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A Simple 4-Part Plan for Returning an Entity to Good Standing

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Posted on by Kacy Flowers

2022 4

It’s important for a business entity (Corporation, LLC, etc.) to maintain its good standing status with the Secretary of State or equivalent filing office in every state where it is authorized to transact business. Being in good standing means that the business has satisfied all of the statutory requirements that have been imposed on it by the state.

An entity that fails to comply with the state’s requirements risks losing its good standing status and, along with it, all of the rights, protections, and privileges that come along with being a registered entity in that state. Consequences can be severe for businesses that fail to satisfy a compliance requirement. They include:

  • Fees, fines, and penalties
  • Loss of exclusive right to business name
  • Loss of access to the state courts
  • Potential personal liability
  • Inability to qualify in another state
  • Inability to enter into/enforce a contract
  • Inability to participate in a merger
  • Inability to obtain a business license
  • Difficulty in securing financing
  • Administrative dissolution or revocation

As you can see, being in bad standing can seriously impact an entity’s ability to conduct business. The business will continue to be subject to these damaging consequences until it returns to good standing.

The specific steps necessary for returning a business to good standing will vary depending on the jurisdiction and entity type, this article will outline a simple four-part strategy to get you started.

Identify the Issue(s)

First, you will need to identify the reason or reasons why the business entity is not in good standing. Bear in mind that if an entity is having trouble keeping current with its compliance obligations, there could be multiple deficiencies that will need to be addressed.

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File Missing Reports and Documents

Once you have identified all the areas where the entity is deficient, you will need to go about resolving the issues. Depending on delinquencies, this could involve filing missed annual reports, submitting back taxes, naming a new registered agent, and more.

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Pay Outstanding Fines, Fees, and Penalties

In filing the missing reports and documents, you will encounter fines, fees, and penalties that need to be paid as well; you will want to tackle them as soon as possible as they do accrue interest over time. The longer the delinquencies persist the more costly it will be to regain good standing.

Pursue Reinstatement

In some states, once late reports and documents are filed and any outstanding financial obligations are met, an entity will be automatically returned to good standing (reinstated), in other states the entity must submit paperwork to formally request reinstatement. Note that the reinstatement process can take several weeks, and not every state offers an expedited service.

In Closing

Remember that each state will have its own specific requirements and processes for returning a business entity to good standing. It's crucial to follow the instructions provided by the state filing office in your jurisdiction to resolve the issues and regain good standing status for the entity. If you discover that an entity you manage has fallen out of good standing, it’s a good idea to work with a service provider that you trust to help you walk through these steps; they can streamline the process and save you a lot of time and frustration.

CLAS Information Services can help! Our comprehensive suite of compliance services and technology were designed specifically to help businesses gain efficiency, manage their ongoing statutory compliance obligations, and mitigate risk. contact CLAS today at 800.952.5696 or connect@clasinfo.com. Or simply click on Contact CLAS below and a CLAS representative will get back to you shortly.

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For informational purposes only; content does not constitute legal advice.

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