By: Lance T. Denha, Esq.
What does it mean to be in “good standing?” A “Certificate of Good Standing” indicates that your business has filed all reports and paid all the necessary taxes and fees with your state’s secretary of state office. Think of your good standing certificate “as a kind of ‘snapshot’ of your business’s compliance status.
This “proof” concept behind a good standing certificate is fairly simple. However, any failure to maintain good standing is a compliance “red flag” that needs immediate attention.
Common reasons why an entity loses “good standing” status include:
- Failing to timely file annual reports
- Failing to appropriately maintain a registered agent or registered office
- Failing to timely pay franchise taxes (if applicable)
Sounds simple enough, but not only do these certificates serve as proof that your entity is legitimately authorized to transact business in the state, they can also greatly benefit your business goals down the line. You should make sure your business is in “good standing” for several reasons:
Lenders want it: Many lenders require proof of good standing in order to approve financing. It’s much better to have the certificate ahead of time, as opposed to scrambling at the last minute to update your status with a state agency in the middle of loan negotiations.
It can help you expand: A Certificate of Good Standing is often required when registering to do business in other states. Many states won’t allow a company to transact business within their boundaries if the company does not have good standing in the state where it was formed. Even further, some states require that the certificate be dated within a short period of time—as little as 90 days—before filing to do business in that state.
You can avoid state-imposed fees or penalties: Some states will charge a fee if your business is not in compliance with their regulations, which is an obvious no-brainer. But you also want to make sure your business is in good standing in order to preserve the limited liability that filing for business status provides. If turns out your business is not in good standing, in some states that could mean the loss of protection for you and your employees conducting business outside of compliance, or even the administrative dissolution of the business altogether.