CHAPTER 2.02. "Doing Business"

• Jurisdiction: United States

2.02. "Doing Business"

Frequently, Delaware lawyers are asked to advise out-of-state lender clients whether making loans to Delaware borrowers or loans secured by Delaware real property constitutes "doing business" in Delaware such that the lender is exposed to the jurisdiction of Delaware courts. Delaware law is very clear on this subject.

Delaware law provides that "[n]o foreign corporation shall do any business in . . . [Delaware], through or by branch offices, agents or representatives located in . . . [Delaware] . . ." until it has qualified to do business in Delaware.¹³ The question of whether a foreign corporation is doing business within the State of Delaware is a question of fact to be determined in each particular case. The leading case on this issue is Farmers Bank v. Sinwellan Corporation,¹⁴ in which the Delaware Supreme Court held that the "any business" test of Section 371(b) is to be read literally. As the court wrote,

[T]he test for applicability of § 371 is whether the foreign corporation does any business in this State, not whether it is "doing business" here. . . . The "any" business test is more comprehensive in meaning than the "doing business" test.¹⁵

Comparable requirements apply to foreign limited partnerships and limited liability companies.¹⁶ However, as a general rule, a lender that is a foreign entity (meaning one that is organized in a jurisdiction other than Delaware, whether within or outside the United States) does not have to qualify to do business in Delaware if the lender is only making, securing, or enforcing loans.¹⁷

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Notes:

^[13] 8 Del. C. § 371(b). See also Del. Const. article IX, § 5.

^[14] 367 A.2d 180 (Del. 1976).

^[15] Id. at 182 (emphasis in text).

^[16] 6 Del. C. §§ 17-902, 18-902.

^[17] 8 Del. C. § 373(a)(6),(7). Comparable exceptions apply to limited liability companies...