Under Tennessee law (T.C.A. §48-25-102), a foreign business entity which is transacting, or has transacted, business in Tennessee without obtaining a certificate of authority from the Secretary of State of Tennessee cannot maintain an action in a Tennessee court. This rule applies to lawsuits filed in Tennessee state courts, as well as to those filed in federal district courts located in Tennessee. See, e.g., In Re Meyer & Judd, 1 F. 2d 513, 526 (W.D. Tenn. 1924); G.M.L., Inc. v. Mayhew, 188 F. Supp. 2d 891, 893-94 (M.D. Tenn. 2002).
The process of obtaining a certificate of authority is also referred to as registering to do business in Tennessee. When a business entity registers to do business in Tennessee, it may be referred to as having been “domesticated” in Tennessee.
Any action filed in a Tennessee state court or a federal court located in Tennessee by a business entity transacting business in Tennessee without registering to do business in the state is subject to dismissal. Importantly, it is never too late to register to do business in Tennessee, and Tennessee law expressly allows an entity to register to do business and, thereafter, to continue its lawsuit. However, registering, after having failed to register for a number of years, can become expensive.
What does it mean to “transact business” in Tennessee such that a business must register to do business in Tennessee? The general rule is that a foreign business entity is transacting business in Tennessee when it transacts some substantial part of its ordinary business in Tennessee and its operations in Tennessee do not consist of mere casual or occasional transactions. There is a Tennessee statute (T.C.A. §48-25-101) which delineates a number of things that do not constitute the transaction of business in Tennessee. Perhaps a few of the most relevant are:
- Holding meetings related to internal governance
- Owning real estate
- Maintaining bank accounts
- Selling through independent contractors
- Soliciting orders by mail which require acceptance outside of Tennessee
- Creating or acquiring loans, security interests and deeds of trust
- Conducting isolated transactions that are completed in one month
- Transacting business in interstate commerce