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Joseph L. Kroart III

Attorney Joey Kroart Discusses The Importance of Keeping Your Maryland Business in Good Standing

We’ve all heard the adage, “An ounce of prevention equals a pound of cure.” This saying certainly rings true when it comes to maintaining a business in Maryland. As a business law attorney, one of the most common problems I encounter occurs when a client has a business that is no longer in “Good Standing.” But what does this mean, and how did the business arrive at this undesirable outcome in the first place?

If you operate a business entity in Maryland, such as a corporation or a limited liability company, the state imposes a number of requirements with which your business must comply. A failure to comply with these requirements will result in a loss of Good Standing status. A common reason that a business loses this status is the failure to file an annual report in a timely manner. For both corporations and LLCs in Maryland, annual reports, commonly known as personal property tax returns, are required to be filed with the state. These reports identify any personal property that was owned by the business during the prior calendar years. Reports are typically due in April, though business representatives may file for an extension of the deadline.

If you miss the deadline for filing the annual report for your business, your business will lose Good Standing status—but you may not even realize it, as you won’t receive any notice from the Maryland Department of Assessments and Taxation (SDAT). And therein lies the peril:  if your business remains out of Good Standing for an extended period, SDAT may change the status of your business entity to “forfeited.” Once your business is forfeited, it can no longer legally conduct business in the State of Maryland.

A business that falls out of Good Standing due to a late annual report can normally be restored to Good Standing simply by filing the annual report and paying any assessed late fees. A forfeited entity, however, will need to file documents to be revived (corporation) or reinstated (LLC). In addition, SDAT may require the representative of a forfeited entity to pay other penalties and/or produce tax documentation from the county of the entity’s domicile.

I’ve seen many clients who have neglected to file the annual reports for their businesses and who have no idea that their businesses have dropped out of Good Standing, or far worse, have been forfeited. Sometimes, they only discover this unfortunate reality when their business attempts to engage in a financial or real estate transaction and the opposing party requires proof that the entity is in Good Standing. You would never want to be in a situation in which a delay that was entirely preventable—the amount of time required to bring the entity back to Good Standing—was enough to be a deal breaker.

So be sure to remain vigilant when it comes to monitoring the status of your business and fulfilling all reporting requirements. If you have any questions about operating and maintaining businesses in Maryland, please contact Joey Kroart or any of the business law attorneys at Adelberg, Rudow, Dorf & Hendler, LLC.

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