Don’t forget to pay your franchise taxes

One of the things that any securities due diligence should look at is whether a company or investment vehicle is in good standing with its state of organization. Good standing indicates that the company is validly formed, exists as a separate legal entity, and is up to date with its obligations for that particular state. For Delaware, that includes paying annual franchise taxes; and for many companies that consider the representation that the company “is in good standing” to be mere boilerplate, the March 1 filing deadline for Delaware franchise taxes has come and gone.

Failure to pay in time is the principal reason that a company would fall out of good standing. Being in good standing is required for a number of reasons. Banks will require a company to be in good standing to open a bank account or obtain a loan. Good standing may be required to close on the purchase or sale of real estate. When doing business in another state, that state may require the company to demonstrate that is it in good standing with its state of registration. And, when selling securities, not being in good standing may make any agreement entered into between the company and investors void.

CrowdCheck confirms a company is in good standing by obtaining a certificate of good standing from its state of registration. This provides assurance that the company is up -to-date on its filings, and is able to issue securities.

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