What does good standing mean?

Business entities that fail to meet these obligations could lose their “good standing” with the state. This can have serious consequences, including the loss of the authority to operate as a business. If business owners fail to keep an LLC or corporation in good standing, they must act quickly to reinstate it.

What Is “Good Standing”?

A business entity is in good standing when it has fulfilled certain statutory obligations under state law. These obligations may vary among states, but they usually include the following:

• Filing annual reports by the deadline.
• Paying state franchise or privilege taxes, or filing a return stating that the business does not owe franchise taxes.
• Maintaining a registered agent and registered office in the state at all times.

Businesses may obtain a Certificate of Good Standing from a state agency like the Secretary of State or State Comptroller.

How Can You Keep Your Business in Good Standing?

Businesses remain in good standing with the state as long as they meet their state’s requirements. The following tips can help:

• Designate a responsible person: Assign someone to monitor the company’s compliance with state law and track any updates or changes to legal requirements.
• File periodic reports: Submit required reports on schedule, whether annually or every few years, depending on your state.
• Maintain state franchise or privilege tax compliance: Pay taxes or certify that no tax is due, according to state requirements.
• Follow registered agent requirements: Ensure your business has a registered agent who can receive official correspondence and legal documents. Promptly appoint a new agent if needed.

What Happens if Your Business Is Not in Good Standing?

If a business loses good standing, it can face both state enforcement actions and practical challenges. Depending on your state’s laws, the Secretary of State may:

• Publicly note that your business is delinquent.
• Suspend the business entity’s legal authority to operate.
• Forfeit the business’s status as a corporation, LLC, or other entity.
• Initiate administrative dissolution of the business.

Beyond official enforcement, losing good standing can also create significant obstacles for your business:

• Fines and penalties: States may assess fees for missed filings or tax obligations.
• Limited access to financing: Lenders and investors typically require a Certificate of Good Standing. A business that is not in good standing is considered a higher risk.
• Risk to your business name: Another entity could legally use your business name if you are out of good standing.
• Restrictions on legal action: Businesses not in good standing may be unable to file lawsuits, enforce contracts, or assert other rights until they restore their status.
• Loss of access to other states: Expansion to other states may be blocked if the business has lost good standing in its home state.
• Licensing and permitting issues: Obtaining necessary licenses and permits may be impossible without a Certificate of Good Standing.
• Personal liability of owners: Owners may face individual liability for fines or claims from creditors or customers if the business continues operating while not in good standing.
• Administrative or judicial dissolution: Repeated failure to maintain good standing can lead to a legal process to dissolve the business entity.

How Do You Check if Your Business Is Active?

Each state will provide Certificates of Good Standing upon request. The agency responsible for this is often the Secretary of State or the Comptroller. Most states also offer free online look-up tools where you can check your business status without requesting a certificate.

How Do You Restore Your Business to Good Standing?

Each state sets procedures for reinstating a business’s good standing. A typical process includes:

• Filing all required reports and returns.
• Paying all overdue taxes.
• Paying all fines associated with the loss of good standing.
• Filing a request to reinstate the business entity, along with a filing fee.

Maintaining your business in good standing requires filing reports, paying taxes, and meeting other state requirements. If your business loses good standing, it can face enforcement actions, financial penalties, and operational restrictions. Our Legal Pros can provide guidance tailored to your situation and help you restore or maintain your business’s good standing with confidence.
 

Key takeaways Business entities, such as corporations and LLCs, offer important liability protections. They also involve ongoing obligations to file reports and, in many states, pay franchise tax. Businesses that fulfill these obligations remain in “good standing” with the state. Businesses that do not meet these requirements lose good standing. Loss of good standing can result in fines, missed business opportunities, and personal liability for the owners. Over time, the state may dissolve the business entity. Restoring good standing requires filing missing reports and tax returns, paying all outstanding fines and taxes, and submitting a reinstatement request.

Additional resources

• What is reinstatement?
• What is administrative dissolution?
• What is a suspension or forfeiture?
• How to reinstate a business