Official public records contain a wealth of information about corporate entities. While we have previously analyzed the minutiae disclosed in company filings, from information embedded in ID numbers to complicated ownership structures, one frequently overlooked aspect of corporate data can be critical for an investigation: company status.
For government investigators, understanding the difference between “inactive” versus “closed” can inform a decision to add a company to a sanctions list. For due diligence firms, a company’s status can help determine the relevance (or irrelevance) of its corporate connections. Examples from China, Ecuador, Bermuda, and Peru provide insight into the challenges posed by linguistic variation, legal complexity, and secondary status.
Linguistic Variation in Company Status
In many Anglophone countries, corporate registries restrict the terms describing a company’s status to just a few core options, like “in good standing,” “active,” “inactive,” or “dissolved.” The same cannot be said of China, where companies list as many as 17 distinct statuses. However, the situation is not as complex as it initially appears. Many of these statuses are not actually distinct, but just cases of multiple terms used to refer to a single legal status.
In China, local offices of the State Administration for Market Regulation (SAMR, formerly known as SAIC) grant company status. According to China’s Company Law, companies must register as legal entities with SAMR. Afterward, they are considered incorporated from the date SAMR issues an operating license, which serves as proof of valid registration. At this point, a company can be considered active.
Chinese corporate records in Sayari Search use 11 different terms to refer to a company whose registration is valid and, by extension, active (see Figure 1).
|存续||bla bla bla||Cúnxù||bla bla bla||Existing|
|登记成立||Dēngjì chénglì||Registered and Established|
|仍注册||Réng zhùcè||Still Enrolled|
Figure 1: A list of Chinese company statuses in Sayari Search
Breaking Down Linguistic Variation
Some of these terms appear more frequently than others. For example, Chinese corporate data reveals that at least 42 million companies currently display the statuses 存续 (“existing”) or 开业 (“open”). Meanwhile, only 72 companies report the least-used status, 营业 (“operating”).
Despite the high degree of linguistic variation, the significance of these different terms is relatively small. In fact, many of these statuses fit within two terms, “existing” and “operating.”
“Existing” (存续, cúnxù) refers to enterprises that are operating normally. Companies in this category may indicate their status as “open” (开业, kāiyè), “normal” (正常, zhèngcháng), and “registered” (登记, dēngjì).
“Operating” (在业, zàiyè) refers to enterprises that have recently started production and new enterprises that have begun trial operations. Terms such as zàiyíng (“operating”), zhèngcháng (“normal”), and zàicè (“enrolled”) can fit under the zàiyè category.
However, our data indicates that some companies that have been registered for decades still use “operating.” Additionally, some companies that have only recently begun production may use “existing.”
This linguistic variation also could partly be attributed to regional differences. Certain terms may be preferred or used more frequently than others in one region, and largely neglected in another. It is also possible that this variation could be the result of a lack of standardization between local SAMR offices. While the exact reason is hard to pinpoint, our findings indicate that it is possible for corporate data to exhibit both a high degree of linguistic variation and a low degree of legal complexity.
Legal Complexity in Company Status
China presents a case in which active companies’ statuses are deceptively simple. However, things can become more complicated when analyzing companies that are closing.
Take Ecuador as an example. It has one of the most transparent corporate registries in Latin America and one of the most complex closure systems. Company closure consists of three steps: dissolution, liquidation, and cancellation. All three phases may involve self-appointed or mandatory official declarations; different required paperwork depending on corporate structure and circumstances of closure; and representatives acting on behalf of the company, the government, and creditors. Our assessment of Ecuadorian corporate records reveals that, although 60 percent of all private companies in Ecuador are inactive, only a quarter actually have been cancelled.
Complicating matters further, many jurisdictions have rules that determine whether closures are reversible. In most U.S. states, for example, companies that are “administratively dissolved” for failing to file annual returns may file for reinstatement and become active again. However, this option typically does not apply to companies dissolved by a court order, which are usually ineligible for reinstatement.
The recent U.S. sanctions on Venezuelan state oil company PDVSA threw the question of reinstatement into stark relief. In this case, four of the company’s Bermudan subsidiaries were dissolved for inactivity in 2008. Luckily for PDVSA, Bermudan law allows companies to petition for reinstatement up to 21 years after dissolution. As a result, the companies were restored to the register in 2014, where they remain active today. One subsidiary, Venfleet Asphalt, also owns 50 percent of the sanctioned Cyprus company TC Shipping, a subsidiary of Iran’s sanctioned National Iranian Tanker Company. Analysts unfamiliar with the possible post-closure reactivation of companies easily could have missed this key relationship.
Primary vs. Secondary Company Status
It’s also important to consider the source of a company’s status. By “company status,” we are referring to the company’s state of existence as a legal entity. In most countries, a corporate registry, local court, or state government makes this determination.
Other government institutions often grant additional company statuses, but they do not necessarily affect the company’s legal existence. In Peru, for example, the corporate registry handles company formations and closures, granting each entity its “primary status.” But the Peruvian tax agency, SUNAT, also maintains a company directory that reports companies’ legal representatives, tax obligations, and “taxpayer status,” which displays values including “Active” and “Deactivated.”
Don’t be misled! While SUNAT’s “taxpayer status” appears to be a company status, the agency is only describing the entity’s compliance with tax obligations. According to government documentation, the “Deactivated” status may apply for multiple reasons, from a taxpayer-initiated request for closure to a government-initiated deactivation for inactivity or failure to respond to official correspondence. In these cases, the company may still exist, and may even be unofficially carrying out business. The SUNAT-listed status merely flags the company for tax-related reasons.
Whether you’re adding a company to a sanctions list or conducting a Know-Your-Customer review, verifying beneficial ownership and control represents only one dimension of a company’s activity. Understanding the terminology, legal significance, and sourcing behind a company’s reported status is equally important. This seemingly basic data point can make all the difference.
The public records data used to power this research is available through Sayari Search! If you’re curious how this data could drive insights for your team, please reach out here.