Restatement of the Law Second
Conflict of Laws 2d
Chapter 13. Business Corporations
Topic 1. Creation, Recognition and Dissolution
Copyright (c) 1971 The American Law Institute
s 298. TREATMENT OF ORGANIZATION AS CORPORATION
An organization formed in one state will be considered a corporation within the meaning of a statute or rule of another state if the attributes the organization possesses under the local law of the state of its formation are sufficient to make it a corporation for the purposes of the statute or rule.
a. Rationale. A court will sometimes be faced with the task of determining whether an organization formed in another state should be considered a corporation within the meaning of a local statute or rule. In deciding this question, the court will first determine what attributes an organization must possess to be a corporation for the purposes of the statute or rule. If the organization possesses such attributes under the local law of the state of its formation, it will be considered a corporation within the meaning of the statute or rule. This will beso even though the organization goes by some other name in the state of its formation, or even though there have been omissions or other defects in the process of incorporation which give the state of incorporation the power, through quo warranto or other action, to deprive the organization of its corporate status. Contrariwise, even though the organization is considered to be a corporation in the state of its formation, it will not be considered a corporation within the meaning of a statute or rule of another state if the attributes given it by the former state do not suffice to make it a corporation for the purposes of the statute or rule. In any event, the organization will be recognized in other states as possessing such attributes as are accorded it by the state of its formation. The rule of this Section is an application of the rule of s 7.
1. A is formed as a joint stock association under a statute of state X. A does business in state Y and the question arises whether it is taxable as a corporation under the Y statutes. The Y courts will not consider this question foreclosed by the fact that A is not considered a corporation in X. Rather they will look to see what attributes have been accorded A by the X statutes, such as whether A can sue and be sued as an entity, whether its affairs are governed by duly elected representatives and whether its members enjoy limited liability. If these attributes are sufficient to make A a corporation within the meaning of the Y tax statutes, it will there be taxable as such.
2. Same facts as in Illustration 1 except that A is actually incorporated in state X. A will not, however, be taxable as a corporation in state Y if the attributes it possesses in X are insufficient to make it a corporation within the meaning of the Y tax statutes.
The Supreme Court of the United States has held that a State may constitutionally deny the members of a "Massachusetts Trust" the right to do business in its territory unless they comply with that State's rules relating to foreign corporations. The Court said: "The real nature of the organization must be considered. If clothed with the ordinary functions and attributes of a corporation, it is subject to similar treatment. . . ." Hemphill v. Orloff, 277 U.S. 537 (1928); cf. Puerto Rico v. Russell & Co., 288 U.S. 476 (1932). For similar reasons, the Court held that a joint stock association, formed under an English statute, was constitutionally subject to being taxed as a corporation under a Massachusetts tax statute. Liverpool Ins. Co. v. Massachusetts, 10 Wall. (77 U.S.) 566 (1870). See also Hill-Davis Co. v. Atwell, 215 Cal. 444, 10 P.2d 463 (1932); State ex rel. R. R. and Warehouse Comm. v. Adams Express Co., 66 Minn. 271, 68 N.W. 1085 (1896); Tide Water Pipe Co. v. State Board of Assessors, 57 N.J.L. 516, 31 A. 220 (1895); Perkins v. Benguet Consol. Mining Co., 155 Ohio St. 116, 98 N.E.2d 33 (1951), vacated on other grounds, 342 U.S. 437 (1951); 2 Beale, Conflict of Laws 737-739 (1935); Fletcher, Cyclopedia of Private Corporations 8297 (1960); 23 Am.Jur.2d Foreign Corporations s 9.
REST 2d CONFL s 298
1971 WL 34670
REST 2d CONFL s 298
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