Business entities doing business in Connecticut without registering with the Secretary of the State beware!

Under Connecticut law, corporations, limited partnerships, limited liability companies, limited liability partnerships and statutory trusts formed outside of Connecticut must obtain a certificate of authority from the Secretary of the State and pay a statutory fee before transacting business in Connecticut. While such “foreign business” registrations are not unusual, indeed, it is a standard requirement in every state in the U.S., Connecticut stands out from the crowd thanks to its stiff and unforgiving penalties and the Secretary of State’s aggressive enforcement.

Here is how Connecticut is more punitive than other states: Connecticut assesses a $300 penalty for each month, or $3,600 for each year, in which an out-of-state entity transacts business in the state without a certificate of authority (in addition to the overdue fees and accrued interest). The penalty increased to $300 per month in October 2009. There is no “cap” or maximum on this monthly penalty and some businesses have been hit with penalties in the tens of thousands of dollars.

In certain circumstances, the Attorney General’s Office will consider reductions in the statutory penalty; in particular, reductions are considered in circumstances where: (A) the offending company has paid all state taxes due to the Department of Revenue Services on a timely basis and (B) the failure to qualify with the Secretary of the State was a mere oversight. But there is no guarantee that a settlement can be reached.

Connecticut statutes do not define what types of activities constitute “transacting business.” However, the statutes do provide an extensive, but nonexclusive list of activities that do not constitute “transacting business.”  The question of whether or not other activities constitute “transacting business” is determined on a case-by-case basis.

For providers of “over the top” Voice over Internet Protocol services, which can be sold remotely to consumers in any jurisdiction, Connecticut’s posture on what does and does not rise to the level of “transacting business” raises unique legal issues and challenges.  If your company currently sells to and services customers located in Connecticut (or other states), but has failed to register with the respective Secretary of State as a foreign business, it behooves you to evaluate the law and reach a determination whether, when and how to register as a foreign business.

The business attorneys at Marashlian & Donahue, PLLC are available to advise clients on their basic corporate compliance obligations throughout the U.S. at the flat rate of $250 per hour, through our business law focused services available at www.CommTechDataLaw.com.  Contact Jonathan S. Marashlian for more information – 703-714-1313 or jsm@commlawgroup.com.