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Foreign LLCs and Corporations That Transact Business in Maryland But Fail to Register in Maryland Cannot File Suit Here

Wednesday, March 7th, 2012

          Before transacting interstate or foreign business in Maryland, a foreign limited liability company (“LLC”) shall register to transact business with the State Department of Assessments and Taxation (“SDAT”) in accordance with Md. Corp. & Ass’ns. Code Ann. § 4A-1002:

“(a) Requirement. — Before doing any interstate, intrastate, or foreign business in this State, a foreign limited liability company shall register with the Department.”

           Under § 4A-1002, a foreign LLC is required to complete an application setting forth, among other information, its name, state of organization, business purpose, and resident agent, and pay a filing fee to SDAT.

          Md. Corp. & Ass’ns. Code Ann. § 4A-1007 states that any foreign limited liability company that fails to register with the SDAT in accordance with § 4A-1002 is barred from maintaining a lawsuit in any court of this State, as follows:

“(a) Barred from maintaining suit. — If a foreign limited liability company is doing or has done any intrastate, interstate, or foreign business in this State without complying with the requirements of this subtitle, the foreign limited liability company and any person claiming under it may not maintain suit in any court of this State, unless the limited liability company shows to the satisfaction of the court that:

   (1) The foreign limited liability company or the person claiming under it has paid the penalty specified in subsection (d)(1) of this section; and

   (2) (i) The foreign limited liability company or a successor to it has complied with the requirements of this title; or

     (ii) The foreign limited liability company and any foreign limited liability company successor to it are no longer doing intrastate, interstate, or foreign business in this State.”  

In essence, Md. Corp. & Ass’ns. Code Ann. § 4A-1007 bars a foreign LLC from acting as a plaintiff in any Maryland state or federal court if the LLC is doing or has done “any intrastate, interstate, or foreign business” in Maryland without registering or qualifying with SDAT. 

Foreign corporations face nearly identical Maryland statutes.  See Md. Corp. & Ass’ns. Code Ann. §§ 7-202,  and 7-301, respectively. 

The Maryland Court of Appeals stated the following in Yangming Marine Transport Corporation v. Revon Products U.S.A., Inc., 311 Md. 496 (1988):

“As pointed out above, under § 7-301, a foreign corporation that has not complied with § 7-202 or § 7-203 is barred from suing in Maryland if the corporation “is doing . . . any intrastate, interstate, or foreign business in this State.”  …. Instead, we have held that § 7-301 embodies a test for determining whether a foreign corporation is “doing business” in Maryland. See G.E.M., Inc. v. Plough, Inc., 228 Md. 484, 486, 180 A.2d 478, 480 (1962). Under this test, § 7-301 bars an unqualified or unregistered foreign corporation from suing in Maryland courts only if the corporation is doing such a substantial amount of localized business in this State that the corporation could be deemed “present” here. See, e.g., S.A.S. Personnel Consult. v. Pat-Pan, 286 Md. 335, 339-340, 407 A.2d 1139, 1142 (1979); G.E.M., Inc. v. Plough Inc., supra, 228 Md. at 488-489, 180 A.2d at 480-481.



Legal Differences Between a Stock Purchase and an Asset Purchase

Tuesday, February 8th, 2011

A Stock Purchase refers to the sale and purchase of an ownership interest in an entity like a corporation, partnership or limited liability company. The Seller sells, and the Buyer purchases, all or part of the outstanding shares of stock in a corporation, or all or part of the membership interest in an LLC or partnership, as well as all of the existing assets and liabilities of the entity. This includes the name and goodwill of the business, which oftentimes can be valuable. The existing entity itself does not change. Rather, the owners of the stock or membership interest in the entity change from Seller to Buyer, while the entity itself continues uninterrupted.

In a Stock Purchase, unless agreed otherwise, the Seller is absolved of any obligations or liabilities stemming from its prior ownership interest in the entity, as the Purchaser becomes the owner of not only the assets of the entity, but likewise the debts and obligations as well. For this reason a Seller will generally prefer a Stock Purchase over an Asset Purchase, as a Stock Purchase allows the Seller to walk away from the business without the fear of future debts, liabilities or obligations of the business. For the Purchaser of stock in such a transaction, I cannot stress how important it is to perform the maximum amount of due diligence it can, in order the possibility of assuming any unintended or unknown liabilities and obligations, since such liabilities should have or could have been known.

Unlike a Stock Purchase, an Asset Purchase involves, as the name implies, the purchase and sale of only the assets of a particular business, without the purchase or sale of any stock or other ownership interest in the company. The Purchaser buys, and the Seller sells, only the specific assets identified in the governing document, named the Asset Purchase Agreement. Any assets not included in the Asset Purchase Agreement remain the property of Seller. The Buyer must create a new entity that will own the purchased Assets, or use an already existing entity for the transaction.

The Seller of assets retains ownership of the shares of the stock or other membership interest in the business, and as a result the Seller also retains any existing or future obligations and liabilities of such business, except those specifically transferred to the Buyer as part of the sale. For this reason a Purchaser will normally prefer an Asset Purchase to a Stock Purchase. This way, the Buyer obtains only the specific assets which it desired to purchase, and which debts, obligations and liabilities it is assuming, if any.

An additional cost that may be necessary in an Asset Purchase is the need to possibly transfer ownership of certain assets used in or by the business, and/or assign leases and other third party contracts to which Seller was a party.

There are many tax issues that must be addressed when deciding between a Stock Purchase an Asset Purchase. I advise my clients to see the advice of an accountant for such issues.

Why a Single Member LLC Needs an Operating Agreement

Wednesday, October 6th, 2010

Maryland law does not require that a sole member limited liability company (“LLC”) have an existing, enforceable operating agreement on file. Nevertheless, there is an excellent reason to draft and execute one: by executing an LLC operating agreement, the single member of the LLC has drawn a line of protection guarding that person against personal liability for the business debts and obligations of the LLC.

Specifically, Maryland courts have held that the protection from liability that exists by virtue of the LLC’s formation can disintegrate if the LLC fails to observe certain corporate formalities. One of these formalities is the existence of a valid operating agreement. Having an operating agreement in place can protect the single member from liability when a third party attempts to sue the individual member in order to satisfy an obligation resulting from a debt of the LLC.

Without an operating agreement, it may prove more difficult for the sole member to avoid liability. Courts sometimes blur the line between a sole member LLC with its protection from liability for its individual owners, and a sole proprietorship where such protection does not exist. However, this line becomes more clear cut, and courts will as a result hesitate to “pierce the corporate veil” and hold an individual liable for the LLC’s debts, when corporate formalities like having an operating agreement are complied with.

Information for Women-Owned Businesses.

Tuesday, August 24th, 2010

Many of my woman-owned business clients want information dealing with the certification process in order for their businesses to get certified in Maryland as a woman-owned business.

If you are a woman-owned business and you want to do business with Montgomery County or the state of Maryland, check out the following link from the Montgomery County Department of Economic Development website which contains a ton of useful information: tech_transfer/bew_resources.asp

As you will see, the available information is extremely beneficial, including information on business coaching roundtables, networking events, the local small business reserve program, the technology women’s network, and of course, how to get the certification process started as a woman-owned business.

If you need assistance with the woman-owned business certification process, please contact me.

Parent Company Not Liable for Acts of Subsidiary

Monday, April 12th, 2010

In a recent Maryland Federal District Court Case, Antonio v. SSA, LLC, (2010) it was held that the parent of a company may not be held liable in Maryland for the acts of a subsidiary corporation under the corporate veil piercing doctrine without a showing of fraud or a necessity to enforce a paramount equity.

While the parent company, in this case ABM, did have control over the operations of the subsidiary company SSA, Inc., for example: (1) ABM owned 100% of the voting securities in SSA, Inc., (2) SSA, Inc. does not hold annual board meetings, keep corporate minutes, or conduct its own audits, and (3) all but one of SSA, Inc.’s officers are ABM’s officers, the Court held that control was by itself not enough to hold the parent company AMB liable and justify piercing the corporate veil.

The Court required that in order to hold the parent liable for the acts of the successor, the plaintiff mush show fraud on the part of the parent, or necessity to enforce a paramount equity. The court did not define what in this case would have amounted to a paramount equity, only stating that in this case none existed.

To read a comprehensive blog of all of the issues address by the court in this case, visit the blog of the Business Law Section of the Maryland State Bar Association at

Addressing buy-sell arrangements in LLC Operating Agreements and Corporate Shareholder Agreements

Monday, January 11th, 2010

I often am asked by business clients how to address the circumstances surrounding the transfer of ownership if one of the owners dies, becomes disabled, or whose employment in the business is terminated for-cause? The answer is through the use of language addressing buy-sell situations that are included in an Operating or Shareholder Agreement.

A carefully drafted buy-sell provision will address the buyout of a deceased or disabled owner’s share of the business, usually through the use of the proceeds of life and disability insurance policies taken out by the business on the lives of the owners. A buy-sell provision will also address termination of an owner’s employment with the business for-cause. A sample buy-sell paragraph will read something like the following:

Sale of Shares on Death, Disability or Termination of Employment. If, during the term of this Agreement: a) a Shareholder dies or becomes permanently disabled (meaning the Shareholder becomes unable to carry out his duties as a Director or Officer of the Company for a period of 90 consecutive days or more); or b) a Shareholder who is also an employee of the Company has his or her employment terminated by Company for-cause, then the Company shall buy, and the Shareholder, his estate or the named representative of the Shareholder shall sell, the Shares of said Shareholder to the Company.

A buy-sell provision will go on to address how to arrive at the price at which an owner’s shares may be sold for, as well as whether such price will vary depending on the circumstances surrounding the owner’s departure from the business.

A buy-sell provision will also address an owner’s potential divorce, so as to prevent remaining owners from having to own and operate the business with the spouse or other family member of a former owner.

Every LLC Operating Agreement and Corporate Shareholder Agreement should address the buy-sell provisions referenced above. This will go a long way towards solving many potential disputes involving circumstances associated with the transfer of ownership of a business before they arise.

Why are limited liabilty companies (LLC’s) so popular?

Monday, September 14th, 2009

Need an Attorney to help your Maryland or DC business? Contact Raymond McKenzie at 301-330-6790 or

Limited Liability

Limited Liability

Limited liability companies (“LLCs”) have become increasingly popular over the past several years as alternatives to corporations because they legally enjoy the same limited liability advantages as corporations, while also providing certain tax benefits that not all corporations do. LLCs, corporations, and most partnerships shield their owners from liability for the actions of the entity. So regardless of the corporate form, owners of these entities will rarely be held liable for the debts and other actions taken by the corporation.

The reason that LLC’s have increased in popularity is because members of an LLC garner pass-through tax advantages similar to what partners receive in a partnership. While owners of a corporation face “double-taxation,” first at the net income of the corporation and second at the individual shareholder level on the dividends the shareholders receive, LLC members are taxed only once, at the individual level on the profits they receive. With all else being equal, this tax savings is the main reason that a start-up entity will choose to go the LLC route as opposed to the corporation route.

In most other respects, LLCs are similar in nature to corporations. An LLC is suitable for one or several owners, called “members.” As a partnership agreement governs the partners’ relationship and a shareholders’ agreement governs the shareholders in a corporation, a properly drafted LLC operating agreement sets out the rights, duties, obligations and remedies of the LLC’s members.

A managing member, designated in the operating agreement, runs the day to day operations of the LLC, and there can be more than one managing member if desired by the members. LLCs may, but are not required to, appoint officers of the LLC. Members of an LLC may consist of individuals, corporations, other LLCs, or a mixture of each.

Persons desiring to form an LLC in Maryland can search the Maryland SDAT website for name availability at

After determining whether a name is available, forms for an LLC’s Articles of Organization can be found at

Just remember to consult an experienced Maryland business attorney before you get started.

Need an Attorney to help your Maryland or DC business? Contact Raymond McKenzie at 301-330-6790 or

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