What triggers qualification?

What triggers qualification?

When should companies qualify to do business outside their state of formation? It’s complicated.

Consider this case: In May 2020, a Pennsylvania LLC sued an Ohio LLC in Ohio for breach of contract, unjust enrichment, and failure to pay commissions. The Ohio defendant filed a motion to dismiss, arguing that the plaintiff couldn’t bring a suit in Ohio because it hadn’t qualified to do business in the state.

Although the motion to dismiss didn’t initially prevail, ultimately, an Ohio court of appeals ruled that summary judgment should have been upheld in the case, finding that the Pennsylvania entity couldn’t bring a suit because it hadn’t registered to do business as a foreign corporation despite engaging in continuous activities in Ohio, including maintaining a contract with no end date.

Companies doing business in a foreign state need to carefully consider whether to qualify there. Failure to do so could scuttle a deal, keep the company from enforcing a contract, or from bringing a lawsuit. It could also lead to significant fines, and, in a few states, even prison time.

Qualification typically involves obtaining a certificate of authority from the state (or states) where the company plans to do business. It may also be required to maintain a registered office and registered agent, and to comply with reporting requirements and tax filings.

While not all corporate activities require companies to qualify in states outside their state of formation, any activities conducted in a foreign state deemed sufficiently “regular, systematic, extensive, and continuous” can trigger the qualification requirement. 

To determine whether to qualify, a company needs to carefully consider both the activities it intends to engage in outside of its state of formation, and the rules followed by each state. Many corporate activities fall into the grey area between those that statutorily require qualification and those that don’t, and courts from different states may have vastly different definitions of what constitutes doing business.

A valued qualification resource for all 50 states

CSC’s Qualifying to Do Business in Another State: The CSC 50-State Guide to Qualification is a comprehensive toolbox to help business and legal professionals better understand foreign qualification and avoid the consequences of failing to qualify. Using case illustrations, the book provides insight and analysis of the types of activities that do and don’t trigger the qualification requirement.

The book explores the Model Business Corporation Act (MBCA), which serves as a template for most states’ laws governing foreign corporations’ business activities within their borders. It examines the activities listed in the MBCA that aren’t subject to regulation, and the activities that require a foreign corporation to register to business. There’s also a discussion of how internet and e-commerce activity could trigger qualification requirements, and a look at the consequences of doing business without qualifying.

Step-by-step instructions are provided for qualifying to do business in foreign states, as well as registration procedures for charitable organizations.

The book also includes a comprehensive scope of annotated qualification statutes for all jurisdictions, giving legal practitioners easy access to the current statutes and relevant case notes that relate to doing business in a foreign state.

Two easy-to-use charts summarize the activities that don’t constitute doing business and the consequences of failing to qualify. Both charts include comments and citations. The appendix contains a list of qualification forms for all 50 states and the District of Columbia, with forms on the companion CD-ROM. The charts have been updated for the 2021 edition, and the latest changes to qualification statutes for all 50 states and the District of Columbia have also been captured in the book’s statutory section. 

The 2022 Edition of Qualifying to do Business in Another State is available as a softbound book or as an ebook, compatible with dedicated e-reader devices, computers, tablets and smartphones that use e-reader software or applications. It’s also available on the LexisNexis Digital Library.

To learn more about the 2022 Edition of Qualifying to do Business in Another State, call 1.800.533.1637 or visit us online at www.lexisnexis.com/csc.

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