How to Keep Your LLC in Good Standing

Starting a new business takes a lot of work. Before you serve your first customer or fulfill your first order, it is important to first determine the best business form for your business and complete the official formation process.

Although starting a business is a significant achievement, small business owners cannot coast on past accomplishments. You must look to the future and the next steps. This includes keeping your business in good standing with the state. Not maintaining the legal status of your LLC can have serious consequences. You could owe fines, be unable to expand your business, and even face involuntary dissolution.

Fortunately, this can all be avoided by maintaining strong internal processes. If you are unsure what is required to maintain your LLC’s status, schedule a meeting with a business attorney right away.

The Consequences of Losing LLC Status

An LLC is a legal entity that exists independently of its owners. This structure protects LLC owners (called members) from the LLC’s debts and lawsuits, and it also provides taxation flexibility. These benefits are not available with sole proprietorships and partnerships.

However, these benefits come with a tradeoff.

If you fail to maintain your LLC in compliance with state statutes, your LLC could lose its good standing, resulting in one or more of the following consequences:

• The state may not issue a certificate of good standing, which may be required to open a business bank account, set up customer payment processing, apply for a business line of credit, expand into other states, or file and maintain lawsuits on behalf of the business.
• The entity could lose the right to use its business name in the state.
• The state may impose fines and penalties on the LLC and its members.
• Companies not in good standing may be more vulnerable to business identity theft.^[1]
• The business’s home state could dissolve the LLC.
• Other states could revoke the LLC’s qualifications to conduct business there.

Remaining in Good Standing

Recovering your LLC’s good standing may be as easy as sending a check or filing a document, but not all fixes are quick.

Losing good standing for even for a few days or weeks can impede your ability to apply for a loan or register to conduct business in another state, and compliance red flags can send a bad message to potential business partners.

Fortunately, maintaining your LLC’s status is not difficult. It simply requires attention to detail and good time management. In most states, taking the following steps will keep you in good standing:

• Amend the articles of organization if there is a qualifying event, such as a business name change, a change in the name or address of the registered agent, or a change in the LLC’s financial, taxation, or management structure. Different states may have different events that trigger an amendment to the articles of organization and require a filing with the secretary of state or other state agency.
• File an annual report with the state in accordance with state LLC laws. Not all states require an annual report, and some only require them every other year. Each state also has its own reporting requirements. Generally, you must provide information about the LLC’s registered agent, its current business address, the names and addresses of members and managers, and an updated description of business activities. Reports are usually due on the formation anniversary, but not always. Most states require you to file with the secretary of state, but this is not universal. Check the due date and where to file. Expect to pay a filing fee with the report.
• File state and federal taxes when they are due. LLC members are often treated as self-employed individuals, and thus must pay quarterly estimated taxes. Tax deadlines vary depending on whether an LLC is filing as a sole proprietorship, partnership, S corporation, or C corporation. Some states, including California and Delaware, also require an annual LLC tax.
• Renew business licenses and permits, such as health permits, occupational licenses, liquor licenses, building permits, and zoning and land use permits. Many of these need to be renewed annually. In addition to state licensing laws, cities and counties may have separate registration rules.
• Resolve any criminal activity charges against the business or one of its owners. Criminal activity could lead to loss of good standing.

The responsibility for maintaining good standing is often spread across different departments in a business (e.g., finance, legal, and tax). Businesses that have compliance teams may fail to communicate internally, stay up to date on state requirements, and monitor company information.^[2]

Losing your good standing could come down to a simple error like a mistake in a filed form, missing information, or paying a non-current filing fee.

You Earned Your Good Standing. Don’t Let It Slip Away.

There is an entrepreneurial saying that you should work on your business, not in your business. It captures the idea of taking a big-picture view and not getting bogged down in minutiae. Spending too much time on tasks that can be delegated robs you of the energy needed to plan, build, and strategize.

Compliance failure is not a mistake your LLC can afford to make. Maintaining good standing demands constant attention, cross-department coordination, and a proactive strategy. To stay on top of your LLC status obligations, consider meeting regularly with an experienced business attorney, especially if your LLC has a more complex structure and operates in multiple states.

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