A certificate of good standing is a document that shows that a company is in existence and authorized to transact business in the state issuing the certificate as of the date the certificate is issued. The certificate is issued by a governmental agency (usually the secretary of state) in the jurisdiction where the entity is formed or qualified to do business.
Companies typically select one of several statutory representatives, such as CT Corporation, Telos Legal Corp, or National Corporate Research, to serve as the agent for service of process in the state of formation or qualification of the company. These full-service registered agents are obligated by law to forward to the company all notices and filings that they receive on behalf of the company. It is imperative that a company act immediately upon receipt of any such notice because these matters often include response time restrictions imposed by each secretary of state or other governmental authority. The penalties and fines for failure to timely respond can accumulate very quickly and possibly lead to a forfeiture of status of a company’s good standing.
When an entity is not in good standing, there are potentially serious consequences. For example, a company may lose the right to bring a lawsuit in the states of formation and qualification until its corporate status has been revived. In a financing transaction, a lender will see an increased risk in a borrower that might have its entity status revoked, especially if the suspension is related to overdue taxes, since a tax lien has priority status over other liens. In certain states, each officer and director of a forfeited corporation may be personally liable for any debts and obligations of the forfeited corporation. In other states, a lack of good standing can even affect the enforceability of contracts entered into by the non-compliant entity. Lastly, failure to remain in good standing often constitutes an event of default by a company that has borrowed money under terms of a commercial loan facility.
Keep calm and maintain your good standing.