Corporations, limited liability companies and other entities must be formed under the laws of a specific state, but the ability of those entities to act does not stop at the state border. Door-closing statutes address the circumstances under which an entity that is doing business in a state other than its state of formation must register or qualify to do business as a foreign entity in that other state (i.e., the foreign jurisdiction). The term “door-closing statute” refers to the fact that the principal consequence of doing business in a foreign jurisdiction where an entity has failed to qualify is that the entity will not be permitted to maintain a lawsuit in the courts of the foreign jurisdiction.
Qualification requirements are straightforward in principle. In practice, however, it can be difficult to determine whether an entity is doing business in a manner that requires registration. The explosion of remote work in recent years has made this analysis even more challenging, as employees are increasingly working in foreign jurisdictions where the employing entity does not have an office.
Many door-closing statutes are based on Chapter 15 of the Model Business Corporation Act (MBCA) published by the American Bar Association Business Law Section’s Corporate Laws Committee, but even door-closing statutes that are not based on the MBCA tend to have similar provisions. All state door-closing statutes are subject to federal constitutional principles that influence the scope of state authority to govern the activities of foreign entities within their borders. Although we examine Article 13 of the New York Business Corporation Law (NY BCL) as an example of a typical door-closing statute, the application of a door-closing statute depends on the state in which it was adopted as well as the type of entity to which it applies, so counsel should always consider the specifics of the situation.
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