One of the things that can affect a business’s reputation is its standing. But why is this “good standing” status important for corporate compliance, and why would a company lose it?
Official State Status
A state will usually issue a certificate of good standing as proof that a business has this status. Depending on the state, it may be called a certificate of good standing, certificate of authorization, or even certificate of existence.
Good standing means that a business has paid all the fees, filled all the forms, and met the requirements laid out by the secretary of state’s office to operate in a particular state. The good standing status and its certificate is a way to acknowledge that the state officially recognizes that the business is able to legally operate within the state.
Why Corporate Compliance Matters
The good standing status is officially registered with the secretary of state’s office. The good standing status permits certain actions for the business. For example, while it’s not a law, some lenders require a business to have good standing before approving a loan. If you decide to expand the business to another state, that state will often need your business to present a good standing certificate before they issue the certificate of authorization.
However, once the business is within corporate compliance by receiving good standing status, there are things that can take the good standing away from the business.
How To Lose It
The good standing status can be lost by failing to take certain actions, such as:
Filing Annual Reports
Annual reports aren’t just for investors and shareholders; the secretary of state’s office wants to see them properly written, filed, and submitted, too. Good standing status can be stripped away if annual reports aren’t filed.
Maintaining Registered Agent And/Or Office
There must be a registered agent to receive official documents and a registered office to send those documents to. Good standing status can be lost if there is no registered agent or office.
Paying Franchise Tax
The franchise tax is a state tax, and if it is missed or not paid on time, this can result in a loss of good standing.
In some cases, a loss of good standing for corporate compliance, can even result in the state dissolving a business if the reason for the good standing loss is considered to be serious enough.