When running a business, you have to make sure you stay compliant with the state. To do this, you have to file the necessary reports and pay corresponding fees on time. Doing this will ensure that the LLC remains in good standing with the state.
What It Is
Being in good standing means your company does not have any pending obligations with the state. It is a legal requirement. Not being in good standing can come with consequences.
Most, if not all, states require businesses to conduct their operations legally. One of the obligations to ensure this is to file annual or biennial reports. These filings have more than one purpose. First, the state gets to collect annual fees from the business entity. It is a source of revenue for the state. Second, these reports will confirm that the company is active and still operating in the state. Failure to comply with filing obligations may put your company in a bad standing status.
Why You Need It
Your business needs to be in good standing for a lot of reasons. Many transactions require you to present a Certificate of Good Standing. Some lenders, vendors, and investors ask for it before doing business or transacting with a company.
Aside from them, many states also require it if a foreign LLC decides to expand its operations outside its home state. The certificate will serve as proof that the company exists, is legal, and is in good standing based on the records of the state.
- For Financing and Transactions – As stated earlier, most lenders require you to be a good standing LLC before approving new financing. Being in bad standing increases risks. So, they may ask a company to submit a Certificate of Good Standing for some transactions and contracts. If you wish to sell the business, get into a merger or acquisition, or deal with real estate closings, good standing is also necessary.
- Saving Money – Some entrepreneurs think they can get away with not filing and paying for reports. They may do this to save money. What they do not realize is it actually does the opposite. Being in bad standing comes at a high cost. You will have to pay pending obligations and additional penalty fees. You may also end up having to go through a process to get back into good standing.
- Business Expansion – As mentioned before, expanding the operations of your business in another state requires your company to be in good standing. Operating in another state requires you to register. Thus, you will need proof that your company is in good standing with its home state.
The Consequences
Losing good standing status can prevent you from accessing financing to manage the daily operations of the business. It can also lead to penalties. Aside from these, your company will also have to deal with other challenges.
- Your LLC may not have access to the court system. This means you will not be able to file a lawsuit even if you need to.
- Your company will be vulnerable to business identity thieves who can use the name of your LLC to make loans or purchase some things for themselves.
- The state may issue tax liens if the reason for losing good standing is the failure to pay the right taxes on time.
- In some cases, the state ends up dissolving a company administratively due to the loss of a good standing status. You may need to file for reinstatement within a set period. Failure to do so can make you lose the company.
How A Business Loses It
Complying with all your obligations will make sure your company is a good standing LLC. So you have to make sure you comply with state regulations.
- Maintaining the said status is a responsibility that involves various aspects. Your LLC has to make sure its finance, tax, and legal sides are in order. Thus, you will need to make sure the internal processes of your company are strong.
- You need to keep track of the deadlines of the state. The fees may also change throughout the years. Make sure you know of any changes to avoid complications. You can mark the deadlines on your calendar or regularly visit the official website of the appropriate state agency.
- Sometimes, change is part of growing a business. If you want to make any changes to your company, you will have to report it to the state. If you decide that it is time to close the business, you will also need to file formal paperwork. Doing this will ensure that you and the state are on the same page. It will also remove your company’s obligations to file reports and pay taxes.
Failure to maintain the standing is a red flag that you need to take care of immediately. But, the best way to deal with it is to prevent it from happening in the first place. Thus, you need to familiarize yourself with the common reasons why a business entity loses the said status.
- The company failed to file its annual reports in a timely manner.
- The business entity failed to maintain a registered office or agent appropriately.
- The LLC failed to pay its franchise taxes and other obligations on time.
Having The Right Partner
Sometimes, the responsibilities of running a business can be overwhelming. Aside from thinking of ways to grow the company, you may also have to take care of compliance obligations. However, you do not have to face everything on your own. You can ask for help from professionals.
Outsourcing a company that will help ensure compliance with the state can help lessen your responsibilities and worries. With our team of experts, DoMyLLC can help you out. We can provide assistance in making sure that your company remains to be in good standing. We can take care of the necessary paperwork and documents. Contact us now to find out more about our services.