What is a Certificate of Good Standing?
- What is a certificate of good standing?
- How does a business earn a certificate of good standing?
- What information is on this certificate?
- Who issues the certificate of good standing?
- Why is it important for a business to have a certificate of good standing?
- Tips to keep your business in good standing
Owning a business comes with a large range of responsibilities, including staying compliant with all state, local, and federal regulations.
Keeping track of everything from tax regulations to permit requirements can be overwhelming, but it is critical to ensure your business remains operational and you do not face heavy fines. One way to demonstrate that you have acted properly as a business owner is to obtain a certificate of good standing through your state.
What is a certificate of good standing?
A certificate of good standing is a type of document issued by the government that demonstrates a business is in compliance with the state where it operates. This document is also called a certificate of fact, a certificate of status, and a certificate of existence in various states, but they all mean the same thing.
It is important to note that a certificate of good standing is different from a certificate of tax status or tax compliance. The certificate of good standing indicates that all elements of the business, including taxes, have been carried out in accordance with state regulations.
How does a business earn a certificate of good standing?
A certificate of good standing can only be issued to a business entity that is registered in the state where it operates. Business owners apply for the certificate. If there is no record of the business on file, a certificate cannot be issued.
In all states, a corporation or a limited liability company (LLC) requires registration with the state, while a sole proprietorship will not.
Once the state has recognized your business, it must be verified that you are in good standing. These requirements can vary by state, but generally require at least two elements:
Your business must be current on all taxes and fees
You have filed all necessary reports
If these requirements are met, you will be able to apply for the certificate through the business filing agency in your state. This is commonly the Secretary of State office, but will be the same place where you registered your business entity.
States will vary on if applications can be done online, in person, by phone, by mail or by fax. Fees range from $5 to $100 depending on the state and the type of entity.
What information is on this certificate?
The exact format of each certificate will vary by state, but they each contain important information. Some things you will generally see on each certificate are:
The business name and/or entity number associated with the business
A statement of good standing
The signature of the Secretary of State or other agency head
The state seal
As an example of the language on the certificate, the Alaska certificate reads,
“I, SECRETARY OF STATE NAME, Secretary of State of the State of Alaska, do hereby certify that COMPANY NAME is an Alaska Corporation registered to transact business on FORMATION DATE. I further certify that all fees and documents required by the Secretary of State’s office have been received and is in good standing as far as this office is concerned.”
Who issues the certificate of good standing?
Each state has an office or agency who is tasked with managing business registration and management. This is most commonly the Secretary of State’s office, though it can also be the Department of Revenue or a designated office relating to small business.
Why is it important for a business to have a certificate of good standing?
Not every business is required to have a certificate of good standing, and many will choose not to file for the certification. However, there are a number of common business activities that require a certificate of good standing.
Some instances in which you may be asked to produce this certificate include:
Opening a business bank account or credit card
Applying for business loans
Soliciting funds from potential investors
Registered to do business in other states
Contracting with other companies
Transferring or selling a business
Purchasing business insurance
Renewing certain permits and licenses
Others may choose to obtain a certificate of good standing in order to prove reliability or serve as a credential, even if none of these events are impending. In the event that there is an emergent need to produce the certificate, it can offer peace of mind to have one on hand for company records.
One common use of certificates of good standing is to obtain foreign qualification in another state where you would like to operate your business. Each state will require a certain timeframe for the certificate. For example, a state may say you must have a certificate of good standing issued within 30 days in your formation state in order to conduct business in their state.
Tips to keep your business in good standing
File all annual reports on time
Most states require corporations to file an annual report and pay fees or franchise taxes, and this is often required for LLCs as well. The fee schedule of these reports can vary and are not always truly annual, as many times they are required every few years.
These reports can usually be filed online using a form issued by the state agency that manages business formation. The filing fee can be paid with a credit card, like a Visa, Mastercard, or American Express.
While this is a simple process, failing to complete it can lead to fines and penalties, or even suspension and dissolution of your business. A business that’s behind on these reports and filing fees will not be considered in good standing.
Update registered agent information
During the formation of a business, you must provide the name and address of a registered agent who is to receive and accept official correspondence on behalf of the business. (The registered agent is also called a statutory agent or a service of process agent).
If the person named is no longer the right agent or their address is out of date, you are required to keep this updated. Most states allow this to be done through a simple form.
Keep complete corporate and financial records
In an LLC and other business entities, there is inherent protection from personal liability associated with the business. However, this protection is contingent upon observing corporate formalities, such as keeping proper business and financial records. Failing to do so opens you up to personal liability for debts and lawsuits.
The exact requirements for your business will depend on the state where you operate and the type of business you run. Examples of requirements may include documentation of stock ownership, meeting minutes for all shareholder meetings, and strong financial records.
Maintain all licenses and permits
Some states require a general business license, while others will only require local business permits to operate. Certain industries also require federal licensure. It’s important to understand which licenses apply to your business and to not only obtain them, but keep them current.
Most of these permits will expire after a certain period of time and need to be renewed, including paying a renewal fee. Be sure that you obtain all the necessary licensure and keep it updated proactively to avoid falling out of compliance.
What business entities can get a certificate of good standing?
In most states, any registered business entity is eligible to request a certificate of good standing. This includes corporations, limited partnerships, LLCs, and limited liability partnerships (LLP). Businesses that operate as a sole proprietorship or general partnership are not incorporated and therefore cannot apply for a certificate of good standing.
Does a certificate of good standing expire?
Most letters of good standing are valid for 60 to 90 days, but this time period varies by state. If you need the certification in order to carry out a task such as opening a business bank account, it is important to apply within the proper window so your good standing does not expire. Remember that one lender may require the certificate be issued within 30 days, while another may allow one that is valid for 90 days.
How long does it take to get a certificate of good standing?
If you are already in good standing, you may be able to immediately receive your certificate once you apply online. Being mailed a certified copy can take a week or two depending on your state and the office’s turnaround time. If you are not in good standing, you will be denied and need to reapply once you return to good standing.
Is a certificate of good standing required?
Businesses are not required to obtain or maintain a certificate of good standing in order to operate their business. However, many common scenarios may require the certificate. Securing funding and insurance, operating across state lines, and selling your business may all require demonstration of good standing.
How much does a certificate of good standing cost?
Each state will set their own price for the fees associated with a certificate of good standing. Because of the short window of validity, these certificates are generally less expensive than other fees. Most will range from $5 to $100 depending upon the state and the type of business structure you are certifying.