Good Standing

Good standing refers to a business's status when it has met all legal requirements, such as paying taxes and filing necessary documents on time. This status ensures that the state recognizes the company as legitimate and active.

Good standing is a business's official stamp of approval from the state. It verifies that the company is following the rules, paying what it owes, and keeping everything up to date. This concept can even apply to personal institutions; individuals need to maintain good standing in different aspects of life, like managing credit, or lenders may not borrow them money. Whether thinking about starting a business or just wanting to understand how the companies you patronize operate, knowing about good standing is important.

• Legal Requirement: To continue business, a company must register with the state it operates in and remain in good standing.
• State-Specific Rules: Each state has its own criteria for maintaining good standing, so the requirements can vary depending on where the business is located.
• Builds Trust: A business's good standing status is often public, meaning anyone can check it to see if the business is compliant with state regulations. This helps build trust with customers, partners, and even the government.
• Penalties for Falling Out of Good Standing: If a business falls out of good standing, it can face fines, legal issues, or even be dissolved (cease to exist), but it can usually get back on track by fixing the problems. However, it's best to stay on top of things to avoid issues and possible events that could show the business in a negative light in the future.

Why Is Good Standing Important?

Being in good standing is crucial for a business because it ensures the company can continue to operate without legal or financial obstacles. A business in good standing can:

• Obtain Loans & Business Bank Accounts: Banks and lenders will likely only provide financial assistance to businesses in good standing because this shows that the business is responsible and reliable.
• Solicit Funds from Investors: Like formal lending institutions, investors are much more willing to risk their funds in a company that is in good standing.
• Enter into Contracts: Other businesses, customers, and partners are more likely to do business with a company in good standing, as it proves the company is legitimate and trustworthy.
• Avoid Legal Troubles: A business that maintains good standing is less likely to face fines, penalties, or legal challenges, which can disrupt its operations.
• Register to do business in a Different State: When expanding, new states often will not let an organization register to do business there if it is already out of good standing in another state.
• Transfer or Sell the Business: The business becomes a more attractive potential purchase if the new owner knows it's operating smoothly and in good standing.

How Does a Business Maintain Good Standing?

1. Pay Taxes and Fees on Time: This includes state taxes, registration fees, and any other required payments.
2. File Required Paperwork: Businesses must regularly submit documents like annual and quarterly reports that provide information about their activities and financial status.
3. Follow State Regulations: This means complying with all relevant laws and regulations, including health and safety standards.
4. Keep Information Updated: Businesses must ensure that their contact information and other details are current with the state.

Certificates of Good Standing (sometimes called Certificates of compliance, Existence, or Status) can be requested from the state at a reasonable fee, usually less than $100.

State Variations

Each state has its own requirements for good standing, although there are many commonalities. Follow the below links for more details on your local state:

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• Washington D.C.
• West Virginia
• Wisconsin
• Wyoming

What Happens if a Business Loses Good Standing?

If a business loses its good standing, it can face several consequences:

• Penalties and Fines: The state may impose additional costs, making it more expensive to regain good standing.
• Legal Issues: The business might struggle to defend itself in court or lose the ability to sue others.
• Operational Restrictions: The business may not be able to enter into contracts, obtain loans, or operate in certain states.
• Administrative Dissolution: If the situation isn't corrected, the state might dissolve the business, meaning it would no longer legally exist.

How to Get Back in Good Standing

1. Paying Overdue Fees and Taxes: This shows the state that the business is committed to resolving the issue.
2. Filing Missing Documents: Submit overdue paperwork, like annual reports.
3. Correcting Violations: Address any legal or regulatory issues that caused the loss of good standing.
4. Updating Business Information: Ensure all business details are current with the state.

Once these steps are completed, the state will typically restore the business's good standing status, often re-issuing a certificate of good standing as proof. However, some states will issue certificates with marked caveats noting a history of infractions.