Does My Business Need a Certificate of Good Standing?

“Do I need a Certificate of Good Standing?” If you’ve ever found yourself asking that question, you’re not alone. A Certificate of Good Standing can be a helpful tool, but only when you need it. And not every business needs one.

In this guide, we’ll walk you through what a Certificate of Good Standing is, what types of businesses can get one, and the ways you can put a certificate to good use.

What is a Certificate of Good Standing?

A Certificate of Good Standing — sometimes called a Certificate of Status, Certificate of Compliance, or a Certificate of Existence — is a state-issued document given to a registered business on request. This certificate is basically a simple stamp of approval, showing that the business has kept up to date with all its required filings and fees.

Registered businesses, such as limited partnerships, limited liability partnerships, profit corporations, nonprofit corporations, and limited liability companies (LLCs) can request a Certificate of Good Standing. Unregistered businesses, including sole proprietorships and general partnerships, can’t request one because their business is not on file with the state.

Why do I need a Certificate of Good Standing?

Unlike a state business license, you don’t have to get a Certificate of Good Standing just to be able to conduct business in the state. You can still be in good standing without requesting a certificate. However, there are plenty of circumstances where you might be asked to present your certificate.

Expanding Your Business to Another State

When your business grows, you might think about expanding into other states. To do that, you’ll have to register in each state you’re expanding into. That entails obtaining a Certificate of Authority (sometimes called a Certificate of Authorization) to designate your foreign qualification. (Note: “foreign qualification” doesn’t mean expanding into another country in this context. It refers to expanding as a foreign entity into a state that you’re not “domestic” to, or the state where you originally formed your business).

But before you can obtain a Certificate of Authority, you’ll need to present a Certificate of Good Standing from your home state. Basically, before a state will give you the okay to operate as a foreign LLC or foreign corporation, you need to give them assurance that you’re a legitimate business. The Certificate of Good Standing accomplishes that.

Opening a Business Bank Account

Every successful business needs a bank account to manage its day-to-day expenses. It’s not uncommon for banks to require several pieces of documentation when you apply for an account, including an employer identification number (EIN) and a Certificate of Good Standing.

While not every financial institution will require a Certificate of Good Standing, some will.

Getting a Business Loan

In its lifespan, it’s quite likely that a business entity will need to get a business loan for a capital improvement project. Some banks — even ones where you have an open account — ask to see your Certificate of Good Standing before they’ll accept your loan application.

Providing a Certificate of Good Standing doesn’t guarantee that you’ll be accepted for the loan, though; your financials will also have a big impact. But banks often request this certificate as an extra layer of protecting themselves against issuing risky loans.

Entering into a Business Contract

There are lots of good reasons you might enter into a business contract: you’re agreeing to provide your products to a local boutique, you’re interviewing potential business partners to finish a big project, and much more. Any time you enter into a contract, the other party might ask to see your Certificate of Good Standing. Depending on the circumstances, they may ask to see a more recent Certificate. You can request to see theirs, too (provided they’re a registered business, too).

Providing your Certificate of Good Standing can give peace of mind to the other parties you’re working with, proving that you’re running your business compliantly.

Getting Business Insurance

Signing your LLC or corporation up for insurance is a good way to protect yourself from unknown business issues down the road. But business insurance providers like to protect themselves, too. One way they might do that is to require all their applicants to provide a Certificate of Good Standing from their state.

Renewing Licenses and Permits

It’s very common for a business to need at least one license or permit. Sometimes it’s at the state level, and many need an occupational license of some kind because they offer a professional service. And no matter what license (or licenses) you need, you’ll probably have to renew them at regular intervals.

Every regulatory agency gets to set its own procedures for renewing its professional licenses. Some might require you to present a good standing certificate whenever you renew your licenses. Since each licensing board is different, it’s best to check what your requirements will be in advance. That way you won’t be scrambling to get a Certificate before a due date.

Selling a Business

For some small business owners, the ultimate goal is to create a successful business they can sell for a substantial profit later on. For others, selling their business means it’s time to retire or move on to another exciting venture. But no matter your motivation for selling, when you do, you’ll draw up a contract between you and your buyer.

As part of the sale process, it’s possible your business buyer might request to see a Certificate of Good Standing. After all, no one wants to purchase a business with five delinquent annual reports. Providing your certificate proves that your business is up to date with all state regulations.

How do you get a Certificate of Good Standing?

Thankfully, getting a Certificate of Good Standing isn’t a terribly difficult process. But before you dive in, make sure that you understand what the person requesting the certificate wants. Some just want to see a certificate, and others want to see a very current certificate. If you have an older certificate on file, you may or may not be able to use it depending on what they’ve requested.

If you do need a fresh status certificate, start out by checking that your business is compliant. If you have any delinquent tax filings or late annual reports, submit those right away. This can include sales taxes, business privilege taxes, income taxes, and more. Also, make sure you have a current registered agent and registered office address on file with the state.

Once you’re fully up to date with your compliance requirements, you can request your Certificate of Good Standing. Many states provide a form to request a certificate, or you can contact your Secretary of State directly to request one. You can expect to pay a small fee, too. Depending on your goals, you might order multiple copies of Certificates of Status.

Penalties for Not Being in Good Standing

The exact penalties for falling out of good standing vary from one state to another. Generally, though, the penalties get more severe the longer you stay in poor standing.

For example, let’s say you fall out of good standing because you didn’t submit your annual report filing on time. At first, your penalty would likely be a late fee — plus being unable to get a Certificate of Good Standing for other purposes. But if you went too long without filing your annual report, the state might even enact administrative dissolution for your business. They’d close you down by force.

Usually, you can get back in good standing by paying any late filing fees and fulfilling any outstanding state obligations. But it’s far easier to avoid the hassle entirely by staying up to date with your tax obligations, annual reports, and registered agent information.

We can help!

Dealing with business paperwork and compliance can feel overwhelming, but it doesn’t have to be. Here at ZenBusiness, we handle the red tape of business so you can focus on what matters: growing your business. Whether you need to get a Certificate of Good Standing, a registered agent service to keep that role filled, or want to take advantage of our worry-free compliance program, we’ve got your back. We can even help you start your LLC or corporation with zero stress, too.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.