Bringing on a New Business Partner? Here's Why You Need a Certificate of Good Standing


Bringing on a New Business Partner? Here's Why You Need a Certificate of Good Standing

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two business partners working together at table

Every small business wants to grow, and entrepreneurs have plenty of options on how to scale up their company. You could get a small business loan or put more of your own money into the business. There is a third option — taking on a new business partner. If you do decide to bring someone new into your business, then a Certificate of Good Standing (COGS) will be helpful in building trust with the new owner.

We’ll get into that more below, but first, let’s take a look at how small businesses are doing as we come out of the COVID-19 pandemic.

These figures suggest that as the economy gets back on its feet, small businesses will survive, grow and thrive.

The Certificate of Good Standing — What It Is and What It Does

A COGS is an official business document that’s issued by the business formation agency in your state, normally the Secretary of State. A COGS might also be known as also known as a Certificate of Existence, Certificate of Authorization or a Certificate of Status, depending on your state.

A COGS helps you prove that your business exists and that you are a law-abiding business owner who complies with the rules. It helps enhance your trustworthiness and credibility with potential partners, investors and lenders. Obtaining a Certificate of Good Standing is a simple but sometimes necessary step in maintaining your business’s good reputation and branching out your business operations into new areas.

When it comes to taking on a partner, this means:

  • Demonstrating that your business is a legitimate business entity and has been properly formed, registered and maintained in your state.
  • Reassuring any potential partners that you own your business and you’re acting in good faith.
  • Using the COGS with other business documents and financial statements to paint a full picture of your business.
  • Using a COGS to bring on new investors with your partner or applying for new bank accounts or loans.
  • Using a Certificate of Good Standing if you and your new partner wish to expand your business into new states.

Having a COGS before bringing in a partner isn’t a legal requirement, but it can definitely make the whole process easier — and, since getting a COGS is not expensive, it makes good sense.

How to Get a Certificate of Good Standing

You can get a COGS directly from the business formation agency in your state by following the instructions on their website. Most often, this will entail filling out a form and providing your business information, contact information and reason for requesting a certificate. Alternatively, If you need to get a Certificate of Good Standing, Incfile makes the process fast, easy and hassle-free. Once you receive it, a Certificate of Good Standing may look something like this:



What a New Business Partner Can Bring to Your Business

Now you have your COGS, it’s worth exploring how a business partner can help your small business grow.

Cash Investment

If a partner wants to join an existing, successful business, they will generally need to invest in that business in return for a share of ownership. You can get your business valued and then lay out some options for a new partner offering them more of a profit share the more that they invest.

Unique Skills, Experience and Expertise

You can’t do everything yourself, and the right partner can bring fresh approaches, new ideas, and a wealth of experience to your company. When you’re seeking out a partner, look for gaps in your own skills and expertise that they can help to fill, as that’s a great way to strengthen what your business does.

Helpful Connections and Contacts

It’s not just what your new business partner does, it’s also about who they know. If someone already has some recognition and reputation in the industry, they can bring their network of contacts and authority with them. This can be very helpful when setting up new deals or approaching other businesses.

Help Getting Into New Sectors or Geographic Areas

If your business is expanding into new marketplaces or geographical areas, then a partner can help. They may well have experience in the new sector or local and cultural knowledge that can help your business succeed.

Other Uses for a Certificate of Good Standing

A Certificate of Good Standing isn’t limited to bringing on new partners, there are several other areas where it can be very useful:

  • If you’re registering a business in a new state as a “foreign” business, the business formation agency there may require a COGS before you can start doing business. This demonstrates that your “domestic” business in your home state is meeting necessary rules.
  • If you’re applying to borrow money from banks or other lenders, a COGS will often be part of the documentation you’ll be asked to provide. It’s an essential part of proving your business’s existence, compliance and history.
  • If you’re applying for or renewing business licenses, then agencies or regulators may require a COGS before they will issue you with a permit.
  • If you want to sell your business, then you will need to show proof of your business to a broker or buyer.

Whatever your reasons, bringing on a partner is an exciting time, You’re ready to grow your business into the next stage of success, and a Certificate of Good Standing will make that a little easier.

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