Thread Options
#796368 - 08/16/07 05:18 PM Verification of Good Standing
Rangers Fan Offline
Gold Star
Rangers Fan
Joined: Dec 2001
Posts: 345
In my previous life, we always verified Good Standing with the Secretary of State on entities for business loans. In my current life, we don't anymore and management is wanting validation of why we would do this if "we know our customers and we have never needed to before." Besides the obvious BSA due diligence issues, my understanding is that if we have a commercial loan customer who has allowed their good standing with the SOS to lapse by not paying their franchise taxes annually, this could jeopardize our lien position on collateral. I am searching our state's SOS data and state statues to find a reference that this is truly the case and that we may be in a vulnerable position if we continue to not verify. Even if we know our customers, how do we know if they are paying all their business related taxes? Thanks.

Return to Top
Lending Compliance
#796410 - 08/16/07 05:42 PM Re: Verification of Good Standing Rangers Fan
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,762
Bloomington, IN
If you don't verify their good standing then how do you know the entity still legally exists. If they are not properly registered with the SOS at the time you make the loan you may not have a valid contract since you made a loan to a "non-existing" entity.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#796430 - 08/16/07 05:51 PM Re: Verification of Good Standing Rangers Fan
Tom at HOME Offline
Diamond Poster
Joined: Oct 2005
Posts: 1,139
If an organization is not in good standing, in most jurisdictions, the principles become personally liable. There is no longer a corporate veil. Assets owned by such inactive organizations are still owned by the organizations. But making a loan to a registered organization that has forfeited its rights to existence is foolish and risky.

I don't know what state you are in, but in all states (other than Texas), the name you would use in a filed financing statement is the name as listed on the public records and not the name on the Article or Certificate that was recorded. How are you going to know how the filing officer listed such name if you don't get a Certificate of Good Standing or some other document from the filing officer (Secretary of State in your example)?

Return to Top
#796520 - 08/16/07 06:40 PM Re: Verification of Good Standing Tom at HOME
Rangers Fan Offline
Gold Star
Rangers Fan
Joined: Dec 2001
Posts: 345
All good points that I can pass on to management. We do at least verify that the name exists and is registerd to the principals dealing with us and of course we get all other required CIP docs (SOS initial filing documents, articles of inc., etc.). Apparently, the "active" listings on our SOS's website will only display those in good standing (from what I am told, need to verify), but this is not enough documentation in my mind.

Return to Top
#796538 - 08/16/07 06:49 PM Re: Verification of Good Standing Rangers Fan
Skittles Offline
10K Club
Skittles
Joined: Sep 2002
Posts: 13,963
TN
That's not the case in Georgia. I just pulled up one that states 'Automated Administraive disollution/revocation.
_________________________
My Opinions Only

Return to Top

Moderator:  Andy_Z