Wednesday, August 28, 2013

The Death of Good Standing Certificates in Texas

Virtually every M&A or corporate finance transaction of any significant size includes a requirement that the parties be in "good standing."

A Texas corporation is in "good standing" if it is in existence and it is not delinquent in filing its franchise tax returns to the extent the State of Texas may revoke the corporation's corporate status.  Until recently, companies could demonstrate that they were in good standing in Texas by going to the Texas Comptroller's website, searching for the company in question, and printing off a "Certificate of Account Status,” sometimes called a “Certificate of Good Standing.”

But the Certificate of Account Status died effective May 5, 2013.  You may not have seen the funeral, but that's when the Texas Comptroller's office ceased issuing Certificates of Account Status.

Nowadays, a company seeking to demonstrate that it is in good standing with the Texas Comptroller's office must search the Comptroller's website for an electronic report labeled "Franchise Tax Account Status."  If the company's Right to Transact Business in Texas is shown as "Active" on that page, that means the company is in good standing.

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