May 12, 2016

Doing Business Outside Your State: Foreign QualificationPresented 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®

Page 2

Introduction | Meet the Presenters

Robert L. Symonds, Jr.

Potter Anderson Corroon LLP

-Legal Advisor to CSC® Publishing

Michael MaxwellPotter Anderson Corroon

LLP

Michael WhittakerPotter Anderson Corroon

LLP

Patrick NolanCSC®

Customer Service Specialist

Page 3

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

Page 4

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

Page 5

Introduction

Doing Business: 50 State AnalysisDoing 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 regulationsLicensesRegulatoryTaxes

Page 6

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

Page 7

Corporate activities that generally do not require qualification

General ExceptionsLitigationBoard meetings or other internal corporate activitiesBank AccountsOffices or Agencies for Transfer of Securities Selling through independent contractors Soliciting orders by mail or other channelsCreating or acquiring indebtedness, and securing or collecting debtsOwning real or personal propertyIsolated transactionsInterstate CommerceResponding to state declared emergencies

Page 8

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

Page 9

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.”

Page 10

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

Page 11

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 websitesActive websitesInteractive websitesEmail

Page 12

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 agentComply with publication or recording requirementsPrepare 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 feesSubsequent filings

Page 13

How corporations cure failures and terminating qualification

Overview of curing failures to qualifyLegal perspectiveCSC examples

Overview of terminating qualificationVoluntary terminationInvoluntary terminationSurvival of Service of Process

Page 14

Consequences of failing to qualify

BackgroundEncourage foreign corporations to qualifyProvide a vehicle for states to collect reasonable, non-punitive feesMain penalty was to prevent foreign corporations from maintaining lawsuits in a foreign state’s courts.

Access to courtPrimary penalty of many states

• Dismissal of lawsuit vs. staying a lawsuit• Validity of corporate acts and contracts• Defenses and counterclaims

State-specific examples

Page 15

Consequences of failing to qualify (continued)

Monetary PenaltiesLegal perspectiveCSC 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

Page 16

Other regulation of foreign entities

Legal perspectiveCommon requirements

• Licenses• Regulatory • Taxes

Specific state-level examples

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 guideswww.cscglobal.com/resources

Special thank you to LexisNexis® for providing CLE credits via LexisNexis University and to our presenters from Potter Anderson Corroon LLP.