What is certificate of good standing? A certificate of good standing is an official document that states that the business is in good standing with its state. It means that the business has filed all of the appropriate taxes and legal papers with the Secretary of State’s office, which verifies it to be a legitimate organization.
You cannot obtain a certificate of good standing until you have satisfied your tax obligations and any lawsuits or liens against your business are resolved. A certificate of good standing can speed up transactions between companies because prospective buyers know exactly what they’re getting into when buying another company that holds a certificate of good standing.
Certificate of good standing requirements
Requirements may vary by state, but the following are common requirements for getting a certificate of good standing.
- The company must be registered in the state where it’s headquartered. This can include corporations, LLCs, partnerships, etc.
- The company must be current on all filing fees and taxes owed to the state where it’s headquartered.
- There must not be any pending litigation involving the company itself or its directors/officers/employees.
That said, let us now look at some uses of the certificate of good standing.
Common uses for certificates of good standing
Having a certificate of good standing can benefit your business immensely. Here are some common uses of a certificate of good standing:
- Prove that your business is legal
One of the most obvious uses for certificates of good standing is to prove that your company or business is legal. A certificate of good standing doesn’t just state that your company hasn’t been involved in any lawsuits. It also includes information like your business name and location and the date your business was established. This makes the certificate a perfect proof for potential clients because they can be sure you’re not a scammer trying to trick them into buying something.
- Increase efficiency during financial transactions
Businesses can make use of certificates of good standing to speed up financial transactions between businesses. For example, when one business is considering purchasing another, having evidence that shows the other business has a valid certificate can help with making decisions about how secure it would be to do such a transaction.
- Proof of solvency and ability to pay debts
Often, businesses need to take loans in order to do some of their projects. Before any bank or financial institution gives you the loan, they need to be sure that you will be able to pay back the money that you borrow from them. For this reason, having a certificate of good standing can help prove that you are capable of paying your debts and will be able to do so in the future as well.
Take Away
Different states have different business entity laws. For that reason, you need to understand what your state laws are and if your company should register for the certificate of good standing.
As mentioned, having the certificate of good standing benefits your business in many ways; more reason, you need to register for one now!
