Business entities use a Certificate of Good Standing (also known as a "Certificate of Existence" or "Certificate of Authorization") to prove they are incorporated and authorized to transact business in a certain state (or “jurisdiction”). The "good standing" status signifies an entity is current with the filing requirements of that jurisdiction’s secretary of state’s office, as well as being current with any corporate franchise taxes in that jurisdiction.
Banks will often require a Certificate of Good Standing from a business both when opening bank accounts as well as when obtaining financing, so most people make sure and order one at the time they incorporate so they can immediately open their business bank accounts upon receipt of their filed formation documents.
If you are foreign qualifying a business in another state, in most cases a Certificate of Good Standing is required. This is to prove to the jurisdiction
that you are actually registered in your business entity’s home state, and that you abide by the rules of that jurisdiction.
So what does it look like? A Certificate of Good Standing will generally have the name of the entity, a small paragraph stating that the entity is authorized to do business in that jurisdiction, and depending on the jurisdiction that it is obtained from, it might also be on special decorative paper or have a decorative embossed seal of some kind on it.
So, obtaining a Certificate of Good Standing is a must if you:
- Are opening a new bank account.
- Are attempting to obtain credit on behalf of the business entity.
- Need to prove in court that your entity is in good standing with the State.
- Are foreign qualifying your entity to do business in another state.