Entrepreneurs and business owners are constantly learning more about how to progress in their businesses. At one point or another, whether it’s for taking out a loan or getting a business contract, a business will likely need a good standing certificate.
Let’s unravel any mystery behind what a good standing certificate is, how to get it, and how you might be disqualifying yourself from getting one so you can make your business legitimacy a breeze, and make your journey to growth as seamless as possible.
What Is a Good Standing Certificate?
First, let’s define what a certificate of good standing is. Consider it a “golden ticket” of sorts from the state government, proving your business is doing everything above board, following the rules, and crossing those t’s and dotting those i’s.
You might not be thinking of it immediately after forming your business, but come big business life events like looking for a loan, grant, or starting to do business in another state, you’ll likely need to get a certificate of good standing to prove that you’re following all the rules of your given business entity.
Who Needs a Certificate of Good Standing?
Each state has different rules on when a business needs a certificate of good standing. Texas, for instance, uses the term to regard a business entity’s franchise tax account status. In fact, they don’t even call it a certificate of good standing anymore. Instead, they call it a certificate of account status.
In general, a business owner might need a certificate of good standing if they are:
Applying for a Loan or Line of Credit: Banks and other lenders sometimes require you to get a certificate of good standing as proof that your business is in compliance with state law and is financially sound.
Setting Up a Business Bank Account: Some banks require a certificate of good standing before opening a business bank account.
Investing in Property or Equipment: When purchasing property or equipment, the seller may ask for a certificate of good standing as proof that your business is legitimate and has the financial resources to purchase.
Receiving Government Contracts. Government agencies often require a certificate of good standing before they award a contract to continue running. For example, a lease agreement or an NDA.
Making Your Mark in Another State. Spreading your business to new grounds may also require getting a certificate of good standing from the Secretary of State’s office in that state.
For a sole proprietor or general partnership, a certificate of good standing is not needed since you’re not technically registered with the state. As for a Limited Liability Company (LLC), corporation, and other registered business entities, you’ll need to prove that you’re playing by the rules with a certificate of good standing.
Why Certificates of Good Standing Are Important
Without a certificate of good standing, you may not be able to progress in your business as you would want to. As mentioned, many states will require a business owner to get a certificate of good standing if they’re looking to apply for a loan, open a business bank account, buy property, explore contracts, or expand their business to another state.
Aside from these practical perks, certificates of good standing can also help your business build credibility and trust with customers, suppliers, and other important folks.
By showing that you’re in good standing with the state, you’re sending a message that your business is legitimate, and committed to operating responsibly and ethically in current and future affairs.
How to Get a Certificate of Good Standing
So, to start when needing a certificate of good standing? Let’s break it down.
- Pinpoint the state where your business is registered. If you plan to expand your business to different states or currently ship out to others, the most important state will be the state where you filed your business entity.
- Check the secretary of state’s office website for that state.
- Search the section about certificates of good standing. Get familiar with doing deep dives like this with your business, particularly on your state’s secretary of state’s website.
- Follow the instructions on how to request a certificate of good standing.
- Provide the required information and payment. This will vary state by state but will likely be between $10 and $50.
- Wait for your certificate to arrive in the mail.
*Note: Certain states may also allow you to register in person.
A few extra tips and things to remember before receiving your certificate:
- Keep your business up-to-date on all its filing requirements
- Have the correct information at your fingertips, like your business name, registered agent, and filing number
- If you’re struggling to get your certificate, contact the secretary of state’s office a call for assistance
- Most certificates of good standing have an expiration date of about three months, so keep your stats fresh by renewing when needed
How a Business Loses Good Standing
While obtaining a certificate of good standing might seem like an easy process, it’s important to note that maintaining it could be tricky if you’re not staying compliant. You could lose good standing by:
- Forgetting to file annual reports or other paperwork
- Neglecting to pay taxes or fees
- Going bankrupt or enduring other financial issues
- Choosing to dissolve the business voluntarily
- Underdoing any criminal activity
It is crucial for business owners to stay on top of their filing requirements and pay their federal and state fees and taxes on time. After all, you don’t want to lose your good standing and face the consequences of losing your business.
What Are the Consequences of Not Being in Good Standing?
Any doors that a certificate of good standing could open for you could also get closed by your business not being in good standing. This can go from not being able to take out a loan to not being able to register trademarks or patents to even facing additional fines.
In Iowa, for instance, you won’t be able to bring anything to the court, a loss of name rights, and the risk of business identity theft.
How to Resolve Poor Standing
Let’s get to the bottom of any issues you might have with keeping your business’s good standing. If you’re currently in poor standing:
- Uncover the reason. Maybe you thought your taxes were paid, but something got clogged, and the government sees an outstanding payment. Once you find the culprit, you’ll better identify who to call to make it right.
- Make the calls and file the paperwork ASAP. Chances are, what’s holding you up from having poor standing is probably holding other things up.
- Stay organized. Keep tabs on deadlines and filing requirements so you can stay on time and compliant and avoid issues in the future.
- Ask for help if you’re still struggling. Even if you’re the sole owner of your business, there’s never a reason to go at something alone if you can have the support of others.
Never Worry About Compliance Again
The benefits of keeping your business in good standing outweigh the hassle of maintaining compliance. If you’re worried about financing getting you put in poor standing, then turn to doola. Our bookkeeping service will help your business stay up-to-date so you’re always confidently compliant!
What does it mean to be in good standing?
To be in good standing means that your business is up-to-date on all of your filing requirements with the state.
How long does it take to get a certificate of good standing?
For most, it takes a few days to a week to process a request and receive the physical certificate in the mail.
How much is a certificate of good standing?
The cost of a certificate of good standing also varies from state to state. In most cases, it costs between $10 and $50.
How long is a certificate of good standing valid?
It varies from state to state. For example, in Florida, there’s no set expiration date, while in California, it’s valid for one year.