Four Reasons Your Company NEEDS to Stay in Good Standing

staying compliantCongratulations! You’ve had your business for almost a year (maybe more!) and the roller coaster ride has been exciting, challenging and rewarding. With all of the effort you put into working on and in your business, it’s important you maintain your company’s good standing status in the state (jurisdiction) of creation and/or the states where you are qualified to do business.

Each jurisdiction has its own annual requirements and it is imperative you meet each obligation to stay in good standing. Failure to fulfill the state(s) annual requirements can carry some steep consequences:

  1. You could lose your name: You’ve built your business and brand identity around your carefully chosen name. It’s a part of you, your company and your culture. It may even be the envy of some of your competitors. If your entity falls out of good standing, in many jurisdictions, the name is no longer legally protected. That jealous competitor could swoop in and form a new entity under YOUR name. You would no longer be able to operate under that name and would be forced to change your name or operate under a different legal structure (e.g. a doing-business-as d/b/a) to continue in that jurisdiction. Aside from that headache – think about the cost of rebranding your company with a new name!
  1. Publicly defunct status: You’ve spent months working on an important partnership and you’re ready to close the deal. The potential partner has a great feeling about you and just needs to wrap up the final details. When he checks the public records of your company, he finds the entity is defunct (the legal term will vary by jurisdiction). Deal aborted, opportunity lost.
  1. Extra fees, time and aggravation: As a business owner, every penny counts. More importantly, every minute counts. If your entity falls out of good standing, it will cost you both time and money to come back into good standing. Depending on how your company is set up and where you are doing business, you may have to reinstate/re-incorporate and/or re-qualify. Oftentimes, the state will assess penalties for doing business while in a “defunct status”. Missing an annual filing or tax payment can add up to an abundance of fees rather quickly.
  1. Potential legal trouble: Legally forming your company as a corporation or limited liability company (LLC) was the first of many smart decisions you made in this venture. By doing so, you took steps to protect your personal assets from potential loss and facilitated the opportunity to take advantage of specific business tax planning and savings practices. Falling out of good standing “pierces the corporate veil” and causes you to lose those legal protections you created.

What can you do to ensure you stay in compliance? One step is to make sure you fully understand the state requirements and tie them into your accounting and corporate maintenance procedures. Another way is to engage the services of a professional service company who specializes in keeping companies active. Many of these service companies offer compliance services, such as Compliance Verification Service (automated alerts) or Compliance Filing Service (automated filing) for a nominal fee. By utilizing a service company for these services, you can rest assured your company is going to maintain an active status.

About the Author: Kyle Buzzard is Director of Client Development at Incorporating Services, Ltd.(IncServ). IncServ is a full-service registered agent and corporate services company providing administrative, legal support and related services to the entrepreneurial community. A former business owner and consultant with a passion for entrepreneurs and small businesses, he is an advocate for smart outsourcing and insourcing that allows business owners the freedom to grow their companies. If you need help with compliance, or simply have questions about growing your business, Kyle can be reached at or 302-531-0702.

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