Businesses that are incorporated in another state but conduct business in North Carolina are considered foreign corporations under state law. These entities are required to comply with North Carolina’s statutory framework governing foreign corporations, including obtaining a Certificate of Authority from the Secretary of State. This article provides an overview of the requirements for foreign corporations, the legal consequences of failing to register, and key court decisions interpreting these rules.

The question of whether a foreign corporation is “transacting business” in North Carolina is a question of fact that must consider the totality of the circumstances rather than a fixed set of rules. Courts examine whether the foreign corporation is engaging in activities that align with its corporate purpose within the state. In Ivy River Land & Timber Co. v. National Fire & Marine Ins. Co., the court held that a corporation must be “engaging in, carrying on, or exercising, in this State, some of the things, or some of the functions, for which the corporation was created.” 192 N.C. 115, 133 S.E. 424 (1926). However, isolated or sporadic transactions without “some degree of continuity” do not trigger the registration requirement. Parris v. H.G. Fischer & Co., 219 N.C. 292, 298 (1941). North Carolina G.S. 55-15-01(b) enumerates eleven activities that do not constitute transacting business, including but not limited to:

– Maintaining or defending a lawsuit

– Holding directors’ or shareholders’ meetings

– Maintaining bank accounts

– Selling through independent contractors

– Conducting an isolated transaction completed within 30 days Foreign corporations should carefully assess whether their activities fall under these exemptions to determine whether registration is required.

Under N.C. G.S. 55-15-02, foreign corporations that transact business in North Carolina without obtaining a Certificate of Authority face two primary sanctions:

1. Inability to Maintain Legal Action. A noncompliant foreign corporation is barred from maintaining any action or proceeding in any North Carolina court unless it obtains a Certificate of Authority prior to trial. See Spivey & Self, Inc. v. Highview Farms, Inc., 110 N.C. App. 719, 431 S.E.2d 535, review denied, 334 N.C. 623, 435 S.E.2d 342 (1993). This means that an unregistered corporation may find itself unable to enforce contracts or seek legal remedies until it corrects its status. Additionally, courts have held that this defense must be raised in a pretrial motion, or else the issue is deemed waived. The decision in Renfinity, Inc. v. Jones, Civil Action No. 3:20-CV-00422-KDB-DSC (W.D. N.C. 2022), underscores this requirement. In that case, defendants argued that the plaintiff lacked a Certificate of Authority, but because the issue was not timely raised, it could not serve as a defense to dismissal.

2. Financial Penalties. An unregistered foreign corporation is liable for:

– All fees and taxes that should have been imposed, plus interest and penalties.

– A civil penalty of $10 per day for each day of violation, not to exceed $1,000 per year. G.S. 55-15-02(d)).

These financial penalties can accumulate quickly, making compliance an important consideration for any business operating in North Carolina.

If a foreign corporation is unsure whether its activities require registration, it should consult a qualified attorney such as Twisdale Law, PC. The costs of compliance are far lower than the risks of legal and financial penalties. Key steps include:

1. Evaluate Business Activities – Determine whether the corporation is “transacting business” under North Carolina law.
2. File for a Certificate of Authority – Submit the necessary paperwork with the North Carolina Secretary of State.
3. Maintain Compliance – Ensure ongoing adherence to tax and reporting obligations.

Foreign corporations doing business in North Carolina must carefully assess whether they need a Certificate of Authority to operate legally. Failure to register can lead to substantial legal and financial consequences, including the inability to bring legal claims and accruing penalties. By proactively seeking compliance, businesses can protect their operations and avoid costly pitfalls. For legal guidance on foreign corporation compliance in North Carolina, contact Twisdale Law, PC today.