolan, customer service specialist at CSC® in partnership with LexisNexis®
  2. 2. Page 1 Introduction | Meet the Presenters Robert L. Symonds, Jr. Potter Anderson Corroon LLP - Legal Advisor to CSC® Publishing Michael Maxwell Potter Anderson Corroon LLP Michael Whittaker Potter Anderson Corroon LLP Patrick Nolan CSC® Customer Service Specialist
  3. 3. Page 2 Introduction Corporate activities that generally do not require qualification Corporate activities that generally do require qualification Implications for internet and e-commerce How corporations qualify, cure, and terminate qualification Consequences of failing to qualify Other regulation of foreign entities Conclusion and Q&A Agenda
  4. 4. Page 3 Background of Qualification Statutes Genuine Parts Co. v. Cepec, C.A. No. N15C-02-184 (Del. April 18, 2016) (Strine, C.J.) A 2016 Delaware Supreme Court decision construing the scope of Delaware’s registration statutes for a non-Delaware company doing business in Delaware. The Court ruled that such statutes provide a means for service of process, but do not confer general personal jurisdiction over the non-Delaware company. Relied on recent U.S. Supreme Court decisions: • Goodyear Dunlop Tires Operations, S.A. v. Brown • Daimler AG v. Bauman Introduction
  5. 5. Page 4 Introduction Doing Business: 50 State Analysis Doing business often defined in the negative • Lists activities that alone are insufficient to require qualification in a foreign jurisdiction • Termed as “exceptions to doing business” Doing business for foreign qualification purposes is different from doing business for jurisdictional or taxation purposes. Delaware provisions § 373 of DGCL § 18-912 of LLC Act. Other foreign state regulations Licenses Regulatory Taxes
  6. 6. Page 5 Corporate activities that generally do not require qualification Widely accepted definition of doing business in a state is: “Regular, repeated and continuous business contacts of a local nature.” Courts interpret and apply this definition differently Process for evaluating whether an entity is doing business or excepted out: Factual evaluation Review statutory provisions and exceptions Review case law regarding interpretation of relevant exceptions
  7. 7. Page 6 Corporate activities that generally do not require qualification General Exceptions Litigation Board meetings or other internal corporate activities Bank Accounts Offices or Agencies for Transfer of Securities Selling through independent contractors Soliciting orders by mail or other channels Creating or acquiring indebtedness, and securing or collecting debts Owning real or personal property Isolated transactions Interstate Commerce Responding to state declared emergencies
  8. 8. Page 7 Corporate activities that generally do require qualification Certain corporate activities conducted in a foreign state are sufficiently regular, systemic, extensive and continuous to trigger a qualification requirement. Examples include the following: Accounting Advertising Banking Construction Sales Third-party sales
  9. 9. Page 8 Accounting Example “Many states have enacted licensing statues requiring out-of-state certified public accounting corporations to obtain temporary permits before practicing in their states… courts will often consider the state’s licensing laws as one of several factors when determining whether a foreign accounting corporation is doing business in the state for qualification purposes.”
  10. 10. Page 9 Banking Example Most states have a statutory exception that provides that maintenance of bank account is a business activity that does not require qualification. Exceptions: “In the five states that do not provide a bank account exception, the question becomes whether maintenance of a bank account triggers the obligation to qualify as a foreign qualification” States include: • Alabama • Delaware • District of Columbia • Ohio • Oklahoma
  11. 11. Page 10 Implications for internet and e-commerce activities Limited statutory law and case law addressing the question of whether owning or operating a website constitutes doing business for qualification purposes. Numerous cases address a similar issue: whether a corporation’s Internet activities in a foreign state constitute doing business sufficiently to justify the courts of that state exercising personal jurisdiction over the corporation. Exploring the issue of jurisdiction with regard to websites can be useful when trying to determine a corporation’s need to qualify to do business based on its website activity. Types of activities: Passive websites Active websites Interactive websites Email
  12. 12. Page 11 How corporations qualify Overview of qualification process Name availability • CSC provides name check in any state in connection with a filing we are handling Obtain necessary supporting documents • Examples Appoint and maintain registered agent Comply with publication or recording requirements Prepare and file required documents • Filing fees and the formula for same vary greatly from state to state from a flat fee of $51.00 in Hawaii to a complex fee structure in Illinois that factors in the proportion of business conducted and property owned within the state to the business and property everywhere, and can be many thousands of dollars. Annual reports and filings, taxes and fees Subsequent filings
  13. 13. Page 12 How corporations cure failures and terminating qualification Overview of curing failures to qualify Legal perspective CSC examples Overview of terminating qualification Voluntary termination Involuntary termination Survival of Service of Process
  14. 14. Page 13 Consequences of failing to qualify Background Encourage foreign corporations to qualify Provide a vehicle for states to collect reasonable, non-punitive fees Main penalty was to prevent foreign corporations from maintaining lawsuits in a foreign state’s courts. Access to court Primary penalty of many states • Dismissal of lawsuit vs. staying a lawsuit • Validity of corporate acts and contracts • Defenses and counterclaims State-specific examples
  15. 15. Page 14 Consequences of failing to qualify (continued) Monetary Penalties Legal perspective CSC example: Below is a list of filing fees we incurred for a client that started business in 2000 and qualified in November of 2015 and what the state fees would have been had the company qualified the day they started business Penalties for officers/directors State Minimum Fee Fee Incurred Texas $600 $9,815 Illinois $1,814.27 $21,522.07 Florida $70 $1,920 Georgia $225 $825
  16. 16. Page 15 Other regulation of foreign entities Legal perspective Common requirements • Licenses • Regulatory • Taxes Specific state-level examples
  17. 17. May 12, 2016 Question and Answer Please contact us with any questions: marketing@cscglobal.com Explore our collection of law-related titles www.cscglobal.com/publications and www.lexisnexis.com/csc Access a variety of whitepapers, webinars, and guides www.cscglobal.com/resources Special thank you to LexisNexis® for providing CLE credits via LexisNexis University and to our presenters from Potter Anderson Corroon LLP.

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