What Are Corporate Good Standing Certificates?

This week, our old friends and affiliates at fastARfunding return to discuss one of the most vital documents a limited liability company or corporation need, a corporate good standing certificate. These documents are vital for establishing invoice factoring facilities and much more, find out the benefits they offer below!

One of the most basic underwriting criteria for any factoring company will be the regular checking of your business’ certificate of good standing.  So, during the diligence and underwriting process, don’t be surprised or alarmed if the factoring firm requests copies of the state-issued document.  Note that the factoring firm is just filling a necessary due diligence step in their ongoing relationship management process and the information goes into one of their internal files.  The file folder could be labeled what have you done for me lately because the factoring firm may request this information at regular intervals to ensure certain things about your company.

I’m a firm believer that there are no “stupid questions”, so let me explain some basics regarding why a corporate good standing certificate document is important.  A certificate of good standing is a document issued by a state within the US that demonstrates that a limited liability company or corporation exists, is authorized to do business, and has complied with all the formalities within that particular state.  This type of document is critical for finance companies to have before advancing funds to you.  As important as a driver’s license is with regard to the ability to drive legally, a certificate of good standing is often required when a company wishes to enter into specific contracts or relationships.  A finance company contemplating advancing funds to you will be entering into exactly that type of contract, so all parties want to be sure they are legally allowed to be doing business together.

So, what’s in one of these state-issued documents anyway?

Typically, the document will:

1) Include your company’s name

2) Say that your company is incorporated and authorized to do business in the state

3) Ensure all fees, taxes and/or any applicable penalties owed the state have been paid

4) The company’s most recent annual report has been filed, and

5) That articles of dissolution have not been filed.

Note that if your company is not in good standing with the state in which it is incorporated, the state will often deliver a document that shows the corporate existence, but could also include a “bad standing” statement, which likely will negatively affect the reputation of the business and/or limit your ability to “transact” in the intended deal.

Having regular updates of a certificate of good standing is important for finance companies like FastA/R Funding who are continually entering into contracts to purchase your accounts receivable and advance cash to you.  Therefore, making sure a company has its state-issued good standing certificate would be considered one of the “basics” in dealing with a factoring company.