Business Compliance and Good Standing

What Does It Mean for a Business to Be in Good Standing?

For a Delaware business, being in good standing generally means the entity has satisfied the requirements necessary to remain active with the Delaware Division of Corporations. These obligations depend on the type of business entity, but they commonly include paying required annual taxes, filing required reports, and maintaining a Delaware registered agent.

Good standing can be important when a Delaware business needs to qualify to do business in another state, complete certain financing transactions, or provide evidence of its legal status to banks, investors, or business partners.

How to Maintain Good Standing

To maintain corporate compliance, businesses must adhere to a number of laws and obligations that vary by state. Requirements can differ for corporations, LLCs, limited partnerships, and other entity types, so business owners should take note of what applies to their own circumstances. Some of the most important steps include:

• File required annual reports on time
• Pay required franchise taxes
• Maintain a Delaware registered agent
• Keep business files accurate and current

The Certificate of Good Standing

Companies that maintain proper business compliance and are current with all Delaware annual fees are able to obtain a Certificate of Good Standing whenever they may need one (also known as a Certificate of Existence). This certificate is a letter from the Delaware Secretary of State that declares the corporation is in good standing and all Delaware taxes are current.

You may be asked to provide a Certificate of Good Standing when completing certain business transactions, such as opening or updating a bank account, applying for financing, entering into a major contract, selling a business, or registering the company to do business in another state.

To obtain a certificate, our team at Harvard Business Services, Inc. can request a Certificate of Good Standing on your behalf. Simply fill out our online form and we'll get the process started right away!

Consequences of Losing Good Standing

In order for your corporation status to remain in good standing with the state of Delaware, you must file your annual Franchise Tax and pay your Registered Agent Fee. Failure to do so could result in your company being assigned one of the following statuses:

• Void: A corporation obtains this status if it has failed to file its Delaware Franchise Taxes for two consecutive years. Please note that failure to file the annual Franchise Tax by March 1 of each year will also result in a late penalty and monthly interest. Foreign corporations can also earn a void status by failing to file an annual report within a two-year period. Learn more by reading, "My Delaware Corporation Was Voided. Now What?"
• Forfeit: Corporations that fail to maintain a Delaware Registered Agent -- either because it failed to pay the annual fee or because the registered agent resigned and a new one wasn't chosen within 30 days -- acquire this status.

Loss of good standing can be detrimental to your business. In addition to the late penalties and interest that come with failure to comply, a business owner may even experience personal liability if their company becomes void or forfeited.

A corporation can also obtain a Canceled status, but the company will only be officially canceled if it has filed a Certificate of Dissolution and paid the necessary fees to formally dissolve the business entity.

How to Check Your Good Standing Status

The state offers a free Business Entity Search that allows you to look up a company by name or file number and view basic information, such as the entity name, formation date, entity type, and registered agent. However, this free search does not confirm whether the business is currently in good standing. To verify an entity's status you need to inquire with the Delaware Division of Corporations or your Registered Agent.

Remember that an online status check is not an official Certificate of Good Standing. If a bank, lender or government agency requires certified proof of your company's status, you will need to order the appropriate certificate.