Good standing

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If limited liability companies were concert promoters, a certificate of good standing would be their rider requiring a bowl of M&Ms with the brown ones removed.[1]

Of a corporate entity, that it has complied with all is formal filing obligations at the official companies registrar in its jurisdiction of incorporation, and paid all fees.

These documents may include its up-to-date constitutive documents, most recent annual return, audited financial statements, register of shareholders, details of directors and officers and so on: all basic, formative stuff that any corporate undertaking sophisticated enough to concern readers of the Jolly Contrarian ought to be able to do on its ear, and which therefore ought not furrow brows of directors of that undertaking when it is is asked to give pre-contractual assurances about its good standing in a legal contract.

Some obliging company registrars (in places like Luxembourg) will issue a certificate of good standingwhich, if given, ought to (but won’t) alleviate the need for a specific representation on this subject by the company.

Yeah, but what if my counterparty is not in good standing?

At the least it is indicative of shitty management, right? This is level 1, not-even-got-to-the-challenging-stage stuff. If your counterparty can’t manage this, is it going to be able to make its payments and deliveries on time?

In this day and age most company registries aren’t stupid enough to void contracts entered by companies that are not in good standing when they execute the contract — that would be to penalise an innocent third party for the local company's poor governance — but rules vary by jurisdiction, so be careful.

But your onboarding and credit people ought to be — well — doing their job, and if they are l, weaknesses in corporate governance should have made themselves known well before a certificate of good standing is revoked.

References

  1. See here for that excellent story.