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22 • 2022

Ownership of Real Property and the Obligation to Qualify to do Business

States require that “foreign” corporations—that is, corporations incorporated under the laws of another state[1]—qualify or register in the state in question if they are “doing” or “transacting” business in that state.[2] This is important because a foreign corporation doing or transacting business in another state without first being qualified or registered there may be subject to various criminal and/or civil penalties,[3] as well as being barred from maintaining a legal action in the courts of that state[4] or doing business there.[5] While different states have different formulations for what constitutes “doing” or “transacting” business there, owning productive real estate in the state will almost certainly qualify.

For example, in California and New York, as in many other states, “doing” or “transacting” business in the state is defined, at least in part, by reference to a laundry list of activities that do not require the corporation to be qualified or registered solely because it engages in one or more of those activities, such as: maintaining or defending a legal, administrative, or arbitration proceeding; holding meetings of the corporations’ shareholders or directors; maintaining bank accounts; or maintaining offices or agencies for the transfer, exchange, and registration of its securities.[6] If a corporation engages in any activities in the state beyond those, it then becomes necessary to take a close look at the activities to try to determine if the company must be qualified or registered to do business in the state.[7]

In general, however, if the foreign corporation is engaging in a regular and continuous course of conduct in the state, other than interstate or foreign commerce, then it will have to be qualified or registered to do business there.[8] Owning productive real estate will almost certainly involve a regular and continuous course of conduct in the state where the real estate is located, whether it be, for example, collecting rent if the property is leased or using the property as an office for local activities. We say “productive” real estate because doing nothing more than owning a vacant lot likely would not, in and of itself, qualify as doing or transacting business in a state.[9] Anything beyond that, however, and it would probably behoove the corporation to qualify or register to do business in the state where the real property is situated.[10]

[1]See, e.g., Cal. Corp. Code §§ 167, 171; N.Y. Bus. Corp. Law § 102(a)(7).

[2]See, e.g., Cal. Corp. Code § 2105(a); N.Y. Bus. Corp. Law § 1301(a). Requiring foreign corporations to qualify or register serves several purposes, including facilitating service of process on those corporations and protecting against state tax evasion. See Capital Gold Grp., Inc. v. Nortier, 176 Cal. App. 4th 1119, 1132, 98 Cal. Rptr. 3d 439, 448 (2009).

[3]See, e.g., Cal. Corp. Code §§ 2203(a) (foreign corporation subject to penalty of $20 for each day that it transacts unauthorized intrastate business in California), 2258 (foreign corporation transacting intrastate business without being qualified to do so is guilty of a misdemeanor punishable by a fine between $500 and $1,000).

[4]See, e.g., Cal. Corp. Code § 2203(c); N.Y. Bus. Corp. Law. § 1312(a).

[5]See, e.g., N.Y. Bus. Corp. Law § 1303.

[6]See Cal. Corp. Code § 191(c); N.Y. Bus. Corp. Law § 1301(b). California, unlike New York, also includes a generic definition of “transacting intrastate business” in California, which means “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.” Cal. Corp. Code § 191(a).

[7]See, e.g., Hurst v. Buczek Enters., LLC, 870 F. Supp. 2d 810, 819 (N.D. Cal. 2012) (“Whether a company transacts intrastate business is a question committed to the ‘peculiar facts’ of each case.” (quoting Le Vecke v. Griesedieck W. Brewery Co., 233 F.2d 772, 775 (9th Cir. 1956))); Highfill, Inc. v. Bruce & Iris, Inc., 50 A.D.3d 742, 743, 855 N.Y.S.2d 635, 637 (2008) (“The question of whether a foreign corporation is ‘doing business’ in New York ‘must be approached on a case-by-case basis with inquiry made into the type of business being conducted.’” (quoting Alicanto, S.A. v. Woolverton, 129 A.D.2d 601, 602, 514 N.Y.S.2d 96, 97 (1987))).

[8]See, e.g., Cal. Corp. Code § 191(a) (“transacting intrastate business” means entering into “repeated and successive transactions” of the company’s business in California, other than interstate or foreign commerce); Highfill, Inc. v. Bruce & Iris, Inc., 50 A.D.3d 742, 743, 855 N.Y.S.2d 635, 637 (2008) (a foreign corporation is doing business in New York when it is engaged in a regular and continuous course of conduct in the state).

[9]See Wm. G. Roe & Co. v. State, 43 Misc. 2d 417, 420, 251 N.Y.S.2d 151, 155-56 (Ct. Cl. 1964).

[10]See Girod Tr. Co. v. Kingsdown Corp., 108 Misc. 2d 759, 760, 438 N.Y.S.2d 894, 895-96 (Sup. Ct. 1981) (distinguishing Wm. G. Roe & Co.).