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What is a Certificate of Good Standing?
A certificate of good standing is a legal document that proves your company is legally registered and legally formed or compliant in your home state. It demonstrates that you are authorized to do business and currently following state requirements.
This certificate is often called a certificate of existence, status certificate, certificate of status, or certificate of authorization. They can be used for different corporations, including a C Corporation.
Here is an article about the certificate of good standing.
Who Needs a Certificate of Good Standing?
A certificate of good standing is generally not required but may be requested from your state. This is not the same as a business license which is a requirement and must be displayed publicly at all times.
A certificate of good standing is not required for a sole proprietorship in any state. However, in some states, corporations and limited liability companies may be required to get one. In addition, partnerships, limited partnerships, limited liability partnerships, and limited liability limited partnerships may or may not need one, depending on your state.
In most cases, the only way you require a certificate of good standing is if you are doing business with someone who needs you to have it. For example:
- If you are applying for a loan/line of credit for your business
- If you are seeking a line of credit for goods and services
- If you are transferring or selling your business
- If you are looking to do business in a state other than the one you are formed in
- If you are soliciting funds from investors
Here is an article with more information on who needs a certificate of good standing.
How to Get a Certificate of Good Standing
For companies looking to get a loan or line of credit or those looking to expand their business to another state, a certificate of good standing may be necessary. The process of getting one can vary from one state to the next.
In some states, such as Alabama or Arkansas, you can request a certificate of good standing from the Secretary of State’s office. There is a fee associated with this though it is small.
Florida offers the document directly online. The fee is less than $10, with differences based on whether you are an LLC or a corporation.
Some states offer a certificate of good standing from their Division of Corporations, which is generally inexpensive but could cost up to $200 depending on the state and the documents needed.
There are online and in-person options to obtain this certificate in many states. In contrast, some states only offer in-person options. Additionally, there are other states where you can request and receive the document via fax or phone.
Here is an article about the different methods of requesting a certificate of good standing for each state.
Image via Pexels by Edmond Dantès
Why Certificates of Good Standing are Important
There are various reasons that a certificate of good standing is essential for different companies and corporations. This document is designed to let others know that you carry out your business legally and adequately and are trustworthy as a business. This can be important for:
- Companies you want to do business with. It assures them you have fulfilled your obligations in the past and are more likely to fulfill them in the future.
- Banks and financial institutions you are looking to receive credit or loans from. This assures them you can be trusted to pay back the money they give you.
- Individuals or other companies that you are looking to sell your business to assure them there is no hidden debt or liability before they make the purchase.
- Other states where you would like to do business as it assures them you run a legitimate company that benefits the people of their state.
- Investors you would like to receive funds from. A certificate assures them that you are not hiding large amounts of debt and can be trusted to use the funds efficiently.
You can also use this document simply to show that your business is operating as it should be and that you have nothing to hide. While it is not often requested by customers and is not required for this purpose, it can still earn increased trust from new customers.
Here is an article about why a certificate of good standing is important.
What Could Cause You to Lose Your Good Standing?
Several things could cause you to lose your good standing, but all of them are factors you would know of at the time. Nothing could cause you to lose good standing secretly or without your knowledge.
For example, you could lose your good standing by:
- Not filing annual reports as required
- Not maintaining a registered agent or office as required
- Not paying franchise taxes as required
- Not making all payments in a timely fashion
- Making mistakes in forms that are filed
- Losing your business or occupational license
- Criminal activity by the business or owner
- Failing to file required documents
Suppose you have missed payments, especially to the IRS or other government entities. In that case, you will find that your application for a certificate of good standing is denied. Getting back in good standing is quite simple in most cases.
Also, the primary reasons that someone will lose their standing are failure to pay a tax or fee or failure to file a specific document. Once these situations are remedied, your good standing is reinstated. This means that it could be a matter of a few minutes to a few hours at most to get your good standing.
However, there are some situations where it may take more work to reinstate your standing. Speaking with your state agency will allow you to find out precisely what is keeping you from getting your certificate and what you need to do to fix the problem.
Here is an article about how you could lose your good standing.
Resolving Poor Standing
If you find yourself in poor standing, you will need to go through resolving any outstanding issues to have a chance to restore your good standing. You may also need to submit additional forms to the state your business is licensed and prove that you have resolved all issues.
The forms will also require a fee to be reviewed, and you will need to check with your state what those specific fees are. The process consists of:
- Determining what outstanding or overdue fees exist.
- Resolving/paying all outstanding fees.
- Obtaining all necessary forms for reinstatement.
- Auditing reinstatement forms to look for errors.
- Submitting completed reinstatement forms.
- Paying required application filing fees.
Once you have completed all of these steps, you may reinstate your business to good standing. However, the application can still be rejected.
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