Many companies fail to comply with state taxes and other laws. One way to prove your corporation or LLC is in compliance is with a certificate of good standing.
What is a certificate of good standing?
A certificate of good standing is issued by the state and is also known as a certificate of existence, a certificate of status, or tax compliance. It indicates that your business retains good corporate standing, has paid all state taxes and fees, and has filed an annual report (if applicable).
Many states allow business owners to obtain a certificate of good standing online. In addition to a small fee, you have to provide the following information:
- Company name (as filed on the articles)
- Date of formation
- State of formation
- Business address
- Registered agent name and address
- Federal tax identification number
- Unemployment insurance number
A certificate of good standing expires after 30-90 days, depending on the state. This prevents businesses from presenting outdated Certificates when their status might have changed.
When would I need a certificate of good standing?
The state requires a certificate of good standing from corporations or LLCs that want to apply for foreign qualification. Let's clarify that with an example. If your business is located in California but was filed as a Nevada entity, the state of California will require a certificate of good standing. This proves to California that your company is in full compliance with Nevada law.
Also, financial institutions frequently request a certificate of good standing. They need to verify compliance to avoid illegal business conduct.
Why is good standing important?
Retaining good corporate standing is essential to any business. Without it, a company generally cannot obtain financing, renew licenses or permits, or conduct business transactions.
In order to maintain good standing, your company must fully comply with state law.
Getting "bad" corporate standing is as easy as missing an annual report deadline, failing to file an annual report, or sending a late payment for state fees. And "bad" standing could lead to repercussions as severe as corporate dissolution. Retaining good corporate standing also protects you from personal liability for actions of the corporation.
Staying on the good side of corporate standing
First of all, keep company records fully separate from personal ones. This means having a separate business account, a board of directors, an annual meeting for shareholders, proper corporate recordkeeping, and annual report upkeep.
While not as glamorous as other aspects of running a business, retaining good corporate standing is just as important. In fact, it may prove even more important than your bold new business moves. Without it, there might not even be a company to run.
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