Good standing: Overview, definition, and example
What is good standing?
Good standing refers to the status of a business entity that has complied with all legal and regulatory requirements in its jurisdiction. A company in good standing is authorized to operate, has paid its required fees or taxes, and has filed all necessary reports with regulatory authorities.
For example, a corporation registered in Delaware must pay annual franchise taxes and file a yearly report to maintain its good standing with the state.
Why is good standing important?
Good standing is important because it demonstrates that a business is compliant, trustworthy, and legally authorized to operate. It is often required for entering into contracts, applying for loans, obtaining licenses, or expanding into new jurisdictions.
For businesses, losing good standing can result in penalties, legal challenges, or restrictions on operations, so maintaining this status is essential for credibility and growth.
Understanding good standing through an example
Imagine a company applies for a government contract. As part of the application process, the company must provide a certificate of good standing from its state of incorporation. This certificate confirms that the company is current on its filings and authorized to do business.
In another example, a business looking to expand into a new state must register as a foreign entity. To complete the registration, the business is required to present proof of good standing from its home state, ensuring it has fulfilled all obligations there before expanding operations.
An example of a good standing clause
Here’s how a good standing clause might look in a contract:
“The Borrower represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation. The Borrower further agrees to maintain its good standing by complying with all applicable laws, regulations, and filing requirements during the term of this Agreement.”
Conclusion
Good standing is a critical status for businesses, reflecting compliance with legal and regulatory obligations and enabling smooth operations and transactions. Maintaining good standing is essential for credibility, trust, and access to opportunities like contracts, loans, or expansion.
By including good standing provisions in agreements, businesses can ensure accountability, minimize risks, and demonstrate their commitment to legal and regulatory compliance.
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.