Letter of Good Standing (What Is It And How To Get It?)

What is a letter of good standing?

How do you get a certificate of good standing?

How important is it to have a good status certificate?

In this article, we will break down the concept of “letter of good standing” so you know all there is to know about it.

We will first tell you what it is, provide you with its definition, tell you why it’s an important document, how to get it, where to get it from and more.

By reading this post, you’ll master the essentials of a letter of good standing and understand its significance for your business.

Let’s jump right into it!

What is a letter of good standing?

A letter of good standing or a certificate of good standing is a certificate issued by the Secretary of State or equivalent body confirming that a business entity is duly registered and complies with the state rules to operate its business.

A letter of good standing can be issued to a limited liability company (LLC) or a corporation registered with the state.

A letter of good standing is a company’s evidence to show that it complies with the state rules for conducting its business.

According to the Cambridge Dictionary, a certificate of good standing is defined as:

“an official document that proves that a company exists, does not owe taxes, and is legally allowed to do business in a particular area”

What’s notable in this definition is that a certificate of good standing is:

1. An official document
2. Proves company existence
3. Proves company is allowed to do business 

A certificate of good standing is an important document as it proves that a company complies with the state rules and satisfies the registration compliance requirements.

For example, a certificate of good standing is issued to an LLC or corporation when:

1. The company has adequately filed its annual reports
2. The company has obtained the necessary business licenses and permits to conduct business 
3. The company is in good standing with its tax obligations
4. The company has paid its state fees and taxes

Who is eligible to get a certificate of good standing?

Any business entity created by the effect of the statute and that is registered with a state is eligible to get a certificate of good standing.

For example, the following official legal entities are eligible to get a certificate of existence:

1. Corporations (S-Corp, C-Corp)
2. Non-profit corporations 
3. Professional corporations 
4. Limited liability companies (LLC)
5. Limited liability partnerships (LLP)
6. Limited partnerships (LP)

Who is not eligible to get a good standing certificate?

Sole proprietors doing business under a DBA are not eligible to get a certificate of good standing. 

General partnerships are also not eligible to get a letter of good standing as they are not ‘legal entities’ that have come into existence by virtue of the law.

When do you need a certificate of good standing?

In the context of your ongoing business operations, there are many instances where you’ll be asked to provide a letter to prove that your company is compliant with your state rules.

Here are some instances when you’ll need a certification of good standing:

1. To get registered in multiple states as a foreign entity 
2. To get financing from investors 
3. To get financing from banks 
4. To open bank accounts 
5. To conclude a contract with a client
6. To sign a contract with the government
7. To bid on a federal government contract 
8. To get insured 
9. In the context of due diligence or M&A transaction 

How to get a certificate of good standing?

You can ask for a certificate of good standing directly from the state where your business entity is registered.

Your request should go to the Secretary of State who will assess your company’s compliance with the state rules and issue the needed certificate.

In some states, the certificate can be requested online or by email. 

You can use traditional means of mail and fax.

To get a good standing letter, you can expect to pay something along the lines of $5 to $50 depending on your state of registration and the type of business entity you’ve registered. 

Example 1: California

For example, in California, to get a certificate of good standing, you can only request it by mail or drop off the request at the Secretary of State’s office.

You’ll need to complete a Business Entities Records – Order Form to request a certificate of good standing California and pay a processing fee of $5.00 per certificate.

Example 2: Delaware 

You can request an official Delaware certificate of good standing by using the Document Upload Service offered by the state of Delaware. 

Example 3: Texas 

Another example is requesting a certificate of good standing in Texas.

The state of Texas allows you to order one online using SOSDirect, by phone, email or by mail.

How long does it take to get a certificate of good standing?

If you apply online, you can expect to get your good status certificate the same day or next day (if you are in good standing of course!).

If you apply by fax or by mail, expect two to three weeks of a turnaround delay to get your certificate of good status.

How long is a certificate of good standing valid for?

For many transactions and business needs, the certificate of good standing will be useful for 30 days.

In other words, those asking for a certificate of good standing will require that you produce a certificate within 30 days of the date of the transaction, contract signature or the business need.

For example, if you want to register your company in multiple states, as a foreign entity, the state where you want to register will ask for a certificate of good standing from your home state.

In many states, the certificate of good standing must be issued within 30 days of the registration request. 

Some states accept a certificate of good standing issued for longer periods such as 60 days, some 90 days, some 6 months and a few of a year.

How do you stay in good standing?

Every state will have its own particular rules for companies to abide by to stay in good standing.

Even though you should consult a business lawyer in your state to know exactly how to comply with the local rules, here is a quick list of what you should consider:

1. File your annual reports
2. Get your business license 
3. Have a registered agent
4. Make sure you pay your state maintenance fees
5. Make sure you pay your business license permit fees
6. Make sure you pay your taxes 

What happens if you are not in good standing?

The consequence for a company that is not in good standing could be significant. 

A company that is not in good standing can be:

1. Administratively dissolved
2. Revoked from the state where it is not in compliance

In addition to the negative consequences on the company’s ability to conduct business, the company owners can engage their personal liability for the company’s non-compliance.

The limited liability protection or “corporate shield” or “corporate veil” can be lost putting the owners at risk.

It may take several years before a company is dissolved or revoked so the good news is that a company falling into bad standing will have time to cure the defect.

What to do if your company falls out of good standing?

If your company is no longer in good standing, you can cure the problem by submitting a reinstatement request to the Secretary of State.

Evidently, you must have a good understanding as to why your company was not in good standing so you can cure those issues before submitting a reinstatement request for your corporation, LLC or LLP.

Make sure you are up-to-date with your taxes, fees and potential fines levied against your business by the state.

Certificate of good standing sample

Every state will have its own type of certificate.

For example, California’s certificate of status looks like the following:

If you need more information on how to request a certificate of good standing, here is a table we’ve put together so you can quickly access the relevant Secretary of State’s website or its equivalent:

Certificate of good standing FAQ’s

What is a certificate of good standing?

A certificate of good standing is:

1. An official document
2. Issued by the state where your company is registered 
3. That proves your company’s existence
4. Establishes that your company meets the state registration requirements
5. And proves that your company is allowed to do business in that state

Do I need a certificate of good standing?

A certificate of good standing is not essential to be authorized to operate a business in a state.

Whether you have a certificate issued from your state or not, to be able to continue doing business in a state, you’ll need to do what’s necessary to always remain in good standing.

However, in some business dealings or transactions, you may be asked to furnish a good standing letter.

For example, if you want to get a permit, sign up for a business insurance policy, open a bank account or get financing from VC’s, investors or banks, you’ll be required to prove that your business entity complies with the state rules.

How to obtain a letter of good standing?

To obtain a certificate of good standing, you must make sure:

1. You validate that your business complies with the state rules and requirements (each state has its own requirements)
2. Request a certificate directly from the state where your business is registered online, by mail, email, telephone or in-person drop off request (each state has its own requirements)
3. Pay the necessary fees (in some states it may be at no charge)

How much does a good standing certificate cost?

To get a good standing letter, you can expect to pay something along the lines of $5 to $50 depending on your state of registration and the type of business entity you’ve registered. 

Who issues the good standing letter?

The certificate of good standing is issued by the state where your business entity is registered.

In most states, it’s the Secretary of State.

However, some other states issue a good standing certificate through Secretary of State equivalents such as the Corporation Commission, Department of Financial Institutions, Department of State or other.

What are other names for a certificate of good standing?

A certificate of good standing can be referred to using different names such as:

1. Letter of good standing
2. Good standing letter
3. Good standing certification
4. Certification of good standing
5. Certificate of existence
6. Certificate of status 
7. Status certificate 
8. Certificate of authorization
9. Authorization certificate 
10. Certificate of active standing 
11. Certificate of fact

The most common term used is “certificate of good standing”.