Margrave Celmins, P.C. Newsletter

HAS BUSINESS TRANSACTIONS IN ANOTHER STATE

Sometimes an Arizona corporation or limited liability company (let's call it the Arizona Entity) will wish to conduct business activities in a different state, which we will call the Foreign State. A question often arises whether the Arizona Entity must comply with any formalities in the Foreign State. The answer is, as you will see below, that it depends on the nature and scope of activities. If it engages in certain types of activities, then it must generally file forms to "qualify doing business" in that state. Does failure to file the required forms invalidate the contracts pertaining to the Foreign State? The answer here is "no," although there can be some unpleasant financial consequences and limitations on involvement in lawsuits in the Foreign State.

As each of our sister states has differing entity requirements to be fulfilled, it is beyond the scope of this article to examine each of those states. So we will look at our neighboring state, New Mexico.

Qualification Not Required

Here are some examples of activities that should not require qualification in New Mexico as a foreign corporation doing business there:

Maintaining or defending a lawsuit in arbitration or administrative proceedings;
Holding meetings of directors or shareholders;
Maintaining bank accounts;
Engaging an independent contractor;
Soliciting orders through employees or agents if a contract is made outside New Mexico;
Owning real property as a passive investment without further activities;
Creating debts, mortgages or liens;
Collecting debts; and
Conducting an isolated transaction for completion within 30 days.

Qualification Likely Required

However, there are activities that likely will require the Arizona Entity to formally qualify to do business in New Mexico. As is the case with most states, New Mexico has no clear-cut statutes stating what does constitute doing business. The owners of the Arizona Entity should strongly consider consulting with an attorney to examine the New Mexico statutes.

They should also consult with their accountant to determine whether or not any of the activities planned requires reporting income to the State of New Mexico. Setting up a sales office or a manufacturing facility in Albuquerque would certainly constitute doing business in New Mexico. But like so many things in the law, there are shades of gray and each circumstance should be examined to see whether the particular economic activity does or does not constitute transacting business.

Questions, including, but not limited to, the following should be settled: (1) will the Arizona Entity maintain a physical presence in New Mexico by establishing a business location there; (2) will the Arizona Entity hire new employees in New Mexico; (3) what are the income or other tax implications, if any, if the Arizona Entity is or is not registered in New Mexico; (4) what are the business licensing requirements, if any; (5) to what extent will there be solicitation by the Arizona Entity; (6) will the Arizona Entity be subject to service of process in New Mexico; and (7) are there penalties for not registering in New Mexico, but conducting certain business activities there.

If it is determined that the Arizona Entity is doing business in New Mexico, then it will need to file an appropriate application with the New Mexico Public Regulation Commission. Failure to do so would result in liability for paying any required annual fee, plus a penalty of some sort. In addition, the Arizona Entity would not be entitled to defend a lawsuit or bring a lawsuit in New Mexico without first fulfilling the qualification requirements.

Conclusion

Determining whether an Arizona Entity must qualify to do business in a Foreign State, such as New Mexico, and then qualifying it, if necessary, is a process that should be examined and properly handled.

If you are contemplating having your Arizona Entity do business in any Foreign State and qualifying it there, if required, feel free to contact our firm for more information.

Darlene Lundy

Certified Paralegal

dlundy@mclawfirm.com