What good standing means for your business: 4 reasons to stay in compliance

2. Staying in good standing can save money

If a business entity doesn’t maintain good standing, the state will likely make an involuntary adverse status change for the company, labeling it, on its public records, as delinquent, void, suspended or dissolved, depending on the state and the nature of the compliance issue. Returning a corporation or LLC to good standing requires the payment of fees, interest, and penalties. And if a business entity has been administratively dissolved or revoked, there are additional reinstatement fees.

Continued non-compliance can also cost your company its name. For example, another company may be able to form under the name of an administratively dissolved corporation or LLC. If that happens, the original business will have to pick a new name upon reinstatement, which can mean a major expense to update all products, brand assets, documents, and accounts bearing the old name. In other words, the cost of fixing these mistakes can add up, so keeping your LLC or corporation in good standing helps your business save money.

Compliance tip: Choosing the right registered agent can be helpful in keeping up with your LLC or corporate compliance responsibilities.

3. Good standing helps businesses expand into other states

When you form your LLC or corporation, the state considers you to be organizing a business entity. Your business entity (e.g., LLC, corporation) has the right to do business in the state in which you filed your formation documents. If you want to expand your business into other states, you’ll need to register in those states to transact business there. The new state(s) will usually ask for a Certificate of Good Standing from your formation or domestic state before they’ll let you register.

Compliance tip: Registering to do business in a new state is called foreign qualification. Foreign usually means another country or nation. But in this context, it simply means a state within the U.S, that is different from an entity’s formation state.

4. Losing good standing has serious consequences

Losing good standing isn't just an administrative inconvenience. The consequences can include the following:

• No access to the court system. If your corporation or LLC needs to file a lawsuit and is not in good standing, many states will not allow it to maintain that lawsuit
• Personal liability. States may also fine each employee, officer or director who conducts business on behalf of a company while it’s in revoked status status if they have personal knowledge that the company is not in good standing.
• Vulnerability to business identity thieves. Business identity thieves check state records to see what companies are listed as suspended, delinquent, or dissolved. They assume no one is paying attention. They can then use the company’s identity to make loans or purchases that the company will be on the hook for.
• Tax liens. Unpaid state taxes, including franchise taxes (a common trigger for losing good standing), can result in a tax lien from the department of revenue, further hurting your ability to secure financing.
• Revocation or Administrative Dissolution.. Left unresolved, your business entity can be dissolved in its formation state and have its foreign qualifications revoked. Most states allow reinstatement, but usually only within a limited time window.

How to restore good standing

Getting back into good standing involves clearing up outstanding compliance issues and submitting the necessary paperwork and fees to the state The exact process varies by state. In general, businesses can expect to complete the following steps to return to good standing.

Determine what's outstanding. Start by identifying any overdue fees, annual reports, or other filings owed to the state. Many states will specify these on your Certificate of Good Standing (or lack thereof), but you may need to contact the state's business entity filing office directly to get a full picture.

File all annual reports that are due. Bring your reporting with the Secretary of State current by filing outstanding annual reports or information reports.

Pay all taxes due. This includes any unpaid franchise taxes that contributed to the loss of good standing, along with any other state taxes, penalties, and interest due. You may also need to request a tax clearance letter from the department of revenue.

Obtain and complete the necessary reinstatement forms. States typically require specific reinstatement (or "revival") forms in addition to your regular annual filings. Requirements differ by state, so confirm you have the correct forms before proceeding.

Review and submit the completed forms. Before filing, review the forms carefully for errors. A mistake on a reinstatement form can delay the process or result in rejection, requiring you to start over. Once everything is in order, submit the forms along with all applicable filing fees and attachments to the state's business entity filing office.

If your business has been administratively dissolved, check your state's specific rules and deadlines before starting the reinstatement process. Many states only allow reinstatement within a limited window, generally between two and five years after dissolution. Also keep in mind that if another business registers under your company's name while it's dissolved, you'll need to reinstate under a new name.

Learn more

Maintaining good standing requires constant attention, especially when you do business in multiple states. If you want to learn more about how to maintain your good standing, contact a CT Corporation specialist today.