Are You in Good Standing?

Many clients have never heard this question until they incorporate their business or form a LLC.  Even fewer know exactly what it means to be in Good Standing and why it is necessary. The legal definition is typically referring to the status of a corporate entity and can be applied to a personal level as well. Obviously, an individual who is in a state of favorable character or tendencies is viewed as being in good standing in his community. But what does it mean when a company is or is not in Good Standing?

Typically, there are specific requirements which apply to the maintenance of a legal entity to keep it alive and functioning. Generally, most states have taxation, laws or fees which should be maintained in order to stay in proper status. Those companies who fail to stay in proper or good status can face financial penalties and challenges which may adversely affect the success and future of the business. For example; Delaware mandates that every corporate entity filed within its jurisdiction have a valid registered agent and pay an annual Franchise Tax. Those who have allowed either issue to lapse are not in Good Standing and usually cannot obtain documented proof of their status from the state until they bring the company back into good status.  This is achieved by paying any outstanding fees and penalties. Failure to maintain any corporate entity after filing will generally result in the company voiding over time and accruing tax, penalty and interest.

There is a specific document which is offered by the Secretary of State’s Office in each state which is a testimonial to the good status of the company.  This is known as a Certificate of Good Standing, Certificate of Existence, Certificate of Status or Letter of Good Standing. It is required by more than 85% of all states for corporations and 75% of all states require the document for LLC’s. It is typically applied to banking and state qualification requirements.  This document states that the entity has complied with all applicable laws and provisions of the state of filing and has the authorization to transact or conduct business affairs. Generally, most businesses need to show proof of their good standing in order to obtain financing, licenses and to legitimately enter into other business transactions in the state of filing or in other states. By offering the Good Standing Certificate, businesses prove their existence and that they are incorporated and authorized to do business.  Many banks will not open an account for a company who does not prove their good standing.

From our experience, those with new formations sometimes question the validity of the request for the Good Standing since they just filed the company and it is of course in good status. However, the requests by banks and other states are valid and are the only way to confirm such validity. It does not matter if the company is ten years old or ten hours old if the Good Standing is required, it must be obtained. Many clients will obtain the document right at the time of filing to alleviate any time delay in achieving their essentials. We are always happy to inform as to which states require the document and which do not. Typically, business owners may check the status of their company at any time by contacting either the Secretary of States Office in the state of filing or their respective registered agent where applicable. The Delaware Good Standing Certificate can be obtained through Harvard Business Services, Inc.- within 24 hours. Are you in Good Standing?

For more information please click on this link: http://www.delawareinc.com/ourservices/goodstanding.cfm