When was the last time your entities had a “check up” to assess whether or not they were in good standing with the state in which they were filed? If you haven’t taken the pulse on your entities in several months or years, now is a good time to reevaluate your standing.
Entity health should be monitored regularly to ensure “good standing”, prevent future non-compliance issues, and keep your organization operating at peak performance.
Some companies ignore routine entity health evaluations due to lack of time, resources, or knowledge – which can be costly down the road. Assessing your entities’ health and addressing challenges now can set you on the path for legal compliance.
Read ahead to learn why good standing is important and how to avoid falling out of good standing. Or, click here to watch the Best Practices for Monitoring, Managing, and Maintaining Entity Health in 2023 webinar on-demand.
Why Is a Certificate of Good Standing (COGS) Important?
A good standing status is important for legal entities because it confirms that the entity is compliant with its state’s rules and regulations. A COGS proves the entity’s existence and confirms its authorization to transact business in the state.
Legal Entity Good Standing Qualifications
All entities are issued a certificate of good standing during the business’ initial creation. However, all entities are not guaranteed to maintain good standing. Fortunately, steps can be taken to stay in good standing and ensure your business legally operates within its state. During the webinar, our panelists shared the following good standing qualifications:
File State Reports On Time
States have different deadlines, rules, and regulations that may change over time. Entity management can be challenging because of these differing timelines and changing regulations. Specifically, teams managing multiple entities may encounter issues filing state reports on time. But if your firm is to remain in good standing with the Secretary of State, the reports must be filed in a timely manner.
Pay State and Federal Taxes and Fees
A COGS requires each legal entity to pay all of its relevant state taxes and fees. These taxes and fees vary by state and the type of corporation.
There are five general types of business taxes:
- Income Tax
- Estimated Taxes
- Self-Employment Tax
- Employment Taxes
- Excise Tax
Federal tax returns are important for businesses because they show the government how much money you earned and how much money you’ve already paid in taxes for the year. If you don’t file your federal tax returns and pay on time, you risk added interest and penalties. The failure to file fee is 5% of unpaid taxes per month and late payments incur 0.5%, both capped at 25%. Additionally, if you miss the state tax filing deadline, you also become subject to penalties, interest, and other fees in addition to the amount of state taxes due.
Common Risks for Falling out of Good Standing
As we mentioned earlier, legal entity management and compliance is not always easy. However, working within the confines of your entity’s formation state in both an operational and legal capacity can reduce common good standing risks.
During the webinar, we outlined the following risks for falling out of good standing:
- Failure to pay a registration renewal fee
- Failure to file a required periodic document
- Failure to pay various types of state business taxes or fees
- Mistakes made in a previously filed document
Failure to stay in good standing may result in penalty fees and additional filings such as a reinstatement. Additionally, some businesses may need a clearance from tax departments which could take months depending on the entity’s formation state.
Reinstatement After Losing Legal Entity Good Standing
After falling out of good standing, organizations have the opportunity to reinstate the business. Reinstatement brings a business back to where it was before it fell out of compliance. Once a company has been dissolved, whether voluntary or involuntary, the business is no longer considered active. However, filing a reinstatement helps restore the company back to active status with the state. Reinstating a business allows the company to legally operate and helps the company to reclaim its good standing status.
Generally, the reinstatement process requires a business entity to:
- Retrace and resolve the issues that caused it to be dissolved
- Pay all taxes, interest, and penalties that are due
- File an application for reinstatement with the state administrator
In some states, reinstatement is only available for a certain number of years after dissolution. The period varies from state to state but is generally not less than two or more than five years.
How EntityKeeper Can Help With Good Standing and Compliance
A trusted third-party corporate services provider and an entity management software, like EntityKeeper, can reduce stress and help you maintain good standing and compliance.
EntityKeeper Corporate Services
EntityKeeper provides filing services including formation, incorporation, mergers, and annual reports. A full-service Corporate Services Provider, like EntityKeeper can assist with your annual reports filing from start to finish. As a highly specialized compliance expert, the provider is uniquely positioned to help you create personalized best practices that keep you fully compliant with legal standards and in full control of your business. With a corporate service provider like EntityKeeper, you can avoid time-consuming manual tasks, costly non-compliance fees, and missed deadlines so that you’re always in good standing.
Entity Management Software
Entity management software helps firms manage entities, build and manage complex org charts, and track deadlines in a single location. Without an entity management solution, firms are exposed to unnecessary errors and risks caused by outdated and manual processes. Ultimately, entity management software exists to help businesses gain control over their entities and the ensuing responsibilities.
Entity management software enables firms to:
- Track filing deadlines
- Receive automated alerts for filing due dates
- Centralize information and document storage
- Collaborate and share documents across teams
With EntityKeeper, you can avoid missed filing deadlines and payments and ensure that your business is compliant with state and federal requirements.
Watch the on-demand webinar Best Practices for Monitoring, Managing, and Maintaining Entity Health in 2023 to learn how to keep your entities in good standing. Or, click here to learn how you can get a free entity health check.