What Does “Good Standing” In Delaware Mean?

What Does “Good Standing” Mean?

Being in “good standing” means your company meets all its legal requirements in the state where it was set up. Generally, a company is in good standing if it has paid its state taxes and doesn’t owe any bills. Some states require corporations to also file an Annual Report to keep their good standing.

Keeping your company in good standing is essential for running a business. In states like Delaware, the Secretary of State can administratively dissolve a company if it loses its good standing for an extended period of time. This puts business owners at risk of losing their limited liability protection. This protection is crucial as it safeguards personal assets from business debts.

How To Maintain Good Standing In Delaware

In Delaware, LLCs and corporations need to meet three major requirements to keep their good standing status:

1. Pay the Delaware Annual Franchise Tax on time,
2. Have a Delaware Registered Agent appointed at all times, and
3. File Annual Reports each year. This requirement only applies to Delaware corporations however. 

Delaware companies need to pay their Annual Franchise Tax on time to keep their good standing status. The deadline for corporations to pay the Delaware franchise tax is March 1st each year, and for LLCs, it’s June 1st. 

Delaware corporations are also required to file an Annual Report that includes a list of their directors. The Delaware Annual Report gets submitted along with the company’s franchise tax payment.

Delaware state laws also require every company registered in the state to have a Delaware Registered Agent appointed at all times. Business owners can be their own Registered Agent if they have a physical address in Delaware. However, you can also hire a Delaware Registered Agent service to help take this responsibility off your plate. 

What Is A Delaware Certificate of Good Standing?

A Delaware Certificate of Good Standing is a document the Delaware Secretary of State issues. It certifies that a business entity has met its legal obligations in Delaware and maintains a “good standing” status in the state.

Delaware Certificates of Good Standing are crucial for several key business activities. For instance, a Delaware LLC or corporation may need this certificate to:

• Open a business bank account, 
• Register to do business in other states, 
• Obtain business loans or secure financing, and
• Purchase real estate. 

This type of certificate has different names in different states. Some states also call it  a “Certificate of Existence” or a “Certificate of Authorization”.

Who Needs a Certificate of Good Standing?

A Delaware Certificate of Good Standing is typically needed by businesses that must prove they are legally active and compliant with Delaware requirements. The certificate confirms the company has paid required franchise taxes, filed required reports, and remains authorized to do business.

The people and organizations that most commonly need one include:

Businesses expanding into another state

A Delaware Certificate of Good Standing is required by many other states to file a Certificate of Authority to register a foreign qualification when opening an office or hiring employees in a state outside Delaware.

Banks and lenders

An LLC is often required by internal bank policies to have a Certificate of Good Standing to open bank accounts, obtain loans, obtain credit, or close on loan transactions.

Investors, venture capital firms, and buyers

Delaware companies frequently need to prove their good standing status in order to appease investors, underwriters, and acquirers during mergers and acquisitions.

Businesses applying for licenses or permits

Many governmental agencies require the Certificate of Good Standing in order to issue a professional or operational business license.

Companies entering major contracts

Often business arrangements with partners, or large vendors extending credit, undertake internal due diligence where they insist upon a Certificate of Good Standing prior to entering into an ongoing business relationship.

Companies involved in legal or compliance matters

Long-term advisors, regulators, and tribunals (attorneys, courts, compliance professionals) may require a certification of good standing in order to render a legal opinion for the company.

In practice, Delaware entities most often need a Certificate of Good Standing when:

1. Registering in another state,
2. Opening a business bank account,
3. Borrowing authorization,
4. Legal compliance, or
5. Legal due diligence.

The certificate is usually expected to be recent — commonly issued within the last 30–60 days.

How Often Do You Need to Get a Certificate of Good Standing?

A Delaware Certificate of Good Standing does not need to be renewed on a set schedule because the certificate itself does not officially expire. Instead, businesses typically obtain a new certificate whenever a bank, investor, government agency, or another state requires proof that the company is currently compliant and active. Most organizations ask for a certificate that was issued within the last 30 to 90 days, depending on the transaction.

Companies commonly need a fresh certificate when registering to do business in another state, opening a bank account, applying for financing, raising investment capital, renewing licenses, or completing mergers and acquisitions. To remain eligible for a Certificate of Good Standing, a Delaware company must stay compliant by paying franchise taxes, filing any required annual reports, maintaining a registered agent, and meeting all requirements of the Delaware Division of Corporations.

How To Get A Delaware Certificate Of Good Standing.

You can purchase a Delaware Certificate of Good Standing for an LLC or corporation from a Delaware Commercial Registered Agent, like IncNow. As a Registered Agent, IncNow has access to the Delaware Division of Corporations’ online filing system and can quickly generate a Certificate of Good Standing for any Delaware company.

How Does A Company Lose Good Standing?

A business entity might lose its good standing status if the company:

A.)  Fails to file Annual Reports on time,

B.) Does not have a Registered Agent appointed, or

C.) Misses state franchise tax payments.

Oftentimes, a company can regain its good standing fairly quickly by correcting one of these issues.

What Happens When A Business Loses Good Standing?

Losing good standing status can cause serious problems for a business and its owners. States may impose fines and penalties on non-compliant companies. For example, in Delaware,  companies that don’t pay their annual state franchise tax to the Delaware Division of Corporations on time immediately lose their good standing. 

Additionally, the state charges late fees, which accrue interest, making it increasingly challenging to settle the tax debt. The company needs to pay its full tax balance to restore its good standing.

Furthermore, a company can be administratively dissolved or declared “void” for losing its good standing. For example, if a Delaware company fails to maintain a Registered Agent on the state’s website for more than 30 days, the Delaware Secretary of State will dissolve it.

How To Regain Good Standing In Delaware

Delaware LLCs and corporations often lose their good standing status by missing the deadline for their Delaware Annual Franchise Tax payment. Delaware corporations need to pay their franchise tax by March 1st each year, and LLCs need to pay by June 1st.

You will need to pay the company’s overdue franchise tax balance in full to return its good standing status. This includes any late fees and interest penalties applied by the state. You can make payments for the Delaware state franchise tax directly on the Delaware Division of Corporations website at corp.delaware.gov.

After you submit your franchise tax payment, the Delaware Division of Corporations will automatically update your company’s status to good standing.

How To Revive a Delaware Company

If your Delaware company has been administratively canceled by the Secretary of State, there’s a process to revive it and restore its good standing status.

Step 1: Pay The Overdue Delaware State Franchise Tax

First, pay all of the Delaware state franchise tax that the company owes. This needs to be done before the company can be revived. You can make these payments through the Delaware Division of Corporations website.

Step 2: Appoint A Delaware Registered Agent

If your company lacks a Registered Agent in Delaware, appoint one. Consider hiring a Delaware Registered Agent service, like IncNow, to fulfill this role.

Step 3: File All Annual Reports (For Corporations Only)

If your company is a Delaware corporation, you’ll need to submit any missing Annual Reports.

Step 4: File A Certificate of Renewal and Revival

The last step is to submit a Certificate of Renewal and Revival to the Delaware Division of Corporations. This request asks them to reinstate your company and return its good standing status.

After the Renewal and Revival is processed and accepted, your company is reinstated and can conduct business legally again.

A Delaware Registered Agent service, like IncNow, can help you with the revival process and file the Certificate of Renewal and Revival in Delaware for you.

What Is The Delaware Annual Franchise Tax?

Delaware LLCs and corporations are required to pay an annual tax to the state to keep their good standing status. This Delaware Annual Franchise Tax is owed each year after the company is officially registered in Delaware.

To maintain good standing, Delaware companies must pay their franchise tax by the due date: June 1st for LLCs and March 1st for corporations each year.

For LLCs in Delaware, the Annual Franchise Tax is a set fee of $300. For corporations, the franchise tax amount varies and is calculated based on the number of shares the company is authorized to issue.

What Is “Void” Status For a Delaware Company?

The Delaware Secretary of State assigns a “void” status to an LLC or corporation if it fails to pay its state franchise tax for more than 3 years. Once a company goes void, the state will administratively cancel the entity. 

If your company is placed into void status, you can revive it by filing a Certificate of Renewal and Revival.