Business Law

Doing Business in Multiple States: Foreign Corporations

Does your Arkansas business also conduct business in other States?  If so, you may need to register as a foreign corporation.  Most business owners know that in order to protect their assets it is advisable to properly incorporate their business as either a corporation, LLC, partnership, or additional corporate form available under Arkansas Law.  Future articles on this blog will discuss differences between the various corporate forms.   However, some Arkansas businesses fail to realize that after this step is completed, it is also important to consider whether their business should be registered in other States.

This process is called registering as a Foreign Corporation.  The term may sound misleading, since we are not referring to registering the company outside of the United States.  However, the term is used by most States when describing the process pursuant to which an out-of-state corporation is registered within the State.

Each State has separate requirements for registering your Arkansas company.  Most States will require that you submit a filing fee of several hundred dollars, a Certificate of Good Standing from the Arkansas Secretary of State, and an application detailing general information about your company, including your primary place of business in the State where you are registering.  Often the most difficult requirement is the listing of an “agent for service of process” for the new State.  You will be required to list a local agent, which must be a resident of the new State (or another corporation created in the State).  This might require you to retain a third-party company to serve as your agent, for an additional fee.

Please consult our office or legal counsel of your choice prior to initiating the process, because depending on the State where you are registering additional requirements might apply.  Most States also have exceptions which may apply to your business and prevent the need to register.  Common exceptions, depending on the State of registration, may include: businesses conducting an isolated transaction, soliciting orders by mail or telephone only, and businesses selling through independent contractors.  Penalties and fines, including interest, may apply if you are conducting business in a State where you are not properly registered, so as always it is important to seek advice from your legal representative.

 

Recent Decision Concerning the Purchase of a Business

In Sunbelt Business Brokers v. James, 2009 Ark. 659, the Arkansas Court of Appeals ruled that the purchaser of a business was not defrauded due to information produced by the business broker and allegedly relied upon by the purchaser to her detriment.  The purchaser had acquired two Subway franchises pursuant to a transaction brokered through Sunbelt Business Brokers.  When the businesses ended up not being as profitable as she hoped, she sued under the theory that the cash-flow form furnished by the broker was erroneous.  The Court ultimately ruled that the purchaser did not “justifiably rely” upon the information, to her detriment, as required for a finding of fraud.  Of specific note was the fact that the purchaser was a financial-services advisor with extensive accounting experience, and that her husband was a Certified Public Accountant.

Under Arkansas law, to prove fraud, a Plaintiff must show:  (1) a false representation of a material fact; (2) knowledge by the Defendant that the representation is false; (3) intent by the Defendant to induce action by the Plaintiff; (4) justifiable reliance by the Plaintiff, and (5) damages.

Update RE: Notarized Documents

The Arkansas Supreme Court recently ruled that a notary acknowledgement affecting real estate was invalid because it was acknowledged by the notary before the party actually signed the document.  In Jones v. Owen, 2009 Ark. 505, the Court reviewed important rules under Arkansas Law pertaining to notary signatures in Arkansas:

  • The notary must either (1) personally witness the signing of the document or (2) notarize a document previously signed if the notary has personal familiarity with the signature.
  • The signing party may first execute a document, then bring it the notary for acknowledgement at a later date.
  • The notary may acknowledge the signing party’s signature via a telephone conversation.

Update on Small Claims Court Jurisdiction

In Arkansas, any dispute involving an amount of under $5,000.00 may be brought in Small Claims Court, more properly known as District Court.  In Small Claims/District Court, the filing fees are significantly less, and attorney involvement is rare.  The Arkansas Court of Appeals recently clarified that if attorneys’ fees are sought in the action, the amount of attorneys’ fees requested, when added to the amount of claim, must not exceed $5,000.00.   Piper v. Potlatch Federal Credit Union, 2009 Ark. App. 701.  Under Arkansas Law, you do not have to include interest when calculating the amount for jurisdictional purposes, however the Piper decision clarified that attorney’s fees must be included in the calculation.