Note: Whether you operate as a single-member LLC or an LLC that has elected S Corp tax status, maintaining your LLC's good standing with the state is essential. The requirements and principles outlined in this article apply to both structures, as S Corp status is a federal tax election and does not change your state-level LLC obligations.
What are Articles of Organization?
The Articles of Organization, sometimes known as a Certificate of Organization or Certificate of Formation, are the official documents required to register your limited liability company (LLC) with the Secretary of State. They include important details such as your LLC's name, principal place of business, registered agent information, and the names of its members or managers. This document is crucial as it lays the foundation for your business's legal structure.
The importance of maintaining "Good Standing"
Keeping your LLC “Active” and in "Good Standing" with the state is more than just a formality—it’s essential for protecting your business and keeping it legally compliant. Here’s why it matters:
- Liability Protection: Forming an LLC creates a legal barrier that treats the LLC as a separate legal entity from its owner, which means business assets are separate from your personal assets (referred to as the "corporate veil"). The good standing of a company is a key indicator that owners respect this separation by adhering to all state requirements, and if the company falls out of good standing (e.g., by missing required filings or fees), the “corporate veil” can be pierced—making you personally liable for business debts or liabilities.
- Legal Authorization to Operate: An LLC not in good standing may lose its authorization to do business in its domestic state (and in any states where it’s registered as a foreign entity). That can mean penalties, forced dissolution, or being barred from contracts or court actions. Some forced dissolutions, or administrative dissolutions, can be permanent, requiring you to register a new LLC from the beginning (this might result in needing to obtain a new EIN, bank account, S Corp election, etc.).
- Expansion: It's necessary if you want to register your business as a foreign entity in other states.
- Contracts and Banking: Vendors, lenders, and investors often verify a company’s good standing before signing contracts or issuing loans. Falling out of compliance can impact business transactions or affect your reputation.
- Avoiding Penalties: It helps you avoid any penalties imposed by the state for non-compliance. Sometimes, reinstating your LLC can involve paying penalties, filing back reports and sometimes going through administrative reinstatement or court processes. It can be costly and time-consuming.
- Certification Needs: You might need a 'Good Standing' certificate to meet certain legal requirements or business dealings.
When onboarding an existing LLC onto Collective, we cross-reference the information you provide with Secretary of State records to ensure your business is in good standing .
You can check your business's 'Good Standing' status through your state's business index where your LLC was formed. While some states may charge a small fee to confirm this status, most offer it for free online.
What does "Not in Good Standing" mean?
If your LLC is "Not in Good Standing," or “Inactive”, it indicates non-compliance with state business laws. Common reasons for this status include missing annual reports, unpaid filing penalties, inactive resident agents, or complications with state offices like the Department of Revenue. Luckily, reinstating good standing is generally possible by addressing these compliance issues, unless the business has been permanently dissolved.
Why your address matters to the state
Keeping an up-to-date and accurate address on file with the Secretary of State is crucial for several reasons:
- Legal Compliance: It ensures that your business meets state regulations.
- Official Correspondence: An accurate address ensures you receive important government correspondence, such as tax notices and legal documents.
- Legal Matters: It's vital for the proper service of legal documents and effective communication in case of legal actions.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.