Risky Business

Risky Business

Once your corporation or limited liability company is formed, its legal status must be maintained by keeping it in good standing. This requires filing annual reports with the state of its formation and any other state where the company is authorized to do business.

We sometimes encounter owners who are surprised to learn their business entity is no longer in good standing with the state because they failed to file the annual statements. Losing good standing can result in the following consequences:

  • The state will not issue a certificate of good standing, which is required to open a business bank account, set up customer payment processing, apply for a business line of credit, expand into other states, or file and maintain lawsuits on behalf of the business.
  • The entity could lose the right to use its business name in the state if another entity files for the name.
  • The state imposes fines and penalties that can add up year after year.
  • The business is more vulnerable to business identity theft.
  • The entity’s state of formation can administratively dissolve the entity.
  • Other states can revoke the entity’s authority to conduct business in that state.

Reinstating your entity and bringing it back to good standing usually requires simply paying the penalties, filing all delinquent annual reports and a request to be reinstated. Applying for a loan, selling your business, or filing a lawsuit might be the moment you realize your entity’s status has lapsed and all of this must be done last minute. This can raise a red flag to potential business partners, lenders, and others.

Maintaining legal status is not difficult. Make sure your mailing address and email address are correct in the state’s database to receive notifications. In Michigan, this is the Corporations, Securities, & Commercial Licensing Bureau at the Department of Licensing and Regulatory Affairs. If you need assistance bringing your entity back into good standing, we can help guide you through this process.

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