Maintenance of corporate existence: Overview, definition, and example
What is maintenance of corporate existence?
Maintenance of corporate existence refers to a company’s obligation to remain legally active and in good standing by complying with corporate governance, regulatory filings, and operational requirements. This includes renewing business licenses, filing annual reports, paying taxes, and adhering to legal obligations that keep the company operational.
For example, a corporation must file its annual report and pay state fees to maintain its legal status and continue conducting business without penalties or dissolution.
Why is maintenance of corporate existence important?
Maintenance of corporate existence is important because it ensures that a company remains legally recognized and able to conduct business. If a company fails to meet regulatory requirements, it may face fines, loss of liability protection, or even involuntary dissolution, which can impact contracts, financing, and business operations.
For businesses, this obligation is often included in contracts, especially in loan agreements or investment deals, where lenders or investors require assurance that the company will remain in good legal standing throughout the term of the agreement.
Understanding maintenance of corporate existence through an example
Imagine a tech startup that secures venture capital funding. The investment agreement includes a clause requiring the company to maintain its corporate existence by filing annual reports and staying compliant with state regulations. If the startup fails to meet these requirements and its legal status lapses, investors may have grounds to terminate funding or demand repayment.
In another case, a construction company enters into a long-term supply contract with a vendor. The contract includes a provision stating that if the company fails to maintain its corporate existence—such as by failing to pay business taxes and being administratively dissolved—the vendor can terminate the agreement without penalty. This protects the vendor from dealing with an entity that is no longer legally recognized.
An example of a maintenance of corporate existence clause
Here’s how a clause related to maintenance of corporate existence might appear in a contract:
“The Company agrees to maintain its corporate existence in good standing under the laws of its jurisdiction, including timely compliance with all regulatory, tax, and filing requirements. Failure to maintain corporate existence may constitute a material breach of this Agreement.”
Conclusion
Maintenance of corporate existence is essential for businesses to remain legally recognized, compliant, and operational. It protects companies from penalties, ensures they can continue fulfilling contractual obligations, and provides assurance to investors, lenders, and business partners.
By including a maintenance of corporate existence clause in agreements, businesses can reinforce their commitment to legal compliance and avoid risks associated with administrative dissolution or regulatory noncompliance.
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.