written by | June 1, 2022

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What Is a Certificate of Good Standing? Explained In Easy Steps

A Certificate of Good Standing is an official document issued by a state government agency. This document is required if a business seeks to obtain a bank account or a credit card. Lenders and creditors will not work with a business that does not have one. This document has many uses for a business. It is an essential document for bank accounts and business loans, and it can also be used for raising funds from investors.

Corporations, LLCs and limited liability partnerships must be registered with their states to receive such a document. Unincorporated businesses do not need to register but can still prove their good standing by providing other documents. 

Read further to know more:

Did You Know?

Only business entities that necessarily have to register with their state are eligible for a certificate of good standing. Depending on how your business structure is set up, you may not qualify for the certificate. Sole proprietorships and partnerships don't need this certificate.

Good Standing Certificate Meaning

A Certificate of Good Standing is a document which states that a company has met all legal obligations in its state. For example, if a company is registering to do business in another state, it will not be able to transact business without a Certificate of Good Standing.

Some states require that the Certificate of Good Standing be dated within a specific time, such as 90 days. Regardless of the reason, a certificate of good standing is vital for any business to do business.

Also Read: What is Certificate of Incorporation - Guide on How to Obtain Certificate of Incorporation

The Secretary of State can ask for a Certificate of Good Standing to verify the legality of a business. However, the entity may not be in good standing if it does not have up-to-date business reports and taxes. If an entity is in bad standing, it will need to file missing reports and taxes and pay any fines incurred if you need a Certificate of Good Standing.

Where to Get a Certificate of Good Standing

Now that you know a good standing certificate meaning let’s see where you can get it. When registering your business, a Certificate of Good Standing is essential. You can obtain this certificate through your state's Secretary of State office and many other government entities. 

A certificate is generally free, but fees do vary. Depending on the type of business entity you are, the amount of information you need, and how it will be delivered.

You can get this document for any entity, whether a corporation, partnership, or other entity. However, you will need to make sure that it is dated within 30 days of its last use. Some states will require you to have good standing for at least six months, but most will provide you with a duplicate if you need it. 

Who Is Eligible for a Letter of Good Standing?

In most states, registered business entities like Limited liability partnerships (LLPs), corporations and partnerships LLCs can apply for official certification of their good standing. Before requesting a certificate, businesses must be up-to-date on their annual reports, fees, and registered agents' designation.

Companies that operate as sole proprietorships or general partnerships aren't included. Since the government doesn't register your company, they cannot receive a certification in good standing.

Many business entities need such documents. They have legal obligations, but they also have to comply with various laws and regulations. The process is fairly straightforward.

There are three key components of a certificate of good standing. Are you trying to make your business more successful by reaching more traffic? You can look through some amazing Instagram Business tips to know how getting traffic from Social Media becomes easy for you.

Why Is a Letter of Good Standing Important?

  • A certificate of good standing is an important document that proves your business is legally registered and legitimate. 
  • It is an important document that shows a business is operating legally and that it has not filed documents to dissolve.
  • You'll need it to obtain a business bank account, open a bank account, or compete for government contracts. 
  • This document can be a great way to avoid awkward situations when conducting business with another entity.
  • The banks or lenders can verify your company's existence and background to determine your creditworthiness when granting a loan or certain transactions.
  • It avoids the danger of putting personal assets at risk.

Consequences of Not Having a Certificate of Good Standing

  • It is not good to let the business go into poor condition. However, it can happen. The consequences can be disastrous. 
  • Failure to comply with the law can lead a business to be dissolved administratively or even disqualified from the state in which it's registered. 
  • A business in poor standing could put the personal assets of its owners at risk. 
  • Failure to comply could result in an unjustified decision by a court that the corporate veil of the business has been breached, dissolving the limited liability coverage that the company provides.
  • In reality, falling into bad standing can make companies more susceptible to identity theft. 
  • Criminals often search through the search engines for business entities to find companies in a state of lapsed good standing. 
  • In case they assume that nobody is keeping watch on the company. They attempt to take over the company's identity to gain unauthorised access to accounts and engage in fraudulent activities.

How long will it take to get into bad standing? There is no universally accepted method. Some states won't find a company in poor standing until many years of failure to report or pay any fees. Why put off the inevitable? It's much better to act now to maintain a high status all the time.

What Is the Best Time to Get an Official Certificate in Good Standing? Who Can Demand It?

There may be a need for proof that the company exists and is compliant with the relevant legislation and rules in certain circumstances. An official Certification of Good Standing issued by your state is good evidence. It's usually required to be able to obtain a loan, renew a business license, or submit your company's taxes.

There are many reasons for your business to require an official Certificate of Good Standing. This document can be requested by:

  • Other state governments in the application process of applying for Foreign Qualification for your business to be able to conduct business in states different from the state you are from.
  • The banks from where you're trying to avail a loan.
  • Business partners or investors who want to be sure that your business is legal and in compliance with all laws and rules.
  • Regulators and licensing agencies -to renew or acquire certain permits or licenses.
  • Buyers or business brokers -when you want to sell your business, you require proof of its history, existence and conformance.

What Are the Things You Must Do to Maintain Good Standing With the State?

All business entities must meet compliance requirements to remain in good standing. The requirements vary between states and even by type of entity. A Secretary of State's office can provide specific information. Additionally, it's a good idea for entrepreneurs to talk to an attorney in the business for legal advice and an accountant for tax guidance.

Common requirements to stay within good standing in the government include:

  • Taxes paid on time (federal tax, state and local sales tax, income tax and franchise tax).
  • The annual report must be filed and provide other vital documents.
  • Infractions to local zoning or permit requirements.
  • Maintaining current business and professional permits.
  • Maintaining an active registered agent.
  • Respecting all corporate guidelines (e.g. holding mandatory meetings and maintaining board directors; adhering to bylaws, etc.)

If your clients are uncertain about the status of their company, they can contact the Secretary of State's office to verify their business's standing. Some states provide the option to verify their status online. Also, you can complete a good standing certificate online registration through this link.

Also Read: How To Get A Business License In India?

Why Do Businesses Lose Good Standing?

The "proof" concept behind a good standing certificate is pretty simple. But failing to maintain a GOOD standing in the first place is considered to be an alert that demands immediate care.

Common reasons for an entity to be unable to maintain "good standing" status include the following:

  • Inability to timely complete annual reports
  • Failure to maintain a registered agent or office
  • Inability to timely pay franchise taxes

Conclusion

The Certificate of Good Standing helps prove that your company is in existence and that you're a lawful business owner who adheres to the laws. It can help increase your credibility and trustworthiness with potential investors, partners and lenders. 

Obtaining an official Certificate of Good Standing is an easy but sometimes essential step in keeping your company's reputation in good standing and expanding your business's operations to new areas. 

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FAQs

Q: Is It Possible to Get a Good Standing Certificate Online?

Ans:

Yes, by visiting the state's official portal you're living in, you can avail it online.

Q: Is It Compulsory to Maintain Good Standing?

Ans:

Being in good standing is crucial for any business, even if it doesn't require certification shortly. Complying with the law helps protect your liability and ensures that you don't get fined by the government.

Q: How Long Is the Validity of the Certificates After Applying for a Good Standing Certificate?

Ans:

It is also contingent on the state in which your company is located; however, most certificates in good standing last for between 60 and 90 days. Contact your state for confirmation of the validity of your certificate.

Q: Is It Mandatory to Fill out the Application for a Good Standing Certificate and Avail It for a Business to Operate?

Ans:

A good standing certificate is not required to run an enterprise. However, a good standing could be required to take certain steps, like selling your company or seeking loans.

Q: What Is a Certificate of Good Standing?

Ans:

It's an official document that proves a company is legal, has no taxes to pay and can be used for business purposes in a specific area.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.