What this is: Being in good standing in a given state means you’re properly registered with the state and up to date with the requirements for the filing authority. In some states, a Certificate of Good Standing can also reflect whether an entity is up to date on tax filings as well.
What this means: You can probably guess what happens when you’re not in good standing, and why you need to prove it. Read on for some tips on how to stay in good standing and get that certificate.
Have you ever tried to obtain a Certificate of Good Standing only to find the company was not in good standing? Maintaining your company’s “good standing” status with the Secretary of State prevents fines, penalties, filing delays and the additional compliance costs required to reinstate the entity. It can also prevent costly closing delays for financing and other transactions. There are numerous other reasons for keeping business entities in good standing.
So, What is a Certificate of Good Standing?
A Certificate of Good Standing is a state-issued status document that verifies your company is properly registered and legally allowed to engage in business activities. It also serves as proof of existence of the business entity and assurance that your business follows all relevant state rules.
There are consequences of not being in good standing. Entities that are not in good standing cannot:
- Qualify to do business in another state
- File certificates of amendment, merger or dissolution
- In some states, obtain business or professional licenses
- Secure financing or open bank accounts
Keep in mind that loss of good standing will eventually lead to revocation. Revocation can result in the loss of the limited liability protection of business entities, thus exposing the company’s owners to personal liability for the debts incurred by the company. Revocation can also lead to a loss of an entity’s legal right to use its name and to the inability to enforce contracts in courts.
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Tips for Keeping Business Entities in Good Standing
It’s never good to discover that an entity is not in good standing after a Certificate of Good Standing has been ordered from the Secretary of State. Here are a few tips for keeping your entities in good standing:
- Keep a calendar of upcoming compliance filing events: This includes important dates like annual report and tax due dates for the various states in which the business is active. (Note that many states do not send notices regarding upcoming or past due reports.) Keep in mind that state agencies that collect taxes other than the Secretary of State may report noncompliance to the state, which can affect good standing status. Compile a list of requirements and fees for the various reports that need to be filed to avoid missing deadlines and prevent unnecessary document delays or rejections.
- Business licensing may be required for an entity: Failure to obtain/renew those licenses can, in some states, affect your status with the Secretary of State. Keep a calendar of license renewals and requirements and be well prepared.
- Ensure the tax obligations for the business are met: Failure to file and pay franchise taxes can lead to a loss of good standing in some states.
- Perform a periodic status check in each state: This will help identify any issues before they turn into larger problems.
- Update the principal office and mailing addresses with the Secretary of State: Submit updates as changes occur or as required (on the annual report, for example) to prevent delays in receiving of any notices and warnings.
- Update the states’ records as soon as possible with any changes in the company’s name or structure (e.g., re-domestications or conversions): This will ensure all states properly reflect the name and entity type of the domestic state.
Valuable and affordable resources and tools are available to assist you in keeping your companies compliant with state requirements. Any number of professional registered agent service companies can provide annual status checks. Many also offer entity management systems to help manage compliance due dates along with providing forms and other assistance for all of your Secretary of State and business licensing needs.
Follow these simple tips and, with the help of some great resources and tools, avoid the unnecessary expenses and problems associated with losing good standing!
Are there different types of Good Standing Certificates?
A long form Certificate of Good Standing confirms the status of the company and lists all documents on file. Certified copies of those documents are not automatically attached and must be requested with the certificate if they are needed. A standard (sometimes called ‘short form’) Certificate of Good Standing reflects the existence and status of a company but does not list what documents have been filed. A number of states do not issue ‘Good Standing Certificates’ that attest to the status of the company but instead issue certificates that simply certify that the company exists in the state’s records (i.e. Existence or Subsistence Certificates or a Certificate of Fact). It is important to read the certificate you receive to understand what the state is certifying. For more about Good Standing certificates, you can read our article What a Certificate Of Good Standing Does and Does Not Tell You.
Can you lose your good standing after you obtain it?
Sure, just like you can fall out of favor with your best friend. Except your best friend can’t stop you from getting a bank loan or require you to pay a penalty to be friends again (at least we hope not!). Loss of good standing, while it can usually be remedied, can have serious consequences for a company. Companies are generally required to show proof of their good standing status when opening bank accounts or getting financing. Many states require the payment of fines and penalties to restore the entity to good standing. If the company is out of good standing for a long enough period, it may become voided or revoked. In that case, the company’s name is no longer protected, another entity can form using the same name as the revoked company. Find out the most common ways companies lose good standing in our article 5 Ways Companies Can Lose Good Standing.
What do nonprofits have to do to maintain good standing status?
To maintain corporate good standing status in most states, nonprofits are required to file annual or periodic reports with the Secretary of State, just like their for-profit counterparts. Though the forms and procedures are similar in every state, there is very little uniformity in how states handle due dates, fees, signature requirements, filing methods (paper vs. online) and additional filing requirements of other state agencies. Though the fees and financial penalties for failing to make these required filings are usually nominal, there are much more damaging consequences for failing to comply. Read more here at Nonprofit Corporate Compliance: Required Annual and Periodic Reports and the Consequences of Failing to Comply.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.