How to Keep Your LLC or Corporation in Good Standing

When you’re faced with the daily challenges of operating a business, details concerning compliance issues can easily be overlooked. You should be aware, however, that allowing that to happen can result in serious consequences.

Once you’ve registered your Corporation, Limited Liability Company (LLC), or other business entity registered with the state, you’re responsible for complying with all applicable rules and regulations. Doing so is known as business compliance, or corporate compliance if your business is a corporation.

Remaining in compliance enables you to run your business normally and take advantage of benefits such as limited liability protection, being able to expand into another state, renew permits or licenses, buy business insurance, and transfer ownership of the business.

A business that complies with all requirements is considered to be in good standing with the state, which issues the business a Certificate of Good Standing. The name of the document varies depending on the state and may be called a Certificate of Existence, Certificate of Subsistence, a Certificate of Authorization, or Certificate of Status.

If your business doesn’t maintain good standing, operations could be disrupted and you could lose access to the business advantages mentioned earlier. That’s not an ideal scenario and one that you should work diligently to avoid. Let’s start by taking a closer look at the requirements you may need to meet to obtain and remain in good standing.

What Is Required for Good Standing?

Again, the specifics of what is necessary for a business to remain in good standing are different from state to state, and sometimes even from one municipality to another. Requirements may vary depending on the legal structure of your company and where you’re registered to operate your business.

For a business to remain in good standing, it normally needs to file the necessary reports and pay all applicable fees to the state’s Office of the Secretary of State or corresponding agency. There may be other requirements, as well, including those outlined below. By not adhering to these rules, the business risks losing its Certificate of Good Standing.

1. Maintain a Registered Agent

A Corporation or LLC that’s registered with the state must have a registered agent, which is sometimes referred to as a resident agent or agent for service of process. A registered agent is necessary in every state in which the Corporation or LLC conducts business.

A registered agent is recognized by the state as someone able to accept service of process on behalf of your business, meaning the agent will receive important paperwork and any legal notices and make sure they are forwarded to you. When you file your Articles of Organization or Articles of Incorporation with the state, you’ll be required to include the name and address—a street address, not a post office box—of your registered agent.

A registered agent can be a member of the company who uses the location of the business as the designated address, or a lawyer, accountant, tax preparer, or even a family member or friend who resides in the state. These are known as noncommercial registered agents.

Or an LLC can hire a commercial registered agent to receive all business and legal correspondence and forward it electronically in a seamless manner. Commercial registered agents file a special listing statement with a state agency responsible for business filings and compliance—usually the Secretary of State. That listing statement facilitates communication between the registered agent and the Secretary of State, assuring that documents critical to your business will get to the proper place in a timely manner. Noncommercial registered agents do not file a listing with the state.

2. File an Annual Report

Most states require Corporations and LLCs to submit an annual report, sometimes called a statement of information. The report is submitted to the Secretary of State and includes updated business information. If your company’s location has changed or you’ve elected new officers, those updates would need to be included in the report.

There’s a fee to file an annual report, which varies depending on your state. In New York, for example, it costs only $9 to file a report, while in Delaware, Maryland, and the District of Columbia the fee is $300. Some states require this report to be filed every other year instead of annually, and a few states do not require it at all. Due dates for filing the report vary but are usually based on the anniversary of your incorporation date, the end of the calendar year, or when your annual tax statements are due. You can check the requirements specific to your state on its website.

3. Pay Your Taxes

In addition to federal and state income taxes, you and your business may be responsible for sales tax, payroll taxes, excise tax, and/or franchise tax, which is a tax some states charge certain businesses for the right to exist as a legal entity and conduct business there. It’s extremely important to be aware of all taxes that apply to you and have a plan on how you’ll pay them in a timely manner.

4. Renew Business Licenses and Permits

It’s likely that your business is required to have some sort of license or permit to operate legally. While your business is registered with the state, some businesses may also need federal, county, or local licenses and permits to operate. You’ll need to research which business licenses and permits you’ll need by checking websites and remember to find out about renewal requirements. Operating without the required licenses and permits can put your business in jeopardy.

5. Keep Up With Corporate Meeting Minutes

If you’re running your business as an S Corporation or C Corporation, you’ll need to record minutes from your corporate meetings, as doing so is required by most states. You’re not required to submit the minutes to the state, but they should be kept with corporate records, as they are important for protecting the company’s limited liability status and keeping track of business proceedings.

Corporate minutes should capture details such as the date, time, and place of the meeting, who attended, who served as chair, actions taken, decisions made, the signature of the person recording the minutes, and the date the minutes were issued.  If you’re in charge of recording meeting minutes, check online for a meeting minute template. A variety of them are available and they can simplify preparation.

6. File a DBA

If you’re conducting business under a company name that’s different from the name you filed with the state, you’ll need to register a DBA, or Doing Business As. Also called a trade name or fictitious name, a DBA can be a variation of the registered name of your company or a completely different name. DBAs can be useful if you have a diverse line of offerings and want to market different products and services under different names, or if you’re expanding into a new area of business. You may be required to advertise your DBA name in a local newspaper or legal publication.

7. File Articles of Amendment if Needed

If you change the name of your company, get a new registered agent, change your business address, or have changes on your Board of Directors, you must officially notify your state by filing Articles of Amendment. These are required in most states in addition to annual reports, which also would note these types of changes. Again, requirements of what information must be reported and how reports should be completed and filed vary from state to state, so you’ll need to check to see what applies to you.

Update your BOI Report. If you file Articles of Amendment to report business changes, you’ll also need to file an updated Beneficial Ownership Information (BOI) Report. BOI reports are required of most small businesses that are registered as Corporations or LLCs. They name the beneficial owners of the business and include details about the company, including name and address. If any pertinent information changes on the Articles of Amendment, you’ll need to update the BOI report. The report goes to the Financial Crimes Enforcement Network, which uses the information to confirm that the business isn’t a front for money laundering or another crime. Failure to file a BOI report can result in severe penalties, so be sure to pay attention to this important requirement.

8. Keep Business and Personal Finances Separate

Regardless of the type of business you have, maintaining separate business and personal finances is critical, as not doing so can threaten your limited liability status, make filing taxes more difficult, and cause other problems.

According to the U.S. Small Business Administration, you should establish and maintain separate personal and business bank accounts; use a business credit card that allows you to track expenses, analyze spending, and build your business credit; set up separate utility accounts for home and business; and apply for credit with a supplier or vendor in the business’ name.

9. Register Your Business in Each State Where You Conduct Business

If you’re a Limited Liability Company (LLC) or Corporation and planning to conduct business in a state other than the one in which your company was formed, you’ll need to register the company in the state or states you’re expanding into. This process is known as foreign qualification, with “foreign” referring to a state other than where the business was started.

To register to do business in another state you’ll need to apply for a Certificate of Authority to prove you’re qualified to do business there. What constitutes “doing business” in another state varies, so you’ll need to do some research or check with a legal consultant to see if it’s necessary for you to foreign qualify. And requirements for how to foreign qualify vary from state to state, so check with the Secretary of State to learn more.

I know that’s a big checklist of tasks necessary to ensure you remain in good standing with your state, but I can’t stress how important it is to maintain compliance by following each of those directives. If you’re feeling overwhelmed and need help, you can hire reliable, professionals to help you navigate.

What Are the Consequences of Non-Compliance?

Failing to meet the requirements listed above, or any others that might pertain to your company, can result in loss of good standing and cause of variety of problems and issues, ranging from not being able to foreign qualify in another state to jeopardizing your ability to get approval for business financing. Let’s consider some of the things that can happen if your business loses its good standing status.

• Difficulty securing capital – A business that is not in good standing may find it very difficult to get a loan or obtain financing from a bank or other lending institution because the institution will consider the business to be high risk.
• Tax liens – If you’ve lost good standing status for not paying taxes, the IRS or a state or local taxing authority can impose a tax lien on your business. The tax lien acts as a legal claim against the assets of the business, including real estate, bank and investment accounts, intellectual property, and physical property. If the matter is not resolved, the IRS or another government agency can seize your property and sell it to pay off your tax debt. Someone who runs a business that’s not registered with the state risks having personal property seized, as well, as they do not benefit from limited liability protection. In addition to putting your property at risk, your business credit score can suffer as a result of a tax lien, making it harder to obtain funding in the future.
• Inability to bring a lawsuit – A company that’s not in good standing with the state may not be able to bring a lawsuit there. If you wanted to sue someone for breach of contract or to obtain monetary compensation, you may not be able to do so until good standing status has been restored.
• Loss of the right to its business name – A company that’s not in good standing risks losing the right to use its registered name in the state, as another business could claim the name as its own before the non-compliant company is able to reclaim good standing.
• Piercing of the corporate veil – While members of LLCs and Corporations are largely shielded from personal liability, that protection is not airtight. In certain instances, a court can rule in favor of piercing the corporate veil, which eliminates the limited liability of the business and holds its officers, members, and directors personally liable. There are specific reasons that a court would rule to pierce the corporate veil, including commingling business and personal funds and assets, engaging in criminal activity, or taking out loans you know cannot be repaid.
• Fines and penalties – States can levy fines and penalties on businesses that have not complied with regulations and led to the loss of good standing.
• Administrative dissolution or termination of the business – In worst-case scenarios, a state can remove a company’s right to conduct business, effectively shutting it down. Although this action can often be resolved, it causes problems and disruptions, can damage the reputation of a business, and results in hefty fees for legal assistance.
• Increased risk of business identity theft – With the incidence of business fraud on the rise, it’s not that uncommon for business identity thieves to examine state records and identify companies that are not in good standing. Assuming the business is in disarray, the thieves seize the opportunity to steal the company’s identity to borrow money, purchase items, or get access to bank accounts.

Here’s the Good News

The good news is that remaining business compliant and keeping your good standing status isn’t difficult if you remain vigilant and up to speed with any regulations that apply to your company.

More good news is that if your business does fall out of good standing, there are steps you can take to resolve the compliance issues and get your good standing status reinstated. You’d need to identify any fees owed to the state and repay them, pay all taxes and penalties, obtain and complete any necessary forms, and take whatever other steps are needed.

If you’re not sure of the status of your company, you can do a search on your state’s Secretary of State website and view information about your business, including whether it’s in good standing.

While none of these tasks is overly difficult, navigating the regulations and procedures can be confusing. If you’re having trouble determining the status of your business, figuring out how to remain in compliance, or wondering how to return to good standing status, a qualified professional can help.