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3 Reasons to Stay in Good Standing

Lenders, investors, and vendors often ask for a Certificate of Good Standing when doing business with your company. Many states require a Certificate of Good Standing when registering a foreign business (foreign qualification). 

A Certificate of Good Standing is a document obtained from the state where you formed your company that attests that you have filed all state-required reports and paid all necessary fees. The certificate serves as official proof or evidence that your LLC or corporation exists and is authorized to transaction business in the state. 

CT Tip: States differ in their compliance filing rules and in what they call this kind of certificate. Depending on the state and the circumstances, it might be called a Certificate of Existence or Certificate of Status.

It's important to be able to easily obtain this state-issued document for your LLC or corporation. Here are three main reasons why keeping your business in good standing status is good for business.

1. Good Standing Certificates Are Often Needed in Business

Lenders sometimes require good-standing status in order to approve new financing. They generally view a loss of good standing status as an increased risk. Other businesses might require a Certificate of Good Standing for certain transactions, requests for proposals (RFPs) or contracts. Or, you may need one to sell the business, for real estate closings, or for mergers, acquisitions, or expansions. If a business can’t provide a Certificate of Good Standing, it raises a compliance "red flag" that indicates something’s wrong with the company’s state status. 

CT Tip: The key to being able to get a Good Standing certificate when needed is keeping up with your LLC or corporation entity compliance. As long as you’re already in good standing status, getting this certificate can be done quickly and easily. It’s those times when a company has fallen behind on compliance—and isn’t in good standing—that getting this simple certificate for a deal, contract, or loan becomes a possibly embarrassing issue.

2. Staying in Good Standing Can Save Money in the Long Run

If a business doesn’t maintain its good-standing status, the state will likely make an involuntary adverse status change for the company, labeling it as “delinquent,” “void,” “suspended” or “dissolved,” depending on the state and the compliance problem. 

CT Tip: As long as a company is in good standing status, it usually doesn’t take long to get a certificate from the state. Fixing an adverse status generally takes more time.

The most common reasons for losing good standing include a missed annual report, problems regarding the company’s registered agent-and-office, or unpaid fees or franchise taxes. The cost of fixing these mistakes can add up. By simply keeping your LLC or corporation in good standing, you could help:

  • Keep overall operating costs lower—filing on time avoids extra fees and fines from sapping your budget
  • Prevent a state from administratively dissolving the LLC or corporation (and then having to try for a reinstatement)
  • Maintain the limited liability that an LLC, corporation, or other business entity provides
  • Preserve your rights to your LLC’s or corporation’s legal name in state records
  • Keep your business poised for sudden contract opportunities, bids, or deals with other companies that require a Certificate of Good Standing to pursue or seal the deal.

CT Tip: Choosing the right registered agent can be helpful in keeping up with your LLC or corporation compliance responsibilities. 

3. Good Standing Helps When You Expand Into Other States

When you form your LLC or corporation, the state generally considers you to be “organizing” a business “entity.” Your business entity (e.g., LLC, corporation) has the right to do business in the state. If you want to expand and do business in other states, you’ll need to register to transact business in those states, too. Usually, the new state(s) ask for a Certificate of Good Standing from your formation state (or your "domestic" state) before they’ll let you register.

CT Tip: Registering to do business in a new state is called “foreign qualification.” “Foreign” usually means another country outside the U.S., but in this context, it simply means another state. 

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