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©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
CHAPTER 13
Foreign Corporation Qualification
THEME
Chapter 13 is an introduction to foreign corpora-
tions, focusing on the procedures for qualifying
a corporation to do business in states other than
the corporation’s state of domicile. Although the
main focus here is on corporations, many of the
same laws and procedures apply to other forms
of business organizations, including limited lia-
bility companies.
CHAPTER GOAL
The goal of this chapter is for students to be-
come familiar with the following terms and
topics concerning foreign corporations:
• Foreign corporation
• Factors to be considered when determining
whether foreign corporation qualification is
necessary
• Procedures for qualifying foreign corpora-
tions
• Procedures for maintaining the good stand-
ing of a foreign corporation and for with-
drawing the foreign corporation from doing
business in a particular state
• The role of corporate paralegals assisting
with foreign corporation qualifications
• Resources available to corporate paralegals
who may be assisting with foreign corpora-
tion qualifications
SUGGESTED APPROACH
Class discussions on this chapter may focus on
state long-arm statutes as they relate to corpora-
tions and other business organizations. Students
should be familiar with the statutes in their
home states concerning foreign corporations and
with the procedures for qualifying foreign cor-
porations.
LECTURE NOTES
Determining When Foreign Corporation
Qualification Is Necessary
1. The state of the corporation’s charter or in-
corporation is the corporation’s state of
domicile, regardless of where the corpora-
tion transacts its business.
2. A corporation is considered a foreign cor-
poration 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 corpo-
rations and other business organizations
that voluntarily go into that state for the
purpose of transacting business.
5. A defendant corporation need not be phys-
ically present in a foreign state for the
courts to have jurisdiction over it, but it
must have certain minimum contacts with-
in 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 qualifica-
tion requirements.
8. Like the Model Business Corporation Act
(MBCA), the statutes of many states pro-
vide a list of activities that do not neces-
sarily constitute transacting business in that
state, but remain silent on exactly what
does constitute transacting business.
CHAPTER 13 Foreign Corporation Qualification 93
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
9. When deciding whether it is necessary to
qualify a corporation to do business in a
particular foreign state, the following fac-
tors should be considered:
• The extent, duration, and nature of the
corporation’s involvement in the for-
eign state
• The foreign state’s statutory interpreta-
tion of what does, or does not, consti-
tute transacting business in that state
• The cost of qualification and the penal-
ties for transacting business in the for-
eign 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 pre-
cluded 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 gov-
erned 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 re-
quired 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 in-
cluded in the certificate of authority chang-
es, such as a change in the registered office
or agent in a given foreign state, the corpo-
ration must immediately notify the secre-
tary of state in the foreign state by filing an
application for amended certificate of au-
thority.
Maintaining the Good Standing of the For-
eign Corporation
16. Foreign corporations are usually subject to
annual reporting requirements in the for-
eign 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 For-
eign Corporation
18. When a corporation is no longer transact-
ing business in any given state, it may
withdraw as a foreign corporation by filing
an application for a certificate of with-
drawal.
The Paralegal’s Role
19. Paralegals are often responsible for quali-
fying 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 qualifi-
cations include the following:
• Corporate statutes from the foreign state
• Information available from the secre-
tary of state, or other appropriate state
official, in the foreign state
• Corporation service companies
94 PART I Guide for Instructors and Answers to Chapter Review Questions
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
21. Corporation service companies provide
incorporation and foreign corporation qual-
ification services in every state in the coun-
try. Corporation service companies can be
very helpful, especially when foreign cor-
poration qualification is necessary in sev-
eral 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 possi-
ble consequences of not qualifying when neces-
sary.
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 de-
fendant in North Carolina to collect money the
defendant allegedly owed for jewelry sold or
consigned. At trial, the defendant, Jerger John-
son, 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 trans-
acting business in North Carolina without a li-
cense 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 de-
termined 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 author-
ity.
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 transact-
ing business in the state is to “require the engag-
ing in, carrying on or exercising, in North Caro-
lina, some of the functions for which the corpo-
ration was created.” The business done by the
corporation must be substantial, continuous, sys-
tematic, and regular. Pursuant to N.C. Gen. Stat.
§ 55-15-02, a foreign corporation that transacts
business in North Carolina is barred from main-
taining 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 deter-
mined 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
CHAPTER 13 Foreign Corporation Qualification 95
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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. (“Ba-
yonne”) was a foreign corporation that brought
suit against defendant Frank T. Porco (“Porco”)
in the city of New York to collect money alleg-
edly owed to it for providing construction mate-
rials to Mulford Construction Corp. Porco was
named as a defendant pursuant to a guaranty of
payment he executed. Bayonne’s business with-
in 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
Porco claimed that plaintiff was not entitled to
utilize the laws of the state of New York be-
cause it was not licensed to transact business
within the state. New York State’s Business
tion “doing business” within the state from us-
ing the courts unless the corporation is author-
ized to do business in New York State.
Issue: Was plaintiff Bayonne doing business
within the state of New York as defined by state
Conclusion: Bayonne was not doing business
within the state of New York as that term is de-
fined 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 for-
eign corporation’s contacts within the state of
New York are merely for the purpose of solicit-
ing 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.
REVIEW QUESTIONS
1. Assume that Quality Liquor Company has
its main office in your home state, where it
transacts the majority of its wholesale liq-
uor 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 Corpora-
tion Act, does Quality Liquor need to qual-
ify as a foreign corporation in that state?
No, transacting business in interstate
commerce does not constitute “transact-
ing business” for most purposes. How-
ever, if Quality Liquor Company’s busi-
What if Quality Liquor were to set up a
branch office in the neighboring state?
Yes, Quality Liquor would probably be
2. What are “door-closing” statutes as they re-
late to foreign corporations?
They are state statutes that provide that
any corporation doing business in the
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.
96 PART I Guide for Instructors and Answers to Chapter Review Questions
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
ter and the laws of its state of domicile,
unless those laws are in conflict with the
laws of the foreign state. If the foreign
4. Assume that it is your responsibility to
qualify your corporate client, Alex Enter-
prises, in a foreign state that has adopted
the Model Business Corporation Act. Will
terprises”?
Yes, the name must comply with the
statutory requirements of the foreign
state. “Alex Enterprises” would not be
What are the possible solutions to this
foreign state, or it may adopt an as-
5. What is a fictitious name, and why is it
used?
fictitious name is a name that may be
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
7. What are the possible consequences of ne-
glecting to file an annual registration
statement for a foreign corporation?
tered 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 ser-
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
number of authorized shares of stock is
What steps must be taken when the corpo-
An application for amended certificate
of authority must be filed with the secre-
10. Under what circumstances might it be ben-
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
CHAPTER 13 Foreign Corporation Qualification 97
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
SUGGESTED ANSWERS TO
PRACTICAL PROBLEMS
The Practical Problems in this chapter ask stu-
dents to locate the statute sections within the
business corporation act of their home state to
answer some basic questions concerning the re-
quirements for qualifying foreign corporations.
Resources for answering the Practical
Problems include state statutes, which may be
accessed through the CourseMate links.
EXERCISE IN CRITICAL
THINKING
The Exercise in Critical Thinking for this chap-
ter asks students to consider the influence of the
trend toward the online transaction of business
on the need to qualify businesses as foreign cor-
porations.
Exercise:
With an increasing amount of busi-
ness taking place electronically or
over the Internet, what special con-
siderations do you see when busi-
nesses are contemplating whether
or not they should qualify their cor-
porations to transact business in a
foreign state?
The Workplace Scenario at the end of this chap-
ter asks students to prepare sample documents to
qualify their fictitious corporation, Cutting Edge
Computer Repair, Inc., to do business in a
neighboring state. Students can select a neigh-
boring state in which to qualify the corporation.
They will need to contact the secretary of state
of the neighboring state (or take other appropri-
ate action in that jurisdiction) to check the name
availability. In addition, students will need to
use an application for a certificate-of-authority
form that is acceptable in the foreign state. Ap-
plication forms may be available for download-
ing from the website of the secretary of state or
other appropriate state agency in the students’
home state. Links to secretary of state offices
and downloadable application for certificate of
authority forms for many states are also availa-
ble on the CourseMate website that accompa-
nies this text at http://www.cengagebrain.com.
Appendix M includes a sample applica-
tion for certificate of authority to transact busi-
ness in the state of Texas, as well as a cover let-
ter for filing the application and other required
documents.
