Preservation of existence: Overview, definition, and example
What is preservation of existence?
Preservation of existence is a clause in a contract that requires a party—typically a business entity—to maintain its legal existence throughout the term of the agreement. This means staying properly registered, in good standing, and authorized to operate in its jurisdiction. It may also require the party to maintain the legal power to carry out its obligations under the contract.
Why is preservation of existence important?
This clause protects the continuity and enforceability of the contract. If a company dissolves, merges without consent, or loses its legal status, it may no longer be able to fulfill its obligations. For counterparties—like lenders, investors, or clients—this clause helps reduce risk by ensuring the other party remains legally capable of performing under the agreement for its full duration.
Understanding preservation of existence through an example
A SaaS provider signs a three-year service agreement with a corporate customer. The contract includes a preservation of existence clause requiring the SaaS company to maintain its legal status as a Delaware corporation. If the provider lets its registration lapse or is administratively dissolved, it could lose the authority to operate—jeopardizing service delivery. The clause allows the customer to raise this as a breach if the provider fails to preserve its existence.
Example of a preservation of existence clause
Here’s how a preservation of existence clause may look like in a contract:
Each party agrees to preserve and maintain its legal existence, rights, and franchises in good standing under the laws of its jurisdiction, and to take all reasonable actions necessary to carry out its obligations under this agreement.
Conclusion
The preservation of existence clause ensures that a business remains active and legally recognized for the life of the contract. It’s especially important in long-term agreements or deals involving regulatory or financial exposure. If you’re relying on another company to perform over time, this clause helps make sure they remain legally capable of doing so.
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.