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Editorial 8 MIN READ

Reading a certificate of good standing in July 2019

Two and a half years on, more states email a signed PDF, more deals want one dated the day of closing, and the short-form remains the one you actually need

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. What the document is, and how it reaches you now
  2. The 30 days, now often 10
  3. How entities still fall out, with the faster state clocks in mind
  4. What the certificate still does not say
  5. A rule of thumb
  6. Sources

certificate of good standing in July 2019 is still a one-page letter from a Secretary of State saying your entity is on the rolls and current on what the state needs it to be current on. What has changed since the first version of this guide ran in February 2017 is how the document gets to you, and how quickly counterparties now expect it to have been printed.

Delaware's short-form still costs $50 and the long-form still costs $175. The more interesting number, in 2019, is the freshness window at the other end: the 30-day floor that used to satisfy most closings has been squeezed to 10 days for sophisticated deals, and the bring-down on the day of signing is no longer a belts-and-suspenders step.

What the document is, and how it reaches you now

The substance is unchanged. Delaware's short-form certificate of status recites that the entity is "duly incorporated or formed" and "in good standing and has a legal corporate existence," and that all franchise taxes shown as owed on the date of issue have been paid. The long-form adds a chronological list of every filing the Division has on record. Both are signed by the Secretary of State, both carry an authentication number, and both are authoritative only on the date printed on the face.

What has changed is the delivery. Delaware's Division of Corporations now routinely issues electronic certificates. The signed PDF arrives by email, usually within a few hours of ordering through a registered-agent account or commercial filer, and the recipient validates it at corp.delaware.gov/authver/ by entering the entity file number and the authentication number printed on the certificate. The Division limits validation to one year from the issue date; after that the document is no longer verifiable through the tool, which is a useful proxy for how long anyone should treat a certificate as meaningful.

Texas moved in a similar direction. A Certificate of Fact, Status ordered through the Secretary of State's SOSDirect portal now comes back as an emailed PDF, typically within two hours, with no expedite fee. The statutory charge for the certificate is $15, and the Secretary of State's office says on its instructions page that original certificates are electronically generated. For a closing in Austin or Dallas where the Texas entity is one of four or five parties, the two-hour turnaround means a last-minute bring-down that would have required a Friday courier run a decade ago now happens in the back row of the conference room.

New York, for what it is worth, still does not let you order a Certificate of Status online. The Department of State's Division of Corporations accepts written requests for the certificate by mail, by fax, or by email with credit-card payment, and returns the document by first-class mail. The certificate still costs $25. A request sent by email typically gets the PDF back by email, which is as close to "electronic" as New York has offered, but there is no self-service online order form and no DOS-hosted verification tool comparable to Delaware's. Counsel in New York deals plan accordingly; a bring-down from Albany is a different logistical problem than one from Dover.

California's Secretary of State continues to issue a Certificate of Status for a $5 fee. Florida continues to sell one for $8.75 and will print it directly from Sunbiz. Massachusetts still distinguishes its Certificate of Good Standing (all reports filed, all fees paid) from its Certificate of Legal Existence (entity has not filed to terminate), which is the distinction lenders in Boston still occasionally bounce paperwork over.

The 30 days, now often 10

The standard freshness window in 2019 remains 30 days for most commercial purposes. A bank opening a deposit account will accept a certificate dated within the last month; a landlord signing a commercial lease will usually take something within 60 days. Those numbers have not moved.

What has moved is the window in M&A and syndicated lending. Under the 2019 model forms used by the ABA Business Law Section's M&A Committee and by the large New York and Silicon Valley firms, the standard condition to closing is a good-standing certificate of the target dated within 10 business days before closing, with a bring-down certificate ordered and delivered on the closing date itself. In syndicated credit facilities, administrative agents now routinely require long-form certificates of the borrower and of each guarantor dated within 10 business days, reissued at each amendment that materially changes the obligations. Private-equity funds running roll-up strategies often want the certificate for every newly acquired platform dated within five business days of the closing.

The reason is not paranoia. It is that electronic delivery, which used to be a convenience, is now a standard of care. Once a certificate can be in a lawyer's inbox in two hours, a certificate dated 30 days ago starts to look like a decision not to check. A Delaware entity that was current on June 15 can be current on July 15 and also can have been dropped from good standing for a missed June 1 tax on July 2, with the paper notice still traveling. The cost of ordering a fresh certificate is a rounding error next to the cost of a closing-day surprise, and deal counsel know it.

The ABA's Model Stock Purchase Agreement has long contemplated a closing-date bring-down. What has shifted is the practice around it. Sellers now sign knowing the buyer will order a certificate online the morning of the closing, open it on a phone at the signing table, and check the date. A certificate from two weeks ago on the same entity is no longer sufficient evidence of current status, even if nothing has happened in the interim, because the deal team has no way to prove that from the old document alone.

How entities still fall out, with the faster state clocks in mind

The mechanics of falling out of good standing have not changed in any structural way since the 2017 version of this guide. Delaware corporations still have a $200 penalty plus 1.5% monthly interest on an unpaid franchise-tax bill, and a charter that goes void after a year of non-payment under 8 Del. C. § 510. Delaware LLCs still have a three-year runway under 6 Del. C. § 18-1108 before the certificate of formation is canceled; before that, the LLC is considered "not in good standing" but still exists and can still perform under its contracts.

The California piece is worth updating because the Franchise Tax Board suspension is where more deal fires start than anywhere else. A California LLC that fails to pay the $800 minimum franchise tax, fails to file Form 568 (the LLC Return of Income), or fails to file Form 100S (for S-corporations) gets referred by the FTB to the Secretary of State for suspension. A corporation that fails to file a Statement of Information on time can also be suspended by the Secretary of State independently. Either suspension strips the entity of its right to enforce contracts, to maintain a lawsuit, or to defend one; a suspended California entity that tries to sign a merger agreement or draw on a credit line finds out, usually from the other side's counsel, that it cannot. Revival requires catching up on the tax, filing the outstanding return, and paying a $100 revival fee. Deal teams working with California targets in 2019 pull a current Certificate of Status from the Secretary of State and a printout of the FTB's entity status page, because the two systems update on different cycles and a clean SOS status is not a promise of a clean FTB status.

Texas forfeits an entity's right to transact business for failure to file the annual franchise-tax report or pay the tax due, under Texas Tax Code Chapter 171. The Comptroller's office publishes a Taxable Entity Search that runs alongside the Secretary of State's SOSDirect filings search; a bring-down in Texas usually involves a check of both, because the Comptroller's forfeiture happens administratively and will appear in the Comptroller's database before it filters into an updated Certificate of Fact. New Jersey, Illinois, and Massachusetts all run their own tax-compliance flags against their good-standing certificates; counsel on multi-state deals with substantial operating entities in those states now routinely order certificates from three or four jurisdictions for the target alone.

What the certificate still does not say

The longer the list of electronic verifiers grows, the easier it is to forget what the certificate does not cover. It does not say the entity has paid federal taxes. It does not say the entity is current on its municipal licenses or its state sales-tax registrations. It does not say the entity's registered agent still has capacity to accept service, only that someone is on file. It does not say anything about pending litigation, judgments, tax liens, UCC filings, or environmental orders. A clean certificate of good standing in Delaware and a clean Certificate of Status in California tell a buyer only that two state agencies have no immediate administrative reason to pull the plug. Everything else, in 2019 as in 2017, is separate diligence on separate public records.

One thing the electronic rollout has added is a small but real risk of stale authentication. A counterparty who validates a Delaware certificate through corp.delaware.gov/authver/ six weeks after it was issued is checking that the document is genuine, not that the entity is still in good standing. The Division's validation tool returns the certificate's issue date and the entity's status as of that date. The tool is a forgery check. It is not a bring-down. Treating a successful validation as confirmation of current status is the modern version of sending a certificate from a prior financing.

A rule of thumb

Order the short-form electronically, have it in hand the day it is needed, and order a bring-down on the morning of any closing that matters. If a counterparty asks for a 30-day window, assume the real expectation is closer to 10 days for anything transactional; the cost of a fresh certificate is lower than the cost of a second exchange of signature pages.

Sources

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