Key takeaways:
- Small businesses that don’t comply with state corporation and LLC laws can fall out of good standing
- Good standing can be restored by resolving outstanding compliance issues and filing required forms
No small business owner who forms a corporation or LLC does so with the intention of letting it fall out of good standing, but sometimes it happens. There are instances where a small business owner may not be aware of when a state requirement is due, let alone know that it exists at all. There are other times when a struggling business simply does not have the funds to pay its annual report fee or some other state requirement that’s needed to keep that company compliant.
Regardless of how you got there, if your company has lost its good standing status with the state, the question is how do you get back to good standing? Before we tackle this question, let's define what it means to lose good standing status.
What does it mean to lose good standing status?
When a company has not met all the requirements of its state of formation, or any other states in which it has a foreign qualification (states other than the formation state where it is authorized to conduct business), it can fall out of good standing. This commonly happens when a small business fails to file the annual report or pay the franchise taxes required by its state of formation or foreign qualification.
Another instance would be if your company’s Registered Agent resigns (this typically happens when a small business has failed to pay the Registered Agent’s annual fee), or you use an individual Registered Agent who leaves the company’s employ, moves out of state, or otherwise can no longer be the Registered Agent, and you fail to appoint a new Registered Agent in a timely manner. In the state of California, failing to pay the franchise tax can cost a company its good standing status, while New York State businesses would suffer the same fate if they don’t meet the state’s publication requirement.
Companies that fail to comply with state requirements for long enough risk being dissolved by their state of formation. When a state administratively dissolves a corporation or LLC the benefits of company formation — including limited liability protection — can be lost. Continued non-compliance in states of foreign qualification can result in a company being administratively revoked — which means it’s no longer authorized to do business there.
How to reinstate your small business to good standing
Reinstatement requires a company to resolve outstanding business compliance issues and submit necessary forms and fees to the state. The exact steps can vary depending on the state, but what follows is a list of the major requirements that, in general, have to be met.
- Determine any and all outstanding or overdue fees and annual reports due to the state
- File all annual reports that are due
- Pay all taxes due
- Obtain and complete all necessary forms required to be reinstated
- Audit the reinstatement forms, looking for any errors prior to submission
- Submit completed reinstatement forms to the appropriate state agencies
- Include the applicable filing fees, penalties, and interest
Reinstatement allows you to regain the benefits and advantages of corporate/LLC status and the limited liability protection that comes with it. You gain peace of mind that you can enter new contracts and continue running your operations without worrying that your business has an uncertain legal status.
What if you want to dissolve your company?
If a small business owner wants to dissolve their company, but it is not in good standing with the formation state, the company will probably have to be reinstated first. States generally will not allow companies to voluntarily dissolve while still owing reports or taxes.
We're here to help
We understand that this can be complicated and time-consuming. Whether you have questions or need assistance with reinstating your small business back to good standing, contact our customer service team.
Related article:
What is good standing and why your business needs it
