2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 15 - Foreign Corporations
Part 1 - Certificate of Authority
§ 14-2-1502. Consequences of Transacting Business Without Authority

1. A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
2. Each foreign corporation that has not obtained a certificate of authority within 30 calendar days after the first day on which it transacts business in this state shall be liable for the civil penalty set out in Code Section 14-2-122. Such civil penalty shall be in addition to other consequences set out in this Code section and shall be collected without discretion by the Secretary of State.
3. The successor to a foreign corporation that transacted business in this state without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding based on that cause of action in any court in this state unless before the commencement of the proceeding the foreign corporation or its successor obtains a certificate of authority.
4. Notwithstanding subsections (a), (b), and (c) of this Code section, the failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this state.

(Code 1981, §14-2-1502, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1990, p. 257, § 26; Ga. L. 2002, p. 989, § 5.)

- For article, "Defending the Lawsuit: A First-Round Checklist," see 22 Ga. St. B. J. 24 (1985). For article, "Georgia's 'Door-Closing' Statute: Who Bears the Burden?," see 24 Ga. St. B. J. 141 (1988). For annual survey article on evidence law, see 52 Mercer L. Rev. 303 (2000).

Source: Model Act, § 15.02. This replaces provisions of former § 14-2-331.

The purpose of Section 14-2-1502 is to induce corporations that are required to obtain a certificate of authority but have not to qualify promptly, without imposing harsh or erratic sanctions.

Subsection (a) is similar to Georgia's former provisions barring suits by unqualified corporations. The language of former § 14-2-331(b) suggested a bar on actions entirely, stating that a corporation may not bring an action "unless before commencement of the action a certificate of authority shall have been obtained. . .," which was the interpretation in A.B.R. Metals & Servs. Inc. v. Roach-Russell, Inc., 135 Ga. App. 193, 217 S.E.2d 447 (1975) (granting a motion to dismiss). In this respect Georgia departed from the prior Model Act, and that departure is preserved in the Code.

Subsection (b) prevents evasion of Section 14-2-1502(a) by an assignment of a claim on which the foreign corporation is barred from bringing suit. The replacement of the word "until" with "unless before the commencement of the proceeding" restores former Georgia law, described in the preceding paragraph. However, this sanction is not a punitive one: subsection (c) states that the failure of the corporation to qualify does not affect the validity of the corporate acts, including contracts. Thus, a contract made by a nonqualified corporation may be enforced by the corporation simply by obtaining a certificate of authority before commencing a proceeding.

Subsection (c) does not prevent a foreign corporation that has failed to obtain a certificate of authority from "defending any proceeding." The distinction between "maintaining" a proceeding under subsection (a) and "defending any proceeding" under subsection (c) is determined on the basis of whether affirmative relief is sought. A nonqualified corporation may interpose any defense or permissive or mandatory counterclaim to defeat a claimed recovery, but may not obtain an affirmative judgment or decree based on the counterclaim unless it has obtained a certificate of authority.

Note to 1990 Amendment The 1990 amendment added the provision that foreign corporations transacting business without a certificate of authority are liable for civil penalties provided in § 14-2-122.

Cross-References Certificate of authority: application for, see § 14-2-1503; effect of, see § 14-2-1505. Civil penalty for transacting business without certificate of authority, see § 14-2-122. "Foreign corporation" defined, see § 14-2-140. "Proceeding" defined, see § 14-2-140. Transacting business, see § 14-2-1501.

ANALYSIS

• General Consideration
• Transacting Business
• When Certificate Not Required
• Waiver
• Dismissal

General Consideration

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Code 1933, § 22-1421 and former Code Section 14-2-331, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

- Former Code 1933, § 22-1421 denied uncertified corporation certain rights and privileges but did not deny its existence. Evans v. Smithdeal, 143 Ga. App. 287, 238 S.E.2d 278 (1977) (decided under former Code 1933, § 22-1421).

- Former Code 1933, § 22-1421 could be characterized as relevant to standing or personal jurisdiction. A.S. Int'l Corp. v. Salem Carpet Mills, Inc., 441 F. Supp. 125 (N.D. Ga. 1977) (decided under former Code 1933, § 22-1421).

- A distinction must be made between the right of this state to assert jurisdiction over a defendant foreign corporation doing business within this state, and a plaintiff foreign corporation transacting business within this state which avails itself of the right to sue in the state courts. DeKalb Cablevision Corp. v. Press Ass'n, 141 Ga. App. 1, 232 S.E.2d 353 (1977) (decided under former Code 1933, § 22-1421).

- The clear intention of subsection (a) of former Code 1933, § 22-1421 was to bar foreign corporations coming under this chapter from suing a Georgia defendant until the certificate of authority has been obtained. A.B.R. Metals & Servs., Inc. v. Roach-Russell, Inc., 135 Ga. App. 193, 217 S.E.2d 447 (1975) (decided under former Code 1933, § 22-1421).

- The phrase "maintain an action" is interpreted to mean the continuation of a lawsuit already begun; thus, an uncertified foreign corporation may initiate the action but not continue it without obtaining a certificate of authority. Transportation Ins. Co. v. El Chico Restaurants, Inc., 271 Ga. 774, 524 S.E.2d 486 (1999).

- Leave to amend a class action complaint granted in federal court where defendant seeking to raise the defense of failure to obtain a certificate of authority must do so in affirmative pleadings meant the action was properly pending in superior court and remained viable. El Chico Restaurants, Inc. v. Transportation Ins. Co., 235 Ga. App. 427, 509 S.E.2d 681 (1998).

- The Georgia Supreme Court characterized a defense under former Code 1933, § 22-1421 as a dilatory plea or plea in abatement; in absence of a more specific definition, the defense under former Code 1933, § 22-1421 was either an affirmative defense, Fed. R. Civ. P. 8(c), a question of capacity to sue or be sued, Fed. R. Civ. P. 9(a), or a question of personal jurisdiction, Fed. R. Civ. P. 12(b)(2). Morgan Guar. Trust Co. v. Blum, 649 F.2d 342 (5th Cir. 1981) (decided under former Code 1933, § 22-1421).

- Under former Code 1933, § 22-1421, party to contract must declare it void unless foreign corporation obtained certificate of authority prior to final judgment, if defending party was going to avail itself of benefit of the benefit of this section (see now O.C.G.A. § 14-2-1502(a)). Bobst v. Citizens & S. Fin. Corp., 159 Ga. App. 128, 282 S.E.2d 749 (1981) (decided under former § 14-2-331).

- The failure of a foreign corporation to obtain a certificate of authority to transact business in this state is properly the subject of a dilatory plea. Safwat v. U.S. Leasing Corp., 154 Ga. App. 341, 268 S.E.2d 395 (1980) (decided under former § 14-2-331).

- The failure of a foreign corporation to obtain a certificate of authority can be made the basis of a dilatory plea; however, the grant of a dilatory plea is not an adjudication on the merits. National Heritage Corp. v. Mount Olive Mem. Gardens, Inc., 244 Ga. 240, 260 S.E.2d 1 (1979) (decided under former § 14-2-331).

Former § 14-2-331 did not prevent resolution of federal law claims in federal court. Kinetic Concepts, Inc. v. Kinetic Concepts, Inc., 601 F. Supp. 496 (N.D. Ga. 1985) (decided under former § 14-2-331).

- Although Tennessee corporation did not have a certificate to transact business in the state in 1991 when it filed a renewal action for a suit previously dismissed for want of prosecution, it had the requisite certificate at all times it transacted business in Georgia. Accordingly, the trial court correctly held that corporation's failure to obtain said certificate did not bar action, since corporation possessed the requisite certificate at all times it conducted business in Georgia. Tillett Bros. Constr. Co. v. DOT, 210 Ga. App. 84, 435 S.E.2d 241 (1993).

- Although former Code 1933, § 22-1421 prohibited a foreign corporate assignee from maintaining an action unless the foreign corporate assignor has obtained a certificate of authority, it did not impose that prohibition against a person as assignee. Even so, however, an assignee can acquire no greater rights than the assignor had. Healey v. Morgan, 135 Ga. App. 915, 219 S.E.2d 628 (1975) (decided under former Code 1933, § 22-1421).

- An assignment by a foreign corporation to a resident individual does not avoid the requirement of a certificate of authority for the corporation before filing suit. Healey v. Morgan, 135 Ga. App. 915, 219 S.E.2d 628 (1975) (decided under former Code 1933, § 22-1421).

Cited in Ellison v. Labor Pool of Am., Inc., 228 Ga. 147, 184 S.E.2d 572 (1971); R.N. Kelly Cotton Merchant, Inc. v. York, 379 F. Supp. 1075 (M.D. Ga. 1973); T.E. McCutcheon Enters., Inc. v. Snelling & Snelling, Inc., 232 Ga. 609, 212 S.E.2d 319 (1974); Van Bergen Belfoundries, Inc. v. Executive Equities, Inc., 139 Ga. App. 319, 228 S.E.2d 356 (1976); Roach-Russell, Inc. v. A.B.R. Metals & Servs., Inc., 140 Ga. App. 307, 231 S.E.2d 114 (1976); Atlas Match Corp. v. Berry Realty Co., 142 Ga. App. 588, 236 S.E.2d 554 (1977); LDH Properties, Inc. v. Morgan Guar. Trust Co., 145 Ga. App. 132, 243 S.E.2d 278 (1978); Metric Steel Co. v. BLI Constr. Co., 147 Ga. App. 380, 249 S.E.2d 121 (1978); National Heritage Corp. v. Mount Olive Mem. Gardens, Inc., 148 Ga. App. 398, 251 S.E.2d 311 (1978); Gorrell v. Fowler, 248 Ga. 801, 286 S.E.2d 13 (1982); Barker v. County of Forsyth, 248 Ga. 73, 281 S.E.2d 549 (1981); Bouldin v. Aragona-Garcia Enters., Inc., 161 Ga. App. 396, 288 S.E.2d 673 (1982); Gorham Jewelers, Inc. v. A. Cohen & Sons Corp., 165 Ga. App. 85, 299 S.E.2d 156 (1983); Homac, Inc. v. Fort Wayne Mtg. Co., 577 F. Supp. 1065 (N.D. Ga. 1983); Ely & Walker v. Dux-Mixture Hdwe. Co., 582 F. Supp. 285 (N.D. Ga. 1982).

Applicability of former subsection (b) (see now O.C.G.A. § 14-2-1502(a)) is contingent on whether the foreign corporation was transacting business within the state as that term was used in former § 14-2-310 (see now O.C.G.A. § 14-2-1501), and therefore was required to obtain a certificate of authority under that section. Roberts v. Chancellor Fleet Corp., 182 Ga. App. 69, 354 S.E.2d 628 (1987) (decided under former § 14-2-331).

- A foreign corporation shall have the right to maintain a suit and make loans and create or acquire evidence of debt in this state without being considered as transacting business in this state, although if it is found to be transacting business in this state without a certificate of authority it shall not be permitted to maintain any action, suit, or proceeding in any court of this state. Tankersley v. Security Nat'l Corp., 122 Ga. App. 129, 176 S.E.2d 274 (1970) (decided under former Code 1933, § 22-1421).

- In most jurisdictions, single or isolated transactions do not constitute doing business within the meaning of such statutes as this, although they are part of the very business which the corporation is organized to transact, if engaging therein the corporation indicated no purpose of continuity of conduct in that respect. Reisman v. Martori, Meyer, Hendricks, & Victor, 155 Ga. App. 551, 271 S.E.2d 685 (1980) (decided under former Code 1933, § 22-1421).

When Certificate Not Required

When uncertified corporation may avoid proscription on right to file suit.

- There are three methods by which a corporation which is not certified to transact business may avoid the statutory proscription on its right to file suit in Georgia. First, the corporation may qualify under one of the statutory exceptions enumerated in former Code 1933, § 22-1401 (see now O.C.G.A. § 14-2-1501). Second, former Code 1933, § 22-1421 (see now O.C.G.A. § 14-2-1502) may not be enforced if it would unreasonably burden interstate commerce. Third, former Code 1933, § 22-1421 may not be enforced when plaintiff has been forced to pursue its case in a jurisdiction not of its own choosing. An estoppel arises to defeat the inequitable intent of a party which results in a detrimental change of position by another. A.S. Int'l Corp. v. Salem Carpet Mills, Inc., 441 F. Supp. 125 (N.D. Ga. 1977); Durkan Enters., Inc. v. Cohutta Banking Co., 501 F. Supp. 350 (N.D. Ga. 1980) (decided under former Code 1933, § 22-1421).

- Former subsection (b) of § 14-2-331 (see now O.C.G.A. § 14-2-1502(a)) did not bar a foreign corporation, which had not obtained a certificate of authority before the commencement of an action against it, from asserting a compulsory counterclaim. Clayton Carpet Mills, Inc. v. Martin Processing, Inc., 563 F. Supp. 288 (N.D. Ga. 1983) (decided under former § 14-2-331).

- Surplus insurers were authorized to file a declaratory judgment action to preserve their right to raise untimely notice of an occurrence as a defense to coverage even without a certificate of authority to conduct business in the state of Georgia. Kay-Lex Co. v. Essex Ins. Co., 286 Ga. App. 484, 649 S.E.2d 602 (2007).

- When a foreign corporation was licensed to do business at the time it was transacting business and at the time suit was filed, but its certificate is subsequently revoked, it may maintain the action. Sportsman Camping Ctrs. of Am., Inc. v. Bagwell, 140 Ga. App. 312, 231 S.E.2d 118 (1976) (decided under former Code 1933, § 22-1421).

When the district court dismissed the plaintiff's complaint against the mortgagees, the plaintiff's argument that the court lacked jurisdiction to hear the mortgagees' arguments due to their alleged improper registration was belied by the plain language of O.C.G.A. § 14-2-1502(d). The failure to obtain a certificate of authority does not impair the validity of a foreign corporation's actions or prevent the corporation from defending any proceeding. Hunt v. Nationstar Mortg., LLC, 779 Fed. Appx. 669 (11th Cir. 2019)(Unpublished).

Waiver

Affirmative defenses not specifically pleaded will be deemed waived.

- All affirmative defenses must be specifically pleaded in answer or in amended answer permitted under Fed. R. Civ. P. 15(a), or be deemed waived, Fed. R. Civ. P. 8(c). Morgan Guar. Trust Co. v. Blum, 649 F.2d 342 (5th Cir. 1981) (decided under former Code 1933, § 22-1421).

- Any party wishing to raise issue of capacity of any party to sue or be sued must do so by specific negative averment in appropriate pleading or amendment or be deemed waived, Fed. R. Civ. P. 9(a). Morgan Guar. Trust Co. v. Blum, 649 F.2d 342 (5th Cir. 1981) (decided under former Code 1933, § 22-1421).

- A Georgia-based corporation, by suing a foreign corporation which has not obtained a certificate of authority before the commencement of the action, effectively waives any protection former subsection (b) (see now subsection (a)) of former § 14-2-331 affords it. Clayton Carpet Mills, Inc. v. Martin Processing, Inc., 563 F. Supp. 288 (N.D. Ga. 1983) (decided under former § 14-2-331).

- In diversity of citizenship actions, state law defines nature of defenses, but Federal Rules of Civil Procedure provide manner and time in which defenses are raised and when waiver occurs. Morgan Guar. Trust Co. v. Blum, 649 F.2d 342 (5th Cir. 1981) (decided under former Code 1933, § 22-1421).

Dismissal

Dismissal under section is without prejudice.

- Any dismissal for failure to comply with former Code 1933, § 22-1421 (see now O.C.G.A. § 14-2-1502) must be without prejudice. Durkan Enters., Inc. v. Cohutta Banking Co., 501 F. Supp. 350 (N.D. Ga. 1980) (decided under former Code 1933, § 22-1421).

- Trial court did not err in denying a garnishee's motion to dismiss because the garnishor, a foreign corporation, was not shown to have been transacting business in the State of Georgia without the proper certification, and the garnishee did not plead an affirmative defense under O.C.G.A. § 14-2-1502(a). Carrier411 Servs. v. Insight Tech., Inc., 322 Ga. App. 167, 744 S.E.2d 356 (2013).

- Defendant's right to move to dismiss plaintiff 's state law claims on the grounds of nonregistration was waived since by raising the defense in their answer to plaintiff 's first amended complaint rather than in their first answer ten months earlier, the motion was not brought in a timely fashion. Kinetic Concepts, Inc. v. Kinetic Concepts, Inc., 601 F. Supp. 496 (N.D. Ga. 1985) (decided under former § 14-2-331).

- Trial court erred in granting a motion to dismiss for failure to have a certificate of authority at the time the complaint was filed since the plaintiff substantially complied with the registration requirements for a foreign corporation by obtaining a certificate of authority later. Health Horizons, Inc. v. State Farm Mut. Auto. Ins. Co., 239 Ga. App. 440, 521 S.E.2d 383 (1999), cert. denied, 2000 Ga. LEXIS 35 (2000), cert. denied, 2004 Ga. LEXIS 241 (2004).

RESEARCH REFERENCES

Am. Jur. 2d.

- 36 Am. Jur. 2d, Foreign Corporations, § 225 et seq.

- 19 C.J.S., Corporations, §§ 1004, 1005, 1006.

- Mode of proving authority of foreign corporation to do business within state, 2 A.L.R. 1235.

Applicability of provisions explicitly invalidating contracts made by foreign corporation not licensed to do business in state, to contracts made out of the state, 81 A.L.R. 1134.

Failure of foreign corporation to comply or delay in complying with conditions of its right to do business as affecting its right to assert mechanics' lien, 95 A.L.R. 367.

Rule that in general inhibits foreign corporation which has failed to comply with conditions of doing or continuing business in state, or domestic corporation which has forfeited its charter, from maintaining action, as applicable to action at law to vindicate corporation's property rights against tort-feasor, 136 A.L.R. 1160.

Effect of execution of foreign corporation's contract which, while executory, was unenforceable because of noncompliance with conditions of doing business in state, 7 A.L.R.2d 256.

Rights of assignee or subsequent holder of negotiable paper executed to a foreign corporation doing business in state without compliance with local requirements, 80 A.L.R.2d 465.

Construction work by foreign corporation as doing business for purposes of statute requiring foreign corporation to qualify as condition of access to local courts, 90 A.L.R.3d 937.

Application of statute denying access to courts or invalidating contracts where corporation fails to comply with regulatory statute as affected by compliance after commencement of action, 23 A.L.R.5th 744.