Good Standing
Dilemma for Foreign Entities Desiring to Register in the U.S; Meeting Requirement for Good Standing Certificate
The statutory/filing office requirement to submit a Certificate of Good Standing or existence when registering in the United Statesoften presents a challenging predicament for entities from other countries who want to do business in the U.S. In the U.S., Canadaand a number of other countries, a Certificate of Good Standing or Existence can be obtained quickly and easily. In many countries around the world, however, an official certificate that attests to the registration and status of an entity simply does not exist, causing a dilemma for foreign companies that want to register to do business in one or moreU.S. states. The problem is compounded by the fact that the laws and regulations of each state vary, so that what is accepted as proof of existence in one state may be rejected in another.
Obtaining “International” Good Standing Certificate Not Always Possible
Australia,New Zealand,India,Germany,MexicoandJapanare just a few of the many countries where a certificate that is truly equivalent to a “Certificate of Good Standing” cannot always be obtained. While companies in these countries do need to verify their existence and status when engaging in financial and other transactions, the procedures for doing so do not matchU.S.norms. For example, inAustralia, a “Current Company Extract” is available online through an “Information Broker.” This extract, lacking any signature or seal, does not appear official to American eyes, but is routinely accepted inAustraliaas proof of a company’s existence. When the document is to be used in another country, Australian attorneys often attach a Certificate of Verification to the extract, confirming it proves that the company is in existence. They then notarize this verification and have the notary signature apostilled to make the extract more acceptable for use outsideAustralia.
When a good standing is required as part of due diligence in a financial transaction, procedures like this work well. According to Ellisa Habbart, Esq., of The Delaware Counsel Group LLP, “It’s important to consult competent local corporate counsel in the country of origin to determine what the accepted practice is whenever you are presented with documents from an international jurisdiction. Once an American attorney has a good understanding of the process and market standards in the country of origin, he or she can be comfortable accepting a document as proof of a company’s status and existence, even though it is not obtained in the same way as it would be in the U.S….”
Certificates Not Issued by Government Official Often Not Accepted in the U.S.
When registering international companies to do business in aU.S.state, a certificate that is not issued by a government official will often not fit the bill. In June of 2011, there was an interesting e-mail exchange on this topic on the listserv of the International Association of Commercial Administrators, a trade association of filing officers. In the exchange, participants discussed the validity of a certificate fromIndiapresented with an Application for Authority.
WhileIndiadoes have a central “Ministry of Corporate Affairs,” each Indian state has its own corporate registry. Only some corporate registries, such as the registrar inDelhi, will issue a certificate attesting to a company’s existence and current status.Indiadoes have a central online database, but the records of this database are generally considered to be unreliable and, unlikeAustralia, a printout of those records is not accepted inIndiaas proof of a company’s existence and status.
In India, common practice is to have a Private Company Secretary manually search the records of the registrar and provide an attestation regarding the company’s status. A “Company Secretary” in Indiais a prestigious professional position requiring completion of a specialized training course and certification by the Institute of Company Secretaries of India. By definition of that Institute, Company Secretaries are experts “in corporate laws, securities laws and capital market and corporate governance [and] responsible for all regulatory compliances of a company.”[1]As such, a Company Secretary’s attestation that a company is in existence and in compliance with applicable laws has the same validity inIndia as a Certificate of Good Standing does in theU.S.
A Company Secretary, however, is not a “public official,” and so one’s attestation is not likely to be accepted by a corporate filing officer in theU.S. To meetU.S. requirements, a company may scramble to find some sort of document issued by a public official in its home jurisdiction that will be accepted in theU.S. as the equivalent of a Good Standing Certificate. As the e-mail discussion mentioned above progressed, it became clear that what states will accept varies greatly.
Approaches Taken by U.S. Filing Offices
State filing offices generally take one of three approaches when a jurisdiction does not have an exact equivalent to a U.S. Good Standing Certificate. These approaches can be categorized as stringent, moderate and lenient. Which approach is taken depends on the laws, regulations and procedures of a particular filing office.
- In the stringent approach, filing officers strictly interpret the statutes of their jurisdictions that require a document issued by a public official, even when such an approach could discourage foreign companies from registering to do business. New YorkStatetakes a stringent approach. N.Y. Business Corporation Law, §1304, states: “Attached to the application for authority shall be a certificate by an authorized officer of the jurisdiction of its incorporation that the foreign corporation is an existing corporation.” Indian documents accepted byNew York in the past include a Certificate of Incorporation or a Certificate of Commencement of Business. New York, however, requires that the certificate presented is no more than one year old, so this solution works well only for recently formed companies. Another certificate that has been accepted is a “Fresh Certificate of Incorporation Consequent on Change of Name.” Occasionally, companies even go so far as to change their names simply to meetNew York’s requirements.
- Illinois, on the other hand, is an example where the statutes allow for a more moderate approach. A limited liability company can present an affidavit from an official from its jurisdiction stating that a Certificate of Good Standing does not exist. “A certificate stating that the company is in existence under the laws of the jurisdiction wherein it is organized executed by the Secretary of State of that jurisdiction or by some other official that may have custody of the records pertaining to limited liability companies (or affidavit from an appropriate official of the jurisdiction that good standing certificates are not issued or other evidence of existence which the Secretary of State shall deem appropriate).” [2]
- The third approach is the most lenient. A state may accept whatever is offered as proof of existence, as long as it is translated into English. Some states are allowed by law or regulation to consult the country’s database for proof of existence. For example,Oregonenacted legislation (Bill 2254) on May 27, 2011, which indicates:
“A foreign corporation need not submit a certificate of existence or document in accordance with paragraph (a) of this subsection if the official who has custody of corporate records in the state or country under whose law the foreign corporation is incorporated provides free access via the Internet to a searchable database that contains evidence of corporate registrations.” [3]
The variation in what will be accepted in different states creates confusion for international companies looking to do business in the United States and, in many cases, what is accepted does not actually prove a company’s registration and continued existence. Some have argued that it is more logical forU.S.filing offices to accept the document that is considered to be proof of a company’s good standing in its home country. To do so, however, state officials would need to somehow consult with a disinterested attorney from the company’s home jurisdiction to discover what that document would be. The time and expense involved in attempting to find and consult with such a person, as well as the fact that statutes often require a document issued by a public official, means that foreign companies wishing to register to do business in the U.S. will likely be faced with this dilemma for some time to come.
As it can be time consuming and expensive to obtain certificates in foreign jurisdictions, it is wise to contact the filing office first to determine what will be acceptable before beginning the process of obtaining the best possible equivalent to meet that office’s filing requirements. A knowledgeable service provider that is familiar with the types of documents available in the country of origin, as well as the filing requirements and practices in the intended state of registration, can save time, money and avoid a great deal of frustration while accomplishing the objective of properly registering the international company to do business in a U.S. state.
© National Corporate Research, Ltd., 10 East 40th Street, 10th Floor, New York, NY 10016. All Rights Reserved.
[1] See http://www.scholarshipsinindia.com/
[2] See 805 ILCS 180/45‑5(3)
[3] See ORS 60.707, (2)(b)
About the Author
Teri Mayor has been in the UCC/corporate service industry since 1993 and is currently a Vice President at National Corporate Research, Ltd. (NCR). She is responsible for researching, developing and training staff on international corporate services. Ms. Mayor has been with NCR since 2002 and managed the firm’s Albany office from 2007 to 2010 prior to assuming her current role. For questions related to this article, contact Teri Mayor by calling (800) 828-0938.
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