Good Standing

Navigating Good Standing: A Guide to Compliance

Understanding Good Standing:
Being in good standing denotes a business entity’s adherence to all obligations, including fee payments and required filings, mandated by the laws of the U.S. state where it was established. The state issues a document known as a certificate of good standing, serving as proof that the business is legally registered and authorized to operate within that state. Some states may refer to it as a certificate of status or certificate of existence.

Eligibility for a Certificate of Good Standing:
Limited liability companies (LLCs) and corporations, mandatory registrants in all states, are eligible to obtain a certificate of good standing. Regulations for other business entities, such as partnerships, limited partnerships, limited liability partnerships (LLPs), and limited liability limited partnerships (LLLPs), vary by state. Sole proprietorships, however, are exempt from the requirement and cannot acquire a certificate of good standing.

Importance of a Certificate of Good Standing:
While not obligatory for daily operations, there are situations where a business might need to present a certificate of good standing. Common scenarios include dealings with financial institutions (for loans, bank accounts, or credit processing) and when expanding business operations to another state. Maintaining good standing aids in legal compliance, mitigates the risk of fines and penalties, and upholds the reduced liability status offered by business entities.

Potential Causes for Losing Good Standing:
A business risks losing its good standing status if it fails to comply with requirements. Common reasons for losing good standing include delays in filing annual reports, inadequate maintenance of a registered agent or office, and tardiness in paying franchise taxes. Losing good standing may result in the revocation of the certificate.

Issuance of a Certificate of Good Standing:
Certificates of good standing are typically issued by the same state agency responsible for business registrations, often the secretary of state’s office. These certificates typically have expiration dates and must be renewed through document filings and fee payments, with renewal frequency determined by state regulations—often requiring annual renewal to maintain good standing status.