Restatement ofthe Law Second

Conflict of Laws 2d

Chapter 13. Business Corporations

Topic 1. Creation, Recognition and Dissolution

Copyright (c) 1971 The American Law Institute

s 297. RECOGNITION OF FOREIGN INCORPORATION

 Incorporation by one state will be recognized by other states.

Comment:

 a. Meaning of recognition. A distinction must here be drawn between recognition of a foreign incorporation and permitting a foreign corporation to do various kinds of acts. The corporate status will be recognized everywhere, but, as stated in Topic 4 (ss 311-312) of this Chapter, it is customary for a state to place limitations upon the privilege of a foreign corporation to do business, or to conduct other activities, within its territory. The more important effects of the recognition of a corporate status are stated in Comments b-d.

 b. Suits by and against the corporation. The capacity to sue and to be sued in the corporate name pertains to a corporation's status as such. Most States of the United States, however, refuse to permit actions on local transactions to be brought in their courts by foreign corporations which do business within their territory without having complied with their statutory requirements (see s 312). Apart from this one qualification, a state will permit a foreign corporation to bring suit in its courts. A state will likewise permit actions to be brought in its courts against a foreign corporation over which it has judicial jurisdiction (see ss 42-52).

 c. Limitation of shareholders' liability. Insofar as this protection is accorded them in the state of incorporation, a state will usually recognize the immunity of the shareholders of a foreign corporation from being sued as individuals on matters arising out of the acts or omissions of the corporation and from having their individual property made responsible for obligations of the corporation.

 d. The local law of the state of incorporation will be applied to determine a corporation's purposes and whether a given act is ultra vires. As to what law determines the legal consequences of a corporate act, see ss 301-302.

 e. For a foreign organization to be recognized as a corporation by the courts of a second state, it is not necessary that the method of incorporation followed in the incorporating state be the same as that followed in the second state.

 f. Permission to do isolated acts. A state will usually permit a foreign corporation to perform within its territory such isolated acts as do not amount to the doing of business.

Illustration:

 1. A, a corporation incorporated in state X and which does all its business in that state, purchases an automobile in state Y for the use of its president. The Y courts will recognize that, as a result of this purchase, title to the automobile is in A.

REPORTER'S NOTE

 The corporate status of a corporation, validly incorporated in one state, will be recognized by other states. State v. Topeka Water Co., 61 Kan. 547, 60 P. 337 (1900); Cumberland Telegraph & Telephone Co. v. Louisville Home Tel. Co., 114 Ky. 892, 72 S.W. 4 (1903); Lancaster v. Amsterdam Improvement Co., 140 N.Y. 576, 35 N.E. 964 (1894); Demarest v. Flack, 128 N.Y. 205, 28 N.E. 645 (1891); Oakdale Mfg. Co. v. Garst, 18 R.I. 484, 28 A. 973 (1894). An organization, which did not comply with the local law of the state of incorporation, was not recognized as a corporation in another state. Montgomery v. Forbes, 148 Mass. 249, 19 N.E. 342 (1889).

 Some of the older cases state qualifications to the rule of this Section. Thus, it has been held that a state will not recognize the existence of a foreign corporation which is empowered by its charter to act only outside the state of incorporation. Land Grant Railway & Trust Co. v. Commissioners of Coffey County, 6 Kan. 245 (1870); Myatt v. Ponca City Land & Improvement Co., 14 Okl. 189, 78 P. 185 (1903); Empire Mills v. Alston Grocery Co., 15 S.W. 20 (Tex.Civ.App.1891); see State v. Topeka Water Co., supra. It has also been held that a corporation organized in one state in order to evade the requirements of a second state where it intended to do business will not be recognized by the courts of the second state. Cleaton v. Emery, 49 Mo.App. 345 (1892); Empire Mills v. Alston Grocery Co., supra. In all these cases, however, the corporation whose existence was denied recognition was doing business in the state of the forum without permission, and it appears that this was the evil which the courts sought to prevent. This is borne out by Troy & North Carolina Gold Mining Co. v. Snow Lumber Co., 173 N.C. 593, 92 S.E. 494  (1917), where the court recognized a foreign corporation which had been organized for the sole purpose of doing business in the state of the forum and which had been authorized by this state to do business in its territory. The distinction between recognition of a foreign corporation and permission for it to do business in the state was clearly stated in Boyington v. Van Etten, 62 Ark. 63, 35 S.W. 622 (1896), where the existence of a foreign corporation was recognized despite the fact that it was doing business in Arkansas without permission.

 It may be a violation of the equal protection clause of the Fourteenth Amendment to the Constitution for a State of the United States to discriminate against a corporation on the ground of its foreign incorporation. WHYY, Inc. v. Borough of Glassboro, 393 U.S. 117 (1968); Wheeling Steel Corp. v. Glander, 337 U.S. 562 (1949); Kentucky Finance Corp. v. Paramount Auto Exchange Corp., 262 U.S. 544 (1923).

 See generally Latty, Pseudo-Foreign Corporations, 65 Yale L.J. 137, 145-146 (1955); C.J.S. Corporations s 1789.

REST 2d CONFL s 297

1971 WL 34669

REST 2d CONFL s 297

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