At some point in time, you may be asked to provide a certificate of good standing for your business. But not all businesses require one at all times. It's important to know if and when your business needs a certificate of good standing, and the purposes for which this document is used.
What a certificate of good standing does
A certificate of good standing (also called a certificate of status in some states) is simply a written document from the state that verifies that, as of a certain date and for a certain period of time, your business is properly registered with the state and is legally authorized to conduct business. Unlike a business license, a certificate of good standing does not need to be obtained by every business and publicly displayed.
Which businesses can get a certificate of good standing
A certificate of good standing is issued to the types of business entities that are required to register with the state agency that regulates business entities. In most states, this is the secretary of state or one of its subdivisions. If your business is not organized as one of the types of entities that require registration, it will not be able to get a certificate of good standing (and it will not need one).
In all states, sole proprietorships are not required to register. On the other hand, all states require registration of corporations and limited liability companies (LLCs). There are several other possible types of business entities, and whether they need to register varies from state to state. These include partnerships, limited partnerships, limited liability partnerships (LLPs), and limited liability limited partnerships (LLLPs).
When a certificate of good standing is needed
A certificate of good standing is typically only needed if someone you do business with requires it. Financial institutions often will require a certificate of good standing before a business bank account can be opened. It may also be required if you are setting up a business account to process customer payments by credit card or debit card.
If you will be applying for a loan or line of credit in the name of the business, the lender will probably ask for a certificate of good standing. This may include companies that supply your business with goods or services without requiring payment in advance.
If your business has been formed in one state, and you plan to conduct business in another state, you may need to register in the other state as a foreign entity. To register in the other state, you may be required to obtain a certificate of good standing from the state where the business was formed, and submit it with your application for registration in the other state.
For example, suppose you've formed an LLC in Virginia. In order to register as a foreign LLC to do business in North Carolina, you would need to obtain a certificate of good standing from the Virginia State Corporation Commission and submit it to the North Carolina Secretary of State along with your registration application.
For most businesses, it is unlikely that a customer will ask to see a certificate of good standing. If you are engaged in a type of business that requires a professional license, such as being a building contractor or an electrician, customers are more likely to want to see your professional license.
You are most likely to need a certificate of good standing when your business is getting started, and then later at any time that one is required by an individual or entity with whom you have a business relationship.
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