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When Do I Need To Qualify To Do Business In New York?

November 2, 2015

A foreign corporation, that is, a corporation not formed under New York law[1] may not do business in New York until it has been authorized to do so under New York law.[2] Authority of a foreign corporation to do business in New York is obtained by delivering an application to the Department of State setting forth certain specified information, along with a certificate of good standing from the state where the corporation was formed.[3] The foreign corporation is authorized to do business in New York upon the filing of the application for authority by the Department of State.[4]

The New York Attorney General may bring an action to restrain a foreign corporation from doing business in the state without authorization.[5] In addition, a foreign corporation doing business in New York without authority cannot maintain an action in the state unless and until it has been authorized to do business in New York and it has paid all necessary fees, taxes, and related penalty and interest charges.[6] A foreign corporation without authority to do business in New York may obtain such authority after it has already commenced an action and thereby become qualified to maintain the action.[7] Some New York courts have conditioned dismissal of an action commenced by a foreign corporation that is not authorized to do business in the state upon the continued failure of the corporation to comply with aection 1312, which is often referred to as the “door closing statute,” but other courts have dismissed claims outright for failure to comply with the statute.[8] In the case of an outright dismissal, there is a danger that the foreign corporation will be barred from bringing a new action if the company does not obtain authority and file suit within the applicable statute of limitations or six months from when the first action was dismissed, whichever is later.[9]

So when does a foreign corporation need to be authorized to do business in New York? The Business Corporation Law does not define what is meant by “doing business” in New York. The statute does provide a short list of activities that are not considered to be doing business in New York solely because the foreign corporation engages in the state in one or more of those activities, which are

  • maintaining or defending a legal, administrative, or arbitration proceeding;
  • holding meetings of the company’s shareholders or directors;
  • maintaining bank accounts; and
  • maintaining offices or agencies for the transfer, exchange, and registration of the company’s securities.[10]

If a company engages in any activities in New York beyond those, it becomes necessary to take a close look at the activities to try to determine if the company must be authorized to do business in the state.[11] The case law is especially important in New York given the lack of any affirmative indication at all in the door-closing statute of what constitutes “doing business” in the state.

In order for a court to find that a foreign corporation is doing business in New York within the meaning of section 1312(a), the corporation must be engaged in a “regular and continuous course of conduct in the state.”[12] Because the failure to comply with section 1312(a) is an affirmative defense raised by the defendant in an action brought against it by a foreign corporation,[13] the burden is on the defendant to prove that the plaintiff’s activities in New York “were not just casual or occasional, but so systematic and regular as to manifest continuity of activity in” the state.[14] If the defendant fails to carry its burden of proof, it is presumed that the company is doing business only in the state where it was formed and not in New York.[15]

In the S&T Bank case, for example, the defendant sought to avoid a contract by which it had bought goods from a Pennsylvania corporation that was not authorized to do business in New York. Although the Pennsylvania corporation shipped a large amount of its product into New York, it did not maintain an office, a telephone, or a sales representative in New York, and did no advertising in the state. Under those circumstances, the appellate court held that the defendant had failed to show that the Pennsylvania company conducted “continuous activities” in New York requiring it to be authorized to do business there and that the trial court had therefore erred in dismissing the action to recover on the contract with the defendant.[16]

By contrast, the foreign corporation was found to be doing business in New York in Highfill, Inc. In that case, the plaintiff, a Louisiana corporation, sued the defendant in New York to recover under a contract by which the plaintiff was to conduct and manage a going-out-of-business sale for the defendants. The Louisiana corporation conducted and managed at least 9 or 10 such sales in New York over a period of five or six years. In addition, the company employed a regional vice president who regularly and continuously solicited potential clients in New York. Once hired by a New York company to conduct and manage a special sale, the Louisiana company provided the client with a sales manager and salespersons to work at the sale over a two- to three-month period to sell merchandise to New York consumers, who were also the target of an extensive ad campaign mounted by the Louisiana company. Under those circumstances, the appellate court confirmed that the trial court had properly concluded that the Louisiana corporation was doing business in New York within the meaning of section 1312(a) and had therefore correctly dismissed the plaintiff’s complaint.[17]

These cases demonstrate that if a foreign corporation carries on any activities in New York beyond those specifically enumerated in section 1301(b) of the New York Business Corporation Law as not being considered as doing business in New York, then it is a detailed question of fact whether the corporation needs to be qualified to do business in the state. In general, however, unless the foreign corporation is engaging in a regular and continuous course of conduct in the state, it is presumed that the corporation will not have to be authorized to do business in New York. If it may be a close call in a particular case, and the foreign corporation prefers not to engage in a detailed analysis of whether qualification is required, the corporation may obtain authorization after the fact, so long as the company is prepared to pay all fees, taxes, and related penalty and interest charges that may be required.[18] There is, in addition, a small danger that if the foreign corporation brings suit to recover on a contract and it was not authorized to do business in New York when it should have been, the suit might be barred by the statute of limitations if the company does not act quickly enough to obtain authorization after the fact.

[1]See N.Y. Bus. Corp. Law § 102(a)(7).

[2]See id. § 1301(a).

[3]See id. § 1304.

[4]See id. § 1305.

[5]See id. § 1303.

[6]See id. § 1312(a); McIntosh Builders, Inc. v. Ball, 247 A.D.2d 103, 105, 678 N.Y.S.2d 810, 812 (1998) (holding that foreign corporation could not maintain action given that it still owed the state more than $38,000 in taxes, interest, and penalties, but giving the company 90 days from the court’s order to demonstrate that it had complied with all of the requirements of section 1312(a)).

[7]See, e.g., Nasso v. Seagal, 263 F. Supp. 2d 596, 606 (E.D.N.Y. 2003).

[8]Id. at 607 (collecting cases).

[9]See N.Y. C.P.L.R. 205(a); E&L, Inc. v. Liberty Mut. Fire Ins. Co., 227 A.D.2d 303, 304, 642 N.Y.S.2d 886, 886‑87 (1996).

[10]See N.Y. Bus. Corp. Law § 1301(b).

[11]See 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))).

[12]Id. (quoting Commodity Ocean Transp. Corp. of N.Y. v. Royce, 221 A.D.2d 406, 407, 633 N.Y.S.2d 541, 542 (1995)).

[13]See Audemars Piguet Holding S.A. v. Swiss Watch Int’l, Inc., 46 F. Supp. 3d 255, 285‑86 (S.D.N.Y. 2014), rev’d in part on other grounds on reconsideration, No. 12 CIV. 5423 LAP, 2015 WL 150756 (S.D.N.Y. Jan. 12, 2015).

[14]Highfill, Inc., 50 A.D.3d at 743, 855 N.Y.S.2d at 637 (quoting S&T Bank v. Spectrum Cabinet Sales, Inc., 247 A.D.2d 373, 373, 668 N.Y.S.2d 641, 642 (1998)).

[15]See id. at 743-44, 855 N.Y.S.2d at 637; S&T Bank, 247 A.D.2d at 374, 668 N.Y.S.2d at 642‑43.

[16]S&T Bank, 247 A.D.2d at 374, 668 N.Y.S.2d at 642.

[17]Highfill, Inc., 50 A.D.3d at 744, 855 N.Y.S.2d at 637‑38.

[18]See N.Y. Bus. Corp. Law ‘ 1312(a).

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