What is a Certificate of Good Standing?

photograph of two business partners discussing the details of a certificate of good standing
Why does your business need a certificate of good standing aka a certificate of existence? This legal document is vital for compliance and other purposes:

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Is your startup in need of potential investors? Or perhaps you’re ready to expand your business to other parts of the country? Whatever the case, securing a certificate of good standing can help make it happen.

Almost 99.9% of businesses in the US are made up of small businesses. And, as every small business owner knows, running a business comes with a host of legal requirements. 

Which makes you wonder, how do budding entrepreneurs keep their businesses legally compliant? Well, it certainly helps to hire the services of a registered agent, for a start. This provides access to business document experts, notary and apostille services, legal clerks and even office admin and bookkeeping assistance. 

Although you’re not legally required to secure a certificate of good standing to start a business, it’s beneficial to have one. It’ll come in handy in different situations and will help your business maintain a good standing with the state in which you operate. 

To better understand what a certificate of good standing is all about, read on:

What is a certificate of good standing?

A certificate of good standing goes by different names, depending on the state in which you incorporate your business. Some call it a certificate of existence, certificate of authorization, certificate of status, or a status certificate. 

It is a state-issued document that shows that your business entity complies with state filing and other requirements. Business entities that were formed elsewhere but are registered in that state as a foreign entity can still be issued the business document.

Simply put, a certificate of good standing is a document that shows that your business entity was formed legally. Moreover, it indicates that a business has been following state requirements and is still active. And, just like other legal documents, a certificate of good standing is only valid for a certain period. 

The due date normally falls on your registration renewal date or during deadlines for periodic documents or registration fees. Meanwhile, some expire at the end of a calendar year or when the state’s laws require renewal or periodic filings.

How does a business secure a certificate of good standing?

There are different ways you can secure a certificate of good standing for your business. But be warned. Each state has different laws regarding how to obtain a certificate of authorization, making it harder as your business expands. 

Since this isn’t a requirement for every business, some states still need to determine whether your business needs one… Which can be a very time-consuming process. To avoid any possible mishaps, it’s better to hire qualified professionals such as registered business agents to do this on your behalf.

Business entities that ARE ELIGIBLE to apply for a certificate of good standing to operate their business include: 

  • Partnerships
  • Limited liability partnerships
  • Limited partnerships
  • Corporations
  • Limited liability company (LLC)

* A certificate of good standing can be acquired a few days after filing. Some may also require a copy of your annual report

How does your business benefit from securing a certificate of good standing?

As stated, this business certificate is not a strict requirement for you to operate a business. However, a certificate of authorization will be needed for certain business transactions. These situations include: 

  • Registering your business in another state
  • Getting insurance for your business
  • Opening a business bank account
  • Obtaining a loan
  • Selling your business
  • Attracting potential business investors or partners
  • Forming contracts with other companies
  • Renewal of business license and other permits

One other situation where this certificate is highly recommended is during an application for a bank loan. Banks tend to favor businesses with this legal document since it shows that your business is trustworthy.

Is it possible to lose your good standing?

Yes! It is very possible. Failure to comply with state laws can get your certificate of good standing revoked. This situation would need immediate attention from you and the state. Reasons why business entities lose their position of good standing with the state include:

  • Late filing of annual reports
  • Failure to pay business taxes and renewal fees
  • Criminal activity
  • Mistakes made in submitting the forms

Losing your good standing status can have adverse effects on your business. The most common sanction a business entity can get for failing to comply with state laws is the issuing of fines. However, in extreme cases, compliance failure could lead to the dissolution of your business and a loss of limited liability protection. 

Ideally, you should be checking your entity’s good standing status monthly. This process may be inconvenient and time-consuming depending on your business structure. However, it puts your business entity in an advantageous position. It’s also another good reason to secure the services of a registered business agent who will notify you in good time of any necessary action.

Final thoughts

A certificate of good standing isn’t initially a requirement, but it is a business document you’ll eventually need. You can use it for different business transactions and ensure you maintain good standing with the state in which you operate.

The good news is that this state-issued business certificate is relatively inexpensive and can usually be acquired within a few days. The only problem is having to learn the different regulations and going through all the tedious processes.

If you don’t want to risk paying fines or losing credibility with the state, you can always hire registered agents. They will take care the following for you:

  • Filing all your business documents 
  • Ensuring you have a legitimate business address
  • Receiving mail and keeping you up to date on any possible lawsuits
  • Processing legal documents
  • Maintaining good standing with the state
  • Adding a layer of privacy and protection 
  • Giving you more time to focus on your business

“By failing to prepare, you are preparing to fail.” – Benjamin Franklin

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