When Do You Need A Certificate of Good Standing?

When Do You Need A Certificate of Good Standing?

Of the many forms that a new business owner should complete, one that often goes under the radar is a Certificate of Good Standing. Although it is not necessarily required when first registering the business, it may be needed down the road as a business looks to expand its operations. Additionally, it could help improve a company’s credibility with customers.

The Purpose Of A Certificate Of Good Standing

A Certificate of Good Standing does precisely as it sounds – it indicates to other customers and businesses that a company is compliant with federal, state, and local laws. By obtaining the document, business owners are demonstrating that their company remains in good corporate standing and that they are up-to-date on all taxes and fees. Additionally, getting a Certificate of Good Standing indicates that a company has fulfilled their annual reporting requirements.

Most states allow companies to achieve their certificate online, typically through the Secretary of State’s office. Businesses will need to provide a good bit of information relevant to the company. They will likely need to pay a small fee as well. Information required to secure a Certificate of Good Standing includes the:

  • Corporate name
  • State of original formation
  • Date of formation

One of the most significant uses for a Certificate of Good Standing is when a company, such as a corporation or LLC, seeks to apply for foreign qualification. For example, imagine a business operating in Connecticut that wishes to expand into Massachusetts. To do so, the company would file as a foreign entity in the state of Massachusetts. The state of Massachusetts would likely require a Connecticut Certificate of Good Standing to indicate that the business complied fully with the law.

Financial Obligations

Certificates of Good Standing are also essential when it comes to a business’ finances. Financial institutions, including banks, may often request to see a business’ Certificate of Good Standing before opening a new bank account, completing a large transaction, issuing a loan, or authorizing a credit increase. Thus, it’s essential that businesses remain compliant with federal, state, and local laws so that they can secure a Certificate of Good Standing.

Certificate of Good Standing Vary By State

New business owners should be aware that Certificate of Good Standing requirements could vary by state. For example, one of the ways in which they differ the most is in the name of the Certificate of Good Standing. States may call a Certificate of Good Standing any number of things, including a Certificate of Status, a Certificate of Existence, or a Tax Compliance.

Certificates of good standing will also show some variance in how much they cost to obtain and how long they last. For example, it costs $40 to get a Certificate of Good Standing in Maryland but $50 in neighboring Delaware. Additionally, states will vary how long the certificate lasts. A Certificate of Good Standing can last anywhere from 30 days, such as in Arkansas and New Mexico, to one year, such as in New York and West Virginia. As one could imagine, it becomes a nuisance to have to apply for a new certificate every month.

When it comes to registering as a foreign entity, some states do not have a Certificate of Good Standing requirements. Those registering as foreign entities in Alaska, Colorado, Kentucky, Pennsylvania, Minnesota, and Texas must not worry about providing a Certificate of Good Standing. Also, LLC owners do not need to concern themselves with Certificates of Good Standing in Alabama.

What Happens If A Business Owner Cannot Obtain A Certificate?

If a business owner cannot obtain a Certificate of Good Standing, it’s likely because they are in “bad” standing with the state. If this is the case, the business owner should contact the state’s Secretary of State Department as soon as possible to figure out why they are in “bad” standing. One of the biggest culprits is the annual report. If a business owner fails to submit an annual report or does not do so on time, they will likely be held in “bad” standing.

When a business owner finds themselves in “bad” standing, it’s essential that they do everything in their power to reverse course and put themselves back into good standing as soon as possible. Some states have stipulations stating that if a company is in bad standing for a specified period, they could begin issuing fines. If the company remains in bad standing long enough, the company could be subject to dissolution.

Applying For A Certificate Of Good Standing

As mentioned, the requirements for applying for a Certificate of Good Standing vary from state to state. However, most states allow business owners to apply online, in person, or by mail. Some states also make it possible for businesses to file for a Certificate of Good Standing through email or over the phone.

Once the state has approved a company’s application for a Certificate of Good Standing, they will provide business owners with a physical piece of paper indicating that they are compliant. The business owners can then attach this piece of paper to their application to do business in another state. If necessary, the company can request to receive multiple copies from the state office.

If a company is worried about the Certificate of Good Standing requirements in a given state, they should consider contacting a company with expertise in the area, such as DoMyLLC. At DoMyLLC, we have considerable knowledge of every state’s Secretary of State Department and can provide feedback to help ensure that businesses complete their application successfully.

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