Maintaining your corporation in good standing is paramount for operational success, legal compliance, and maintaining a positive reputation. This article delves into the essential practices and compliance strategies that are fundamental for corporations aiming to uphold their good standing status.
What is Corporate Good Standing?
Corporate good standing refers to the status a business achieves when it adheres to the regulations and requirements set forth by the state or country of incorporation. This status is not just a legal formality; it is a testament to a corporation’s commitment to compliance, ethical practices, and financial health.
In Canada, a Certificate of Good Standing, known as a “Certificate of Compliance” or “Certificate of Status” in some jurisdictions, is a document issued by the relevant provincial or federal authority. It certifies that a corporation is in compliance with the necessary regulatory requirements and is authorized to conduct business within the province or country. This includes being up to date with filings, annual returns, and any applicable fees or taxes. It’s often required for legal transactions, business expansions, or when entering into contracts.
How does a business lose good standing?
A business can lose its good standing by failing to comply with legal and regulatory requirements. This can include not filing annual reports or financial statements on time, failing to pay state or federal taxes, not maintaining required licenses and permits, or violating legal obligations. Such lapses can lead to penalties, fines, or administrative actions like suspension or dissolution of the business entity.
Common reasons a corporation Lossing its “good standing” status include —
Failing to File Annual Return timely:
Every corporation is required to file an annual return with Corporations Canada each year, which must be done within 60 days following its anniversary date. The anniversary date refers to the month and day the corporation was established or the date it came under the CBCA’s jurisdiction, which could be due to incorporation, amalgamation, or continuance. It’s not necessary to file this return for the year in which the corporation was incorporated, amalgamated, or continued.
Failing to update a registered agent or registered office Address: Your registered office address is the official address for communications with your corporation. So, if you change your corporation’s Registered official address you must need to update it within 15 days.
Failing to update Director’s information: Directors are responsible for overall activity of a corporation. Every stakeholder has a right to know who the current directors. If there is any change remove or add any director or their any information corporation must update it in 15 days of its change.
Failing to file Amending Articles of Incorporation (if it happened): We can say articles are the constitution of a corporation. Your articles set out basic information about your corporation. You can amend Articles of Incorporation or add new articles for your corporation.
Failing to file ISC information (for Federal Corporation): As of January 22,2024, Information on the corporation’s individuals with significant control (ISCs) must be filed at the same time as the annual return. Changes to ISC information must also be filed within 15 days of a change in the corporation’s ISC register.
Failing to Keep Corporate Minute Book: Every Canadian corporation is required by law to prepare and keep up to date its corporate records. And keep the records up to date at Registered office or Recor office Failure to comply with this obligation can lead to fines of $25,000, and the officers and directors of the corporation may be personally liable.
Benefits of Maintaining Good Standing:
The benefits of maintaining your corporation in good standing extend beyond legal compliance:
Required for financing and business transactions:
Corporations in good standing are often more likely to receive favorable financing terms from lenders.
Keeping in good standing can save money:
When a corporation maintains a good standing it’s no need to worry about losing nothing. But a non-compliance corporation might be dissolved by Government authority and after a corporation’s dissolution it is costly to revive it again. reinstate a corporation also time consuming.
Help to expand business into other countries or provinces:
If you want to expand your business into other provinces or other countries s, you’ll need to register your corporation in those jurisdictions. The new jurisdiction will usually ask for a Certificate of Good Standing from your formation or domestic jurisdiction before they register your business in their jurisdiction.
A good standing status can bolster your corporation’s reputation among customers, investors, and partners.
Good standing ensures that your corporation can continue operations without interruptions due to legal complications.
Many organizations require proof of good standing before entering contracts, making this status crucial for business development.
Consequences of not being in good standing
In Canada, not being in good standing can result in consequences such as:
Administrative Dissolution: The state may dissolve the business, leading to a loss of legal protection and benefits.
Restrictions on Business Activities: Difficulty in conducting business transactions or expanding operations.
Legal and Financial Penalties: Fines or penalties imposed by regulatory authorities.
Challenges in Securing Financing: Banks and financial institutions may be hesitant to provide loans or lines of credit.
Reputational Damage: Negative impact on the business’s reputation with clients, suppliers, and investors.
Contractual Complications: Problems in entering or maintaining contracts, as parties may require proof of good standing.
Summary: To keep your corporation in a Good Standing depending on the type of requirement, you need to file annually or when circumstances change. Namely, you must do the following filings: