Wednesday, August 20, 2014

Good Standing Opinion Guidance

Business lawyers are often asked to issue legal opinions in connection with the closing of substantial business transactions.  One opinion frequently requested is that the lawyer's client is in "good standing."

Historically, that was one of the easiest opinions to give because if a company was in good standing (meaning that the company's franchise tax reports had been filed and all franchise taxes owed had been paid) the Texas Comptroller's office would issue a Certificate of Account Status certifying that the company was in good standing.

Things got a lot more complicated in May 5, 2013, when the Comptroller's office ceased issuing Certificates of Account Status.  As I've previously blogged about here, the Comptroller's office now makes available on its website 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, the company is in good standing.

All this presented business lawyers a bit of a dilemma - is it appropriate to opine that a company is in good standing if one could not obtain a Certificate of Account Status from the Comptroller? 

Fortunately, the Legal Opinions Committee of the State Bar of Texas has answered this question by issuing Supplement No. 6 to the Report of the Legal Opinions Committee Regarding Legal Opinions in Business Transactions: Statement on the Procedure for Good Standing Certificates issued by the Texas Comptroller of Public Accounts, which is available here.

According to the Supplement, an "Active" report (along with a Certificate of Existence from the Texas Secretary of State) is sufficient evidence for a Texas business lawyer to issue a good standing opinion.

Whew, glad we got that settled!

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