Article June 12, 2014

3 Reasons to Keep Your Business in Good Standing

If you own a company, consider this advice

If you have a company you may be asked for a “Certificate of Good Standing” for your LLC or corporation. Requests such as this usually come from banks, other lenders, an investor, or another company. A Certificate of Good Standing is essentially confirmation that your company is up-to-date on its compliance.

A Certificate of Good Standing comes from the Arizona Corporation Commission (here in Arizona). The certificate confirms that your company has filed all state-required reports, paid its taxes and fees, and is current on reporting income, naming directors, officers, and so forth. Officially, the certificate proves to third parties that your LLC or corporation both exists and is authorized to transaction business in the state. You can obtain a certificate by simply requesting it from the Arizona Corporation Commission. As long as you’re already in good standing status, getting the certificate can be done quickly and easily. The only caveat is that you must keep up your LLC or corporation entity compliance with state statutes and regulations. Here are three main reasons why keeping your business in good standing status is good for your business.

  1. Lenders, Client-Companies and Others Might Require a Good Standing Certificate
  2. If a business can’t provide a Certificate of Good Standing, it raises a compliance “red flag” – it indicates something’s wrong with the company’s state status. Lenders sometimes require good-standing status in order to approve new financing. They generally view a loss of good standing status as an increased risk. Other businesses also might require a Certificate of Good Standing for certain transactions, requests for proposals (RFPs) or contracts. Or, you may need one to sell the business, for real estate closings, or for mergers, acquisitions, or expansions. It’s those times when a company has fallen behind on compliance – and isn’t in good standing – that getting this simple certificate for a deal, contract, or loan becomes a possibly embarrassing issue.

  3. In the Long Run Keeping Your Business Good Standing May Save You Time and Money
  4. If a business doesn’t maintain its good-standing status, the state will likely make an involuntary adverse status change for the company, labeling it as “delinquent,” “void,” “suspended” or “dissolved,” depending on the state and the compliance problem. As long as a company is in good standing status, it usually doesn’t take long to get a certificate from the state. Fixing an adverse status generally takes more time. The most common reasons for losing good standing include a missed annual report, problems regarding the company’s registered agent-and-office, or unpaid fees or franchise taxes. The cost of fixing these mistakes can add up. By simply keeping your LLC or corporation in good standing, you could help:

    • Keep overall operating costs lower – filing on time avoids extra fees and fines from sapping your budget;
    • Prevent a state from administratively dissolving the LLC or corporation (and then having to try for a reinstatement);
    • Maintain the limited liability that using an LLC, corporation, or other business entity provides;
    • Preserve your rights to your LLC’s or corporation’s legal name in state records;
    • Keep your business poised for sudden contract opportunities, bids, or deals with other companies that require a Certificate of Good Standing to pursue or seal the deal

  5. Good Standing Helps When You Expand Into Other States
  6. When you form your LLC or corporation, the state generally considers you to be “organizing” a business “entity.” Your business entity (e.g., LLC, corporation) has the right to do business in the state. If you want to expand and do business in other states, you’ll need to register to transact business in those states, too. Usually, the new state(s) ask for a Certificate of Good Standing from your formation state (or your “domestic” state) before they’ll let you register.