Qualification To Do Business In Alabama

Top  Previous  Next

Qualification To Do Business In Alabama

 

Any entity formed outside Alabama that requires a certificate of formation to begin its existence must register to do business in  Alabama under Section 10A-1-7.01 of the Code of Alabama (1975).  The Alabama registration statute differentiates between entities that must file articles or certificates of formation to come into being, such as corporations, limited liability companies, and limited partnerships, and those entities such as general partnership that do not files articles or certificates in order to exist.  The registration requirement covers most organizations except general partnerships.  See Comment to Ala. Code §10A-1-7.01 (1975).

The application for registration to the Alabama Secretary of State is available online at:

http://www.sos.state.al.us/downloads/business/sosff-1.pdf

The fee schedule for the application is set out on the website for the Alabama Secretary of State at:

http://www.sos.state.al.us/BusinessServices/FilingFees.aspx

Entities that formed outside the State of Alabama as corporations are subject to the “door closing” constitutional provisions of Article XII, Section 232 of the Alabama Constitution and of Section 10A-2-15.02 of the Code of Alabama (1975).  (Article XII, § 232, was amended in other respects on April 1, 1988, by Amendment No. 473.)  Section 232 of Article XII, is set forth in part below:

No foreign corporation shall do any business in this state without having at least one known place of business and an authorized agent or agents therein, and without filing with the secretary of state a certified copy of its articles of incorporation . . .

 

Section 10A-2-15.02 of the Code of Alabama (1975) provides, in part:

(a) A foreign corporation transacting business in this state without registering as required under Section 10A-1-7.01 or without complying with Chapter 14A of Title 40 may not maintain a proceeding in this state without so registering and complying. All contracts or agreements made or entered into in this state by foreign corporations prior to registering to transact business in this state shall be held void at the action of the foreign corporation or by any person claiming through or under the foreign corporation by virtue of the contract or agreement; but nothing in this section shall abrogate the equitable rule that he or she who seeks equity must do equity.

 

Alabama courts and lawyers call Section 10A-2-15.02 a “door closing” statute because it literally closes the doors of Alabama courts to foreign corporations that do business in Alabama without registering.  The unregistered foreign corporation may be sued, but the unregistered foreign corporation generally may not sue and may not counter-claim if it is sued.

Sanwa Business Credit Corp. v. G. B. “Boots” Smith, 548 So. 2d 1336 (Ala. 1989), involved an application of Article XII, §232, and Section 10–2A–247(a) to an attempt by G.B. “Boots” Smith Corporation, a Delaware corporation, to collect amounts due it by Sanwa Business Credit Corporation, also a Delaware corporation. Smith was in the business of transporting and assembling drilling rigs and had its principal place of business in Mississippi. It was not qualified to do business in Alabama at the times relevant to the decision. Sanwa was a finance company dealing primarily with lease transactions and had its principal place of business in Illinois.

Sanwa contracted with Smith for the transportation of two drilling rigs to Alabama locations and the erection of the rigs on those locations. Smith moved the first rig, “Rig No. 5,” from Escambia County, Alabama to Bibb County, Alabama, and assembled the rig at the new location. When Sanwa failed to pay the contract price for the transportation and erection of Rig No. 5, Smith filed suit to collect that payment. On the basis of Smith's failure to qualify to do business in Alabama, the trial court entered summary judgment in favor of Sanwa. Although Smith appealed that decision, it voluntarily dismissed its appeal.

Smith moved the second rig, “Rig No. 10,” from Cass County, Texas to Escambia County, Alabama. A jury trial on Smith’s suit to collect the contract price for the Rig No. 10 work resulted in a verdict in favor of Smith in the amount of $155,656.33. Sanwa appealed the trial court’s judgment in that amount as entered on the verdict.

Smith argued to the trial court and on appeal that its activities with respect to Rig No. 10 were interstate in character and therefore fell outside the effect of Alabama’s door closing statute. The Alabama Supreme Court affirmed that the door closing statute did not apply to interstate contracts, but, relying on Computaflor Co. v. N.L.Blaum Construction Co., 289 Ala. 65, 265 So.2d 850 (1972), the court found that Smith was engaged in an intrastate activity when it transported and erected Rig No. 10. Under Computaflor, the court found that Smith’s contract with respect to Rig No. 10 was actually a construction contract and that the transportation activities were merely an adjunct to the agreement to construct the rig at the site in Escambia County. The court refused to allow Smith to recover against Sanwa under any theory sounding in contract due to Smith’s failure to qualify to do business in Alabama.

Copyright 2011 by Edward G, Hawkins. All rights reserved.