Even the Most Well-Qualified Companies Should Consider Foreign Qualification

Jonathan Sparks | November 2nd, 2017

Legally speaking, doing business is not the same as being qualified to do business. A state can require companies incorporated in another state to “qualify,” or meet certain requirements, before those companies are granted full legal privileges within the state. Different states have different requirements for qualification, and companies that do business across state lines should consult with their attorneys to avoid losing legal privileges.

Which Companies Qualify?

In general, a state can require a company to “qualify” if the company has localized its business in the state—this is determined by the amount of business it does in the state, its permanence in the state, and the number of its employees and officers there, among other factors. However, if the company is only engaged in interstate commerce, i.e. business between states, or only in business with foreign countries, it cannot be required to qualify or be denied the right to sue in state courts.

In Georgia, a “foreign corporation,” is a corporation incorporated in another state and is required to obtain a Certificate of Authority from the Georgia Secretary of State before it can transact business. Thankfully, many activities are not considered to be “transacting business,” including:

  • maintaining bank accounts;
  • effecting sales through independent contractors;
  • making loans;
  • owning property; and
  • holding meeting of director or shareholders.

Whether a company “transacts business” in Georgia is determined on a case-by-case basis. Generally, if a substantial part of a company’s ordinary business takes place in Georgia, it is considered to “transact business” in Georgia.

The Risks of Ignoring Qualification Requirments

Foreign corporations that ignore Georgia’s qualification requirement risk serious exposure. For example, if a foreign corporation transacts business in Georgia without obtaining a Certificate of Authority, it cannot bring any type of lawsuit in Georgia—this could prevent the corporation from suing on contracts, recovering on loans, evicting tenants, and taking other important legal actions. In addition, foreign corporations that do not obtain a Certificate of Authority may incur a civil penalty of $500.

Corporate counsel can help your business obtain a Georgia Certificate of Authority by filing an application and a Certificate of Existence with the Secretary of State. Along with simple facts about the company, the application requires that foreign corporations name a registered agent and office within Georgia. Further, a foreign corporation must ensure that its corporate name is available for use in Georgia, or is altered in accordance with Georgia law. Georgia imposes similar qualification requirements on foreign Nonprofit Corporations and Foreign Limited Liability Corporations.

Consult Your Legal Counsel

If your company does business across state lines, discuss foreign qualification requirements with your legal counsel to preserve your access to state judicial systems and protect your company from exposure.