Almost all states require their corporations to file periodic reports (usually annual) providing information about the corporation and its continued activity. While the content of the report varies widely from stateto- state, the purpose is generally the same - to confirm the corporation is active and to make sure the corporation has paid necessary fees to the state. A corporation that fails to file the annual report could lose its good standing in the state. This sounds serious, but is it really such a big deal?  

The answer is yes. There could be serious consequences to a corporation or entity that is not in good standing. One consequence is possible personal liability of persons who act on behalf of a corporation not in good standing. Even if the corporation corrects the problem, a disgruntled party who sees that the corporation was not in good standing, even for a short period, may have additional ammunition to use in bringing a lawsuit, possibly suing individuals who acted on behalf of the corporation when it was not in good standing. Another consequence is, of course, the penalties and fees from failure to file the annual report on a timely basis.  

Still another consequence is highlighted by the now almost-universal practice by states of permitting anyone to check a corporation's status in real-time on the Internet. Business partners, competitors, attorneys, and the merely curious can now check your corporation's status by searching the state's online database. This was shown in a recent case in which a company inadvertently failed to file its annual report in Illinois. Illinois, like many states, updates its database immediately so, for a brief time, the company was shown to be not in good standing in Illinois. The amount of money owed to the state was not great and the delay in filing the report was merely days. But, in the meantime, a business partner had noticed that the company was not in good standing. The business partner suspended its transaction with the company until the company brought itself in good standing. The ending was a happy one, as the company rapidly brought itself into compliance and the business partner resumed the transaction. But other lapses could have more serious consequences.  

What can you do to make sure you are in good standing? First, make sure the custodian of your corporate records, whether it is within the company or outside legal counsel, monitors and meets filing dates. Second, if you have a concern, you can check the state's database directly to confirm your corporation is in good standing. (As a side benefit, you can also see what information about your company is publicly disclosed by the state. You may be surprised.)