Running Your Business
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If you are doing business in Connecticut, obtaining a certificate of authority needs to be a priority because Connecticut aggressively enforces its foreign registration provisions. Connecticut collected nearly $1.8 million in penalties from out-of-state companies during Fiscal Year 2015, according to a recent press release issued by Connecticut Secretary of the State Denise Merrill and Attorney General George Jepsen. This is the highest amount brought in since the joint enforcement efforts began in 2007.
If you do business in any state other than where it was incorporated or formed, you have to register your business with that state. This requirement, often called foreign qualification, applies in every state and it’s not optional. As stated in the press release, these rules exist: “to protect domestic organizations from unfair competition and place domestic and foreign organizations on an equal footing.” The rules also protect citizens because businesses must have a registered agent on file to accept the documents that initiate a lawsuit (service of process).
Every state imposes restrictions and penalties on unregistered businesses. (See our recent article, “Foreign Qualification Protects Your Rights”.) However, Connecticut is somewhat unique it two respects. First, it aggressively enforces its registration (foreign qualification) requirements. Second, its penalties for failing to register are steeper than in many other states. If Connecticut discovers that you are doing business in the state—and you don’t have a certificate of authority, it will impose a fine of $300/month for each month your company was not properly registered.
This penalty can add up quickly—and there is no maximum. The average amount collected in FY 2015 from the 353 unregistered out-of-state companies was about $5,000, with a range from $190.00 to $46,740.00. Facing a large fine can create significant issues, and not only with short-term cash flow. If you have failed to register for a number of years, you will need to include the cost of coming into compliance when determining whether you should file a lawsuit in Connecticut.
While companies doing business in Connecticut should take immediate action to register and obtain a certificate of authority, all businesses should be mindful of the penalties that they may face in other states. More states may follow Connecticut’s lead as pressure grows to balance state budgets. Plus, as the President-elect of the National Association of Secretaries of State, Connecticut Secretary of the State Denise Merrill is in a position to promote her highly successful program to enforce registration provisions.