Nobody forms a business with the intention of letting it fall out of good standing and into bad standing. But sometimes it happens. There are instances where a small business owner may not be aware of when a state requirement is due, let alone know that it exists at all. There are other times when a struggling business simply does not have the funds to pay its annual report fee or some other state requirement that’s needed to keep it compliant.
Regardless of how you got there, if you’re in “bad standing” with the state, the question is how do you get back to good standing? Before we tackle this question, let's define what bad standing means.
What does it mean to be in bad standing?
When a company has not met all the requirements of its state of formation, or any other states in which it has a foreign qualification (states other than the formation state where it is authorized to conduct business), it can fall out of good standing and into bad standing. For example, a small business can fall into bad standing if it fails to file its annual report on time.
Another instance would be if your Registered Agent resigns from representing your company (this typically happens when a small business has failed to pay the Registered Agent’s annual fee), or you use an individual Registered Agent who leaves the company’s employ, moves out of state, or otherwise can no longer be the Registered Agent, and you fail to appoint a new Registered Agent in a timely manner. In the state of California, failing to pay your franchise tax puts you in bad standing, while New York State businesses would suffer the same fate if they don’t meet the state’s publications requirement.
Companies that are in bad standing long enough risk being dissolved by their state of formation. When a state administratively dissolves a corporation or Limited Liability Company (LLC) the benefits of each company formation — including limited liability protection — are lost. (Companies that fall into bad standing in states of foreign qualification risk being administratively revoked — which means they no longer are authorized to do business there.)
How to reinstate your small business back to good standing
Reinstatement requires a company to resolve outstanding business compliance issues and submit necessary forms and fees to the state. What follows is a list of the major requirements a business needs to meet in order to be reinstated to good standing. First, it must identify all of the steps it must take to become compliant, such as:
- Determine any and all outstanding or overdue fees due to the state
- Obtain and complete all necessary forms required to be reinstated
- Audit the reinstatement forms, looking for any errors prior to submission
- Submit completed reinstatement forms to the appropriate state agencies
- Include the applicable filing fee
Reinstating your business allows you to regain the benefits and advantages of both corporate status and the limited liability protection that comes with it. You gain the peace of mind that you can enter new contracts and continue running your operations without worrying that your business has an uncertain legal status.
What if you want to dissolve your company?
If a small business is in bad standing with the state and wishes to dissolve, most states require a reinstatement to be filed prior to allowing the dissolution. States generally will not allow companies to voluntarily dissolve while still owing reports or taxes.
We're here to help
We understand that this can be very complicated and time-consuming. Whether you simply have questions or need assistance with reinstating your small business back to good standing, contact our customer service team at 855-832-0150.