Do I Need a Certificate of Good Standing for My LLC?

If you want to open a business bank account for your Limited Liability Company (LLC), apply for a loan or a line of credit, or conduct certain other types of business, you’ll probably need a Certificate of Good Standing, also known in some states as a Certificate of Status, Certificate of Authorization, Certificate of Existence, or Certificate of Subsistence.

A Certificate of Good Standing is a document issued by the state to companies in compliance with all applicable rules and regulations. The document typically includes the name or entity number of the business to which it’s issued, the date the business was formed, a statement of good standing, the signature of an appropriate state official, and the state seal.

Let’s take a few minutes to consider why this document is important, what you need to do to get one, and what could happen to your LLC if you don’t have one.

The Importance of a Certificate of Good Standing

Some LLCs may never have need for a Certificate of Good Standing, as you typically only need one if an individual, institution, or agency you wish to do business with requires it. While a company can legally conduct business without a Certificate of Good Standing.

It’s likely that you’ll need one in situations such as those mentioned earlier or listed here:

• Set up an account to accept payments by credit card or debit card
• Expand your LLC into another state
• Obtain or renew permits and licenses
• Contract with other businesses
• Buy business insurance
• Transfer ownership of the business
• Obtain funding from investors

A Certificate of Good Standing is, basically, a stamp of approval for your business. It demonstrates that your LLC follows rules and operates within state regulations, enabling it to remain in compliance. If your business is unable to obtain the certification, your operations could be disrupted, resulting in lost productivity and income.

Some business owners apply for a Certificate of Good Standing to prove that they’re in compliance and operating properly even if they don’t anticipate needing it. Others keep one on file just in case a situation arises where it is needed.

How to Get a Certificate of Good Standing

Since a Certificate of Good Standing is issued by the state in which your LLC is based, you’ll need to apply for the Certificate with the government agency within your state that issues them, normally the Secretary of State. In some states, however, you’ll apply with another agency, such as the Department of Revenue or the Department of Financial Institutions.

Basically, there are three steps you’ll need to take to get a Certificate of Good Standing:

1. Verify that your business is fully compliant with all rules of the state
2. Fill out and submit the application to the appropriate state agency
3. Wait for your Certificate of Good Standing

You’ll need to meet certain qualifications for the state to consider your LLC to be in compliance and issue a Certificate of Good Standing. Keep in mind, requirements vary from state to state, but to obtain and maintain the Certificate, an LLC normally must be in compliance with the similar items state to state.

Obtaining a Certificate of Good Standing generally requires:

• Have a registered agent. Any LLC that’s registered with the state must have a registered agent, which is a person or a company recognized by the state who is able to receive important paperwork and any legal notices on your behalf and make sure the information is forwarded to you. You must have a registered agent in every state where your LLC conducts business.
• Have filed annual reports. LLCs are required to file an annual report in most states. The report, sometimes referred to as a statement of information, contains updated business information, such as a new address or officers.
• Have all required business licenses and permits in place. Business licenses and permits may be required by the state in which your business is registered, and in some cases by federal, county, and local governments. The types of licenses and permits that are required varies depending on your state and industry, so be sure you research to find out what you need. Once you’ve obtained all the necessary licenses, you’re responsible for keeping up with renewal requirements to keep them current.
• Be up to date on your taxes. Your LLC may be subject to taxes at the federal, state, and local level. In addition, depending on your business, you could have to pay sales tax, self-employment tax, employment tax, excise tax, and/or a franchise tax. Again, you’ll need to research to make sure you’re aware of all taxes that apply to you and when you need to pay them.
• Have filed Articles of Amendment, if necessary. In addition to an annual report, your state may require you to file Articles of Amendment if you get a new registered agent, change the name of the business, move the business to a different location, or experience other changes. Regulations concerning Articles of Amendment vary from state to state, so you’ll need to find out what applies to your LLC.
• Have an updated BOI report. If you file Articles of Amendment to report changes within your LLC, you’ll also need to file an updated Beneficial Ownership Information (BOI) report. Used by the Financial Crimes Enforcement Network to confirm a business isn’t a front for money laundering or another crime, a BOI report includes names of beneficial owners and some information about the company. Failure to file a BOI report can result in serious penalties.
• Be registered in every state where you conduct business. An LLC that conducts business in a state other than where your company was formed must foreign qualify there. You’ll need to apply for a Certificate of Authority to prove you’re qualified to do business there, with qualification requirements varying from state to state. What qualifies as “doing business” also varies depending on the state, so you’ll need to do some research or seek advice on whether it’s necessary for you to foreign qualify.
• Have kept your personal and business finances separate. The U.S. Small Business Administration recommends that you set up and maintain separate personal and business bank accounts, transact business purchases with a business credit card, set up separate utility accounts for home and business, and apply for credit with a supplier or vendor in the name of the businesses. Maintaining separate finances is vital, not only pertaining to good standing, but also to maintain your limited liability status, be able to easily pay your taxes, and avoid other issues.

Once you’ve confirmed that your LLC meets these areas of compliance, you can fill out and submit your application for a Certificate of Good Standing to the state. You’ll need to provide the name and registration number of your business, along with all other information required.

Most states encourage you to apply for a Certificate of Good Standing online but may allow you to send the form by mail or submit it in person. Check the website of the Secretary of State for the most up-to-date requirements. You’ll need to submit a payment for the required fee, which varies depending on your state.

Once your application is submitted, it will be processed, and a Certificate of Good Standing sent to you if all requirements are met. Some states issue the Certificate almost immediately, while others can take days or weeks to issue. You may be able to expedite the process if you need your Certificate quickly.

Once you’ve obtained your Certificate of Good Standing you’ll need to renew it, as necessary. Check your state’s laws for renewal or filing requirements.

Consequences of Non-Compliance

Your state will not issue a Certificate of Good Standing for your LLC if you are not in compliance with all regulations. And while you don’t technically need a Certificate to conduct business, the lack of good standing status due to non-compliance can result in serious consequences.

It’s not uncommon for a state to levy fines and penalties to a business that is not in compliance with state regulations. In a worst-case scenario, the state could suspend your LLC’s right to conduct business, forcing you to effectively shut down while you work to resolve the matter. That could damage your reputation, put a strain on relationships with customers and vendors, and result in hefty legal fees.

Lacking good standing status also could put your business name at risk, as another business that is in good standing could claim rights to it. You may be unable to bring a lawsuit in your state due to lack of good standing, and you could find it very difficult to get financing from a bank or other lending institution.

One of the most serious consequences of not being able to get a Certificate of Good Standing due to certain types of non-compliance is the possibility that in the event of a lawsuit or debt a court may rule in favor of piercing the corporate veil, thereby eliminating the limited liability of your LLC. That, of course, would make all members personally liable for damages. A court may rule to pierce the corporate veil in situations such as comingling business and personal funds and assets, engaging in criminal activity, or borrowing money you know cannot be repaid.

Putting it All Together

My best advice to you is to make certain your LLC is operating in compliance with all rules and regulations and, if you don’t already have one, take the steps necessary to get a Certificate of Good Standing from your state and keep it up to date.

Having a Certificate in place removes the possibility that you’ll need to scramble to get one at the last minute if it’s needed and is a sign to everyone you do business with that your LLC is operating as it should.

Remaining in compliance and maintaining good standing status isn’t overly difficult if you’re vigilant about knowing and following all the regulations that apply to your LLC. Navigating that process can sometimes seem overwhelming, however, and it may be wise to seek professional help, if needed.