Maintenance of existence: Overview, definition, and example
What is maintenance of existence?
Maintenance of existence refers to the requirement for a company, organization, or entity to continue its operations, legal standing, and compliance with applicable laws and regulations. It is a provision often included in contracts, bylaws, or legal agreements, specifying that the business or entity must take necessary actions to remain legally active and solvent. This can include filing necessary annual reports, paying required taxes, maintaining licenses, and complying with relevant laws. The maintenance of existence ensures that the entity remains in good standing and is able to operate without interruption or risk of dissolution.
Why is maintenance of existence important?
The maintenance of existence is important because it helps ensure that a company or entity remains legally compliant and able to conduct business without facing penalties or being dissolved. By maintaining its existence, a company can continue to enforce contracts, protect its assets, and retain its rights in the marketplace. This provision is particularly relevant in situations where maintaining a company’s status is essential for ongoing operations, financing, or business relationships. Failure to maintain existence can lead to the loss of a company's legal status, fines, or inability to pursue legal action.
Understanding maintenance of existence through an example
For example, a small business is required by law to file annual reports with the state and pay business taxes to maintain its existence as a registered entity. If the business fails to file these reports or pay the necessary taxes, it risks losing its legal standing, which could result in the dissolution of the company and the inability to operate or enter into contracts.
In another example, a corporation has a clause in its shareholder agreement that requires the company to maintain its legal existence. This means the corporation must continue to comply with corporate governance rules, file necessary documents with the SEC (if applicable), and meet other requirements. Failure to maintain existence could result in the company’s inability to legally enforce contracts or pursue business activities.
An example of a maintenance of existence clause
Here’s how a maintenance of existence clause might appear in a business agreement:
“The Company agrees to take all necessary actions to maintain its existence as a legal entity, including but not limited to filing required annual reports, paying all applicable taxes, and complying with all regulatory requirements. The Company shall not take any action that would result in its dissolution or loss of good standing with any governmental authority.”
Conclusion
The maintenance of existence is a key requirement for businesses and organizations to ensure that they remain legally compliant and operational. By fulfilling the obligations necessary to maintain their legal status, companies can continue to function, enforce agreements, and avoid penalties or the risk of dissolution. This provision is vital for sustaining long-term operations, preserving assets, and protecting the rights of all stakeholders.
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.