A “foreign” corporation or “foreign” limited liability company (“LLC”) is one that is organized under the laws of a state other than Tennessee. A foreign corporation or foreign LLC does not have to obtain a certificate of authority from the Tennessee Secretary of State (i.e., register to do business) to engage in certain types of business activities within Tennessee: For other types of business activities, a foreign corporation or foreign LLC must obtain a certificate of authority.
Significantly, foreign corporations and foreign LLCs which were required to register to do business in Tennessee, but did not, cannot use Tennessee courts until they have registered. See, T.C.A §48-25-102 and T.C.A §48-246-601. Federal courts in Tennessee have held that the same statutes apply to lawsuits in Tennessee federal courts. The rule in these statutes applies only when an unregistered foreign corporation or LLC asserts a claim in a Tennessee court. It does not apply to prevent another party from bringing a lawsuit against an unregistered foreign corporation or LLC in a state or federal court located in Tennessee.
Any time a lawsuit is filed in a Tennessee court by a foreign corporation or LLC, at the outset, the lawyer for the defendant, or defendants, should check to determine if the foreign entity obtained a certificate of authority from the Tennessee Secretary of State. This can be done on-line via the Tennessee Secretary of State’s website and takes just a few minutes. If the foreign entity was required to obtain a certificate of authority, but did not, defense counsel should file a motion to dismiss or to stay the action. In my experience, courts always elect to stay the proceedings to give the foreign entity a chance to register. (In one case our firm had in federal court, the action was stayed for several months while the plaintiff foreign LLC went through the steps to obtain its certificate of authority.)
Sometimes, a motion to stay a proceeding because the foreign entity did not register in Tennessee will end the proceeding because of the expense of obtaining a certificate of authority. Under Tennessee law, the penalties for doing business in Tennessee without registering are steep. When a foreign corporation has transacted business in Tennessee without a certificate of authority, to obtain a certificate of authority, it must pay triple the amount of fees, penalties, and taxes and interest on the same, for all the years it transacted business in Tennessee without being registered. See, T.C.A. §48-25-102. A foreign LLC which was required to register to do business in Tennessee, but did not, “shall be fined and shall pay the secretary of state three (3) times the otherwise required filing fee for each year or part thereof” during which it transacted business in Tennessee.