After you form your business entity, it’s important to stay up-to-date on filing your annual report, biennial report, or other required forms and compliance paperwork specified by your company’s home state. You might be required to prove that your business exists and is in compliance with relevant laws and regulations by proving that your business has a Certificate of Good Standing. Just like having a driver’s license or other forms of personal ID, a Certificate of Good Standing proves that your business is officially registered and authorized to operate in your home state.
A Certificate of Good Standing is often required in order to obtain a loan, renew a business license or to file your business taxes. The Certificate of Good Standing is an official document issued by your state’s secretary of state office to verify that your business is compliant within the state of incorporation and therefore is in “good standing.”
To stay in good standing, your business needs to meet a few key requirements, depending on the state, such as:
- Being up-to-date on annual or biennial fees to the secretary of state to register or renew your business
- Filing annual or biennial reports
- Paying any other necessary business fees or franchise taxes to state regulators
Also known as a Certificate of Existence, Certificate of Authorization, or a Certificate of Status, the Good Standing Certificate is a one-page document provided by the secretary of state and provides conclusive evidence of the status of your business entity. In many cases it can be valid up to three months.
There are a few key reasons why your company might need a Certificate of Good Standing. Sometimes this document is requested by:
- Other state governments as part of the process of applying for Foreign Qualification for your business to register to do business in states other than your home state
- Lenders or banks that want to get proof of your business’s existence and business history as part of evaluating your creditworthiness for a loan or when carrying out certain types of transactions
- Investors or business partners who want to make sure your business is legitimate and in compliance with laws and regulations
- Licensing agencies and regulators — in order to renew or obtain certain permits and licenses
- Business brokers or buyers — if you are seeking to sell your business and need to show proof of its existence, history and compliance
Simply put, the Certificate of Good Standing 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.