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What Does “Doing Business” in New York and When Do You Need to Register your Out of State Business in New York?

In advising my startup clientele, I often stress that merely incorporating their business in Delaware or another state of their choosing may not suffice. To truly operate in a state, they need to register their business there as well. This requirement becomes apparent when contemplating conducting business in a state like New York, where it’s necessary to qualify your company as a foreign corporation or LLC to operate within its borders.

To navigate this complex landscape, it’s crucial to differentiate between three distinct concepts: (1) when a business’s activities within New York subject it to the personal jurisdiction of New York courts (a jurisdictional doing business test); (2) when these activities trigger tax obligations within New York (a taxation doing business test); and (3) when a business must apply for the authority to do business in New York (a qualification doing business test).

In assessing the jurisdictional test, courts closely examine a company’s activities within the state, as well as activities outside the state that are directed at New York (Civil Practice Law and Rules Sections 301 and 302). For the taxation doing business test, courts apply the Commerce Clause principles, as elucidated in Complete Auto Transit v. Brady, 430 U.S. 274 (1977), which lays out a four-pronged approach. It’s essential to understand that even if a company falls under New York’s jurisdiction and tax obligations, it doesn’t necessarily imply the need to qualify for doing business in New York. However, the converse holds true: qualifying to do business in New York places a business under the jurisdiction of New York courts and subjects it to tax obligations.

Now, let’s delve into the qualification doing business test and explore what it means to be “doing business” in New York.

The definition of “doing business” in New York is often a source of perplexity. Instead of providing a precise definition, the law offers a non-exclusive list of activities that do not constitute doing business. According to New York Business Corporations Law Section 13-1301, a corporation is NOT doing business in the state if it engages in any of the following activities: holding shareholder and director meetings, maintaining bank accounts, maintaining an office exclusively for the transfer, exchange, and registration of securities, appointing and maintaining trustees or depositories for securities, or engaging in legal actions, settlements, claims, or disputes, whether judicial, administrative, arbitrative, or otherwise.

The bulk of the definition of “doing business” in New York arises from court decisions and is highly fact-specific. To summarize, for a foreign organization to be “doing business” in New York, its activities must meet three criteria: (1) they must have a local, intrastate character; (2) they must be regular, permanent, continuous, and systematic; and (3) they must be vital and essential to the organization’s core operations, rather than merely incidental. Let’s examine some illustrative examples:

  1. A foreign manufacturing organization operating in New York qualifies as “doing business” because manufacturing constitutes a substantial part of its regular business. Conversely, conducting research and employee training in New York does not meet the threshold for requiring registration unless the organization’s primary purpose is research and training.
  2. Occasional or casual corporate presence in New York, without additional substantial activity, doesn’t amount to “doing business.”
  3. Maintaining a small New York office with three full-time and four part-time employees, primarily handling requests for space on flights originating outside the U.S., was deemed as “doing business” in New York.
  4. Systematic and continuous solicitation and servicing of New York accounts by a foreign sales agency through on-site representatives constitute “doing business.”
  5. Entering into one or two contracts in New York typically doesn’t constitute “doing business.”
  6. Merely advertising a foreign company’s business in New York newspapers is insufficient to qualify as “doing business.” However, combining such advertising with the employment of an answering service indicates an intent to do business in New York.
  7. A correspondence school chartered in another state, primarily soliciting students and handling materials and fees, doesn’t qualify as “doing business” in New York. But if the school maintains multiple in-state offices with staff offering instruction, it crosses the threshold.
  8. Owning and leasing real estate as an incidental part of another enterprise doesn’t constitute “doing business.” However, if a foreign entity’s sole purpose is land leasing or acquisition, it qualifies as “doing business” in New York.
  9. Occasional or sporadic sales activities do not usually amount to “doing business” in New York. New York courts do not typically consider factors like having customers in the state or making deliveries from an out-of-state factory as determinative. However, systematic merchandise sales may qualify as “doing business.”

In conclusion, the determination of what constitutes “doing business” in New York hinges on the specific circumstances of each case. Failing to qualify as a foreign entity while conducting business in New York leaves a company without access to New York courts until it secures the necessary authority and settles all fees, taxes, and penalties.