Certificate of Good Standing
A Certificate of Good Standing, also known as a Certificate of Existence or Certificate of Authorization, is a document issued by a state's secretary of state office. It affirms that a corporation or limited liability company (LLC) exists legally and that it has complied with all the statutory requirements such as filing annual reports and paying all necessary fees. It is often required when a company wants to operate in a state other than its state of incorporation.
Last updated: August 20, 2023 • 5 min read
What Is Certificate of Good Standing?
A Certificate of Good Standing, also known as a Certificate of Existence or Certificate of Authorization, is a document issued by a state authority (usually the Secretary of State) that asserts a company's compliance with applicable laws and regulations. The document confirms that a corporation or an LLC (Limited Liability Company) exists legally and is properly maintained. It signifies that the company has paid all the annual fees, filed all necessary reports, and met all the necessary legal requirements. It is often required when a business aims to transact outside its domicile state or requires funding.
What's the Difference Between Certificate of Good Standing and Certificate of Incumbency?
While the Certificate of Good Standing and the Certificate of Incumbency both relate to the legal status of a business, they serve different purposes and provide different information.
Certificate of Good Standing: This document affirms that a corporation or LLC is legally registered to operate in a given state. Produced by a state authority, it typically confirms that the company has complied with all statutory requirements, paid necessary fees, and isn't overdue on any taxes.
Certificate of Incumbency: Also known as a "Certificate of Officers," "Incumbency Schedule," or "Register of Directors," this internal document lists the incumbent directors and officers, their roles within the company, and that they are indeed authorized to enter into legally binding transactions on the company's behalf. The Certificate of Incumbency is often used in international transactions.
What Are Some Examples of Certificate of Incumbency?
A Certificate of Incumbency typically includes the following information, although the specifics can vary depending on the company and its unique requirements:
Company's Legal Name: This is the legal name of the company under which it operates and is registered.
Directors: A list of the current directors of the company, often including their names, positions, and the date they assumed their roles.
Officers: Similar to the director's information, this would list out the officers of the company, including their names, positions, and the dates they also assumed their roles.
Shareholders: Although not always required, some certificates may also include detailed information about the company's shareholders, including the number of shares held by each.
Signatures: Certificate of Incumbency often includes signatures of the company's officers or directors confirming the veracity of the information provided in the certificate.
Company Seal: While it's not a legal requirement in many places anymore, companies sometimes affix their corporate seal as a sign of authenticity to the certificate.
It's also worth noting that while Certificate of Incumbency is often used by companies incorporated in common law jurisdictions, its equivalent in civil law jurisdictions is often referred to as "Certificate of Corporate Status" or "Certificate of Legal Representation".
What Factors Influence the Acquisition of a Certificate of Good Standing?
Acquiring a Certificate of Good Standing is influenced by several factors, including:
Compliance with State Requirements: The business must be in compliance with all applicable laws and regulations in the state where it's registered. This includes payment of annual fees, filing requirements, licensing, and other obligations.
Payment of Taxes: The company must not have any outstanding tax liabilities. A company owing back taxes or with unpaid current taxes will typically not be in good standing.
Legal Status: The company should not be in bankruptcy, dissolution, or being subjected to involuntary dissolution proceedings initiated by the state.
Payment of Fees: Certificate of Good Standing is usually issued upon payment of a fee to the appropriate state agency.
Business Structure: It's essential to note that the requirements may vary depending on the legal structure of the business (LLC, Corporation, etc.), and the specific laws of the state where the business is registered.
Company Age: Some states require that a company be in operation for a certain period before it can gain good standing.
Remember that the specific requirements can vary by jurisdiction, so businesses should familiarize themselves with local requirements.
What Are the Benefits of Certificate of Good Standing?
Having a Certificate of Good Standing offers several benefits for a business, including:
Credibility: This certificate provides proof that a business is legally recognized and properly maintained according to governing laws. This can boost the company's credibility with clients, investors, and partners.
Business Transactions: If a business wants to expand operations to another state or country, it's often required to provide a Certificate of Good Standing. This verifies its legitimacy and compliance with its home state's regulations.
Financing: Many banks and financial institutions require businesses to provide a Certificate of Good Standing when applying for a loan or line of credit, especially in large transactions.
Contract Proposals: It can be an important factor when a business is competing for contracts, particularly with governmental entities. It demonstrates that the company is reliable and legally compliant.
Selling the Business: If a business owner decides to sell the business, having a current Certificate of Good Standing can increase its attractiveness to potential buyers, as it indicates the company has met all its legal and tax obligations.
Renewal of Licenses: Some states require businesses to present a Certificate of Good Standing to renew certain licenses.
In essence, the Certificate of Good Standing provides reassurance to all parties involved with the business that it's operating within the confines of the law and performing its due obligations.
Which Types of Businesses Typically Require a Certificate of Good Standing?
Typically, all formally established commercial entities that are registered to conduct business may require a Certificate of Good Standing. More specifically, these might include:
Corporations: Whether they are small or large, corporations often need to provide a Certificate of Good Standing for various purposes such as opening a bank account or securing a loan.
Limited Liability Companies (LLCs): Like corporations, LLCs often need this certificate for banking, licensing, and in developing relationships with other businesses.
Partnerships: Depending on their jurisdiction, partnerships may also need a Certificate of Good Standing for similar reasons.
Franchises: When a franchise wishes to expand into new areas, they often need to provide a valid Certificate of Good Standing from their home state.
Non-Profit Organizations: Non-profits also might need this certificate for fundraising or applying for grants.
Foreign Businesses: Businesses that are headquartered outside of a state but wish to do business within that state might require a Certificate of Good Standing from their home state, territory, or country.
Remember that the requirement may vary based on jurisdiction and the specific context in which the certificate is being sought. Always consult with a legal expert or the appropriate state agency for advice tailored to your particular situation.