Good standing of the company and its subsidiaries: Overview, definition, and example
What is good standing of the company and its subsidiaries?
Good standing of the company and its subsidiaries refers to a company's legal status, indicating that it is compliant with the relevant laws, regulations, and requirements of the jurisdiction(s) in which it operates. A company and its subsidiaries are in good standing if they have fulfilled all legal obligations, such as filing annual reports, paying taxes, complying with regulatory requirements, and maintaining necessary licenses or permits. Good standing ensures that the company is legally authorized to conduct business and enter into contracts.
For example, a company is in good standing if it has filed all required documents with the Secretary of State, paid its corporate taxes, and complies with local business regulations.
Why is good standing important?
Maintaining good standing is important because it ensures that a company is legally compliant and can conduct business without restrictions. If a company or its subsidiaries fall out of good standing, it may face penalties, fines, or be prohibited from operating in certain jurisdictions. Additionally, stakeholders such as investors, creditors, or business partners may require confirmation of the company's good standing before engaging in business or financial transactions.
For businesses, being in good standing is essential for maintaining business relationships, securing financing, and protecting the company's reputation. For investors, confirming a company's good standing provides assurance that the company is properly managed and legally compliant.
Understanding good standing of the company and its subsidiaries through an example
A software development company has multiple subsidiaries operating in different states. To maintain good standing, the company and each subsidiary must ensure that they file their annual reports, pay state taxes, and maintain any necessary permits or licenses for each jurisdiction. If one subsidiary fails to comply with tax laws in its state, it could jeopardize the parent company’s good standing, affecting its ability to operate or enter into contracts with other businesses.
In another case, a retail company with international operations ensures that both the parent company and its subsidiaries are in good standing by filing necessary documents with relevant authorities in each country where it does business. This includes compliance with local labor laws, environmental regulations, and import/export requirements.
An example of good standing of the company and its subsidiaries clause
Here’s how this type of clause might appear in a contract or shareholder agreement:
“The Company and its Subsidiaries shall remain in good standing in all jurisdictions in which they operate, including the timely filing of all required annual reports, payment of taxes, and compliance with applicable laws and regulations. The Company shall provide a certificate of good standing from the relevant authorities upon request.”
Conclusion
The good standing of the company and its subsidiaries is a critical factor for ensuring that a business is operating within the law and fulfilling all its legal and regulatory obligations. Maintaining good standing allows a company to continue conducting business smoothly and fosters confidence among investors, creditors, and business partners. For businesses, ensuring compliance with all required filings, payments, and regulations is essential to maintaining legal authorization to operate and avoiding penalties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.