When filing a business on behalf of a business, legal counsel is charged with filing the proper formation papers within the home state and any other states in which the company will be registered to do business. When the state formally ‘approves’ a business’s right to operate in the state, the business receives a number of recognized benefits and privileges and is expected to follow countless laws and regulations in order to maintain its good standing. As a legal service professional, your job will include naming a registered agent, making timely filings of required forms, and ensuring timely payment of fees and/or franchise taxes.
Entities that don’t stay on top of their compliance obligations can – and do — lose their Certificate of Good Standing and the business can be considered “delinquent,” “void,” “suspended” or, in some cases, “dissolved.” The meaning and severity of these terms varies depending on the state, which compliance requirements were failed, and the duration of the failure. To ensure that your clients remain in good standing, its time to automate the compliance process.
Loss of Good Standing
Legal counsel should be aware of the potential consequences of failing to maintain its business clients’ good standing:
- Loss of access to the courts. In many states, a company that is not in good standing may not bring a lawsuit in that state until good standing is restored.
- Challenges in securing capital and financing. Lenders often view a loss of good standing as an increased risk.
- Tax liens. Adverse entity status due to non-payment of taxes can result in a tax lien.
- Loss of name rights. Once an entity loses its good standing status, it risks losing the right to use its name in the state, thereby allowing the competition to acquire the rights to its name while a company is sidelined.
- Administrative dissolution or revocation.
- Fines and penalties.
This list is not exhaustive. Talk to us about how we can assist you with your clients’ compliance needs.
Stay Compliant and Protect Your Professional Relationships
Regardless of how the compliance failure happened, as legal counsel, the blame often falls squarely on your shoulders.
Work with us to take a proactive compliance stance that keeps your clients’ businesses moving forward. For more information on our automated compliance services, contact Legalinc today.