Good Standing and Legal Existence Certificates
Best Practice Summary

Virtual Paralegal Services provides senior level corporate paralegal assistance. If you’d like to discuss how VPS can assist with your closing, please contact us at [email protected]. Learn more about Virtual Paralegal Services

Corporations, limited liability companies and some other businesses that organize through filing with the secretary of state's office are required to file annual or biennial reports, pay franchise or excise tax and other requirements in order to remain "in good standing" with the state. The status of a business entity may be preliminarily checked at many secretaries of state web sites which may be quickly accessed using LeapLaw's Corporate Connection and LLC Connection. Status may also be checked by calling the secretary of state directly or using Virtual Paralegal Services.

A certificate of legal existence certifies only to the existence of the foreign or domestic entity in the state and not necessarily to the entity's good standing. Good standing and legal existence certificates may be ordered in long form (listing all amendments and/or officers and directors of the company) or short form (simple statement of good standing).

Good Standing Certificate
vs.
Legal Existence Certificate

The type of certificate issued varies from state to state. Some states, such as Delaware, offer only one type of certificate, a good standing certificate. The Delaware certificate certifies that the company is validly organized and existing in the state of incorporation and in good standing. Other states such as Massachusetts offer separate certificates; a good standing or a legal existence.

Good Standing
The good standing certificate certifies that the company is in good standing with the state, essentially meaning that all annual reports have been filed, the company has an active resident agent and all other statutory requirements are being met.

Legal Existence
The legal existence certificate simply certifies that the company legally exists in the state but does not necessarily certify as to its good standing. Therefore, a company could be not in good standing but still be able to prove its existence.

For typical transactions, good standing certificates are preferred over legal existence certificates. Legal existence certificates though, may temporarily suffice if the company is unable to expeditiously restore good standing.

Long Form Certificate
vs.
Short Form Certificate

States will provide a "long form" or a "short form" legal existence or good standing certificate, depending upon the state.

Short Form
A short form certificate are available for domestic and foreign companies. It will provide either that as of the date of the certificate, the corporation is in good standing or that as of the date of the certificate the company legally exists. It may be ordered when the certificate will not be accompanied by other certified documents on file and/or in foreign states where the company is qualified to do business. Short form certificates are typically available upon request and require no particular wait time.

Long Form
A long form certificate, available only in the domestic state, states that the company is in good standing or legally exists as of the date of the certificate as well as providing a list of documents on file (charter and any and all amendments) or a list of officers and directors or managers in the case of a limited liability company. For transactional purposes, it is common to order long form certificates in the state of incorporation listing all amendments. This will essentially provide a certified list that the other party can use to compare against certified copies of the charter that is being presented, in order to assure that the entire charter is being presented.

Best Practice Tips:

• Delaware issues long form certificates but this is not true in all states. Check with the secretary of state ahead of time when you require a long form good standing or a long form legal existence certificate. Some states may take 5-7 business days to issue these certificates.
  
  
• It is important to note that long form certificates may not be immediately available. Some states take 3-5 days to issue the certificate due to research time.
  
  
• Good standing or legal existence certificates are generally considered to be outdated after 30 days. It is best practice to order good standing certificates no earlier than a few weeks before the closing to assure that they will not need to be reordered.

Checking Good Standing

Good standing may be preliminarily checked online at many secretary of state's web site available at LeapLaw's Corporate Connection and LLC Connection. If the secretary of state's web site does not provide a "good standing" status for the company, you can check to see if all annual reports are on file. If they are, you can be reasonably assured that the company is in good standing. Good standing status in the state of incorporation and all the states where the company is qualified to do business should be checked as soon as practicable and very early in the transaction so that time is allowed to cure any issues.

Good standing or legal existence certificates may also be ordered directly online with some secretaries of state or via Virtual Paralegal Services.

Ordering Good Standing Certificates

Good standing or legal existence certificates may be ordered via Virtual Paralegal Services. LeapLaw's Corporate Connection and LLC Connection provides direct links to Colorado, Georgia, Hawaii, Indiana, Ohio, Utah. These states currently offer access to good standing certificates online. For a list of states that make good standings available online see LeapLaw's Corporate Connection and LLC Connection.

Bring Down Good Standing

Since good standing certificates are often ordered a few weeks before a closing. A "bring-down good standing" may be requested the day of the closing only for the state of incorporation. This is a report is typically a fax from the secretary of state stating that the company has remained in good standing from the date of the good standing certificate to and as of the closing date.

Best Practice Tip: It is possible that good standing was checked and the company falls out of good standing between the time good standing status was checked and the time of the closing if an annual report is due in the meantime. For instance, many annual reports are due on or before 12/31. If a good standing is sought in January, for instance, the company may have fallen out of good standing if the annual report was not filed or recorded.

What if the Company is Not in Good Standing?

The typical reason a company is not in good standing is for failure to file required annual reports. In order to restore the company to good standing usually entails filing all back annual reports and paying the necessary filing fees and penalties.

Best Practice Tips:

• If good standing status is not available on the results page at the secretary of state's web site, checking to assure that all annual reports have been filed may provide reasonable assurance that the company is in good standing. Calling the secretary of state directly or running a status check through Virtual Paralegal Services will render even greater assurance. Legal existence is confirmed when a record is returned in response to your inquiry. You may want to look for additional identifiable information such as recognizable officer names or business address, in order to assure that you have the right company.
  
  
• When a company is not in good standing, a legal existence certificate may suffice until the company is restored to good standing.
  
  
• If filing annual reports is necessary to bring the company back into good standing it is important to file the annual report and order the good standing certificate simultaneously. Otherwise, the annual report may be lost in processing and without proof of filing, the state will still not issue the good standing certificate.
  
  
• Check LeapLaw's 50 state pages to determine if annual reports are required for the entity.
  

Tax Good Standing Certificates

Some states, such as Delaware, issue one good standing certificate that includes a statement as to tax good standing. If corporate or franchise taxes are not collected by the secretary of state, the good standing certificate will typically not certify to tax status. A separate tax clearance certificate or certificate of tax good standing must be obtained. For more information regarding tax good standing certificates, see LeapLaw's Tax Good Standing Best Practice Summary.

LeapLaw's
Related Best Practice Summaries