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Register in a Different State to Protect Your Rights

I can see the look on my client's face when I recommend that, if the client plans to do business in another state, he or she should register the company to do business in that state. The client's look is one which is saying, "Ken, you are just finding a way to hit me up for an additional fee." Rather than explain, I have learned that it is best to just provide an example, such as the following:

Imagine that your Pennsylvania company just completed a $145,000 project in a neighboring state. You did a great job and the client is thrilled with the work. Let's also assume that you made certain that you had a well written contract, and it was signed by the authorized agent of the other company. The company fails to pay and you call the President of the other company. She tells you that you did a great job, but she doesn't feel like paying you right now. She is too upset because her dog has fleas.

You can't believe it. But try as you might, you can't get the company's President to have the company make payment. You decide to have your company sue the out-of-state company. The complaint is timely filed by your counsel in the proper county of the neighboring state. The other side admits that it has no excuse for non-payment. Instead, the attorney for the other company asserts that your company has no right to bring suit because your company has not obtained a Certificate of Authority to do business as a foreign limited liability company in that state.

In some states, your case will be dismissed at that point. In other states, your case will be dismissed with the right to re-commence the suit only after you have obtained the Certificate of Authority. Other states may use the Pennaylvania rule, i.e., your case will be allowed to proceed; however, if the case comes to a verdict and your company has still not obtained a Certificate of Authority, judgment will be rendered for the non-paying company.

"Alright, Ken," my client will say. "Why don't I simply wait until I see that I have a problem in another state, and then obtain the needed Certificate of Authority?" I then explain to my client that registering to do business and obtaining a Certificate of Authority to transact business as a foreign entity in some states could take several weeks. During that period a lot of things might happen to adversely affect the client's rights: Other creditors and claimants may obtain judgments ahead of the client; the other company may end up in voluntary or involuntary bankruptcy; the case may come to verdict before the Certificate of Authority is granted.

I can't say that the look on my client's face is any happier than when the subject was initially broached. However, I can say that the look on my client's face is better than what it would be if I had to tell the client that he or she just lost a six-figure case on a technicality.

Ken Milner