Glossary of Human Resources Management and Employee Benefit Terms
Being in good standing means that a business entity complies with all requirements to pay fees and file paperwork as required by law in the U.S. state where it was formed. To document this compliance, the state issues a certificate of good standing to the business. This certificate serves as evidence that the business is legally registered with that state and authorized to do business there. In some states, a certificate of good standing is known as a certificate of status or certificate of existence.
Only certain types of businesses that are required to register with the state can obtain a certificate of good standing. Limited liability companies (LLCs) and corporations are required to register in all states. Laws vary from state to state for other business entities, including:
Limited liability partnerships (LLPs)
Limited liability limited partnerships (LLLPs)
Other types of businesses, such as sole proprietorships, do not need and cannot obtain a certificate of good standing. If you’re not sure whether your business needs to register, check your state’s laws.
Legally registered businesses can operate without a certificate of good standing, but there are times when you may be asked to provide one. The most common instances are:
When dealing with financial institutions for things such as borrowing money, opening a bank account, or arranging credit and debit card processing
When registering your business in another state
In addition to facilitating these business needs, maintaining your organization’s good standing status helps it stay on the right side of the law, avoid fines and penalties, and preserve the reduced liability that business entities provide.
If a business falls out of compliance with the requirements for good standing, it can lose its certificate. Common reasons include:
Not filing annual reports on time
Not properly maintaining a registered agent or registered office
Not paying franchise taxes on time
The same state agency that registers businesses also issues certificates of good standing. In most states, they are issued by the secretary of state’s office.
Certificates of good standing usually have an expiration date and must be renewed by filing documents and paying fees. How often and when depends on state regulations; in many cases, this is required annually.