What this is: The Delaware Secretary of State is so efficient that you can frequently obtain required supporting documents for due diligence checklists, legal opinions and opening bank accounts on a same-day basis, often within an hour. However, there are certain situations where you may not be able to get what you need on a rush basis.
What this means: Anyone hoping to obtain an expedited Delaware Certificate of Good Standing should check whether there are filings pending that may cause a delay.
Those who work in corporate legal practice areas of law firms or departments in-house generally understand the benefits of forming a business entity in Delaware. There are more than due to modern and flexible corporate laws, highly respected judiciary, business-friendly government and customer service-oriented efficiencies.
One of the most frequently requested documents from the State of Delaware is the Certificate of Good Standing. This certificate provides evidence that a Delaware company (meaning corporations, limited liability companies, limited partnerships, etc.) is duly formed, in existence and has paid all franchise taxes due. Meeting these conditions, the company is considered in good standing in the State of Delaware, as of the date the certificate is issued.
A Certificate of Good Standing may be required by certain banks to open an account, as a supporting document for entering into a lease or any number of other time-sensitive matters that are important to operating a business. For financial closings, a Certificate of Good Standing is often a required condition that, if not obtained on a specific date, can cause a delay in the closing.
Considering how entity-friendly and efficient Delaware can be, it may come as a surprise when you cannot get a Delaware Certificate of Good Standing same-day for a company that you know has paid its franchise taxes to date and, for a corporation, has filed the required annual report.
Here's a key point to keep in mind when you request a Certificate of Good Standing. If there is another filing pending with the Delaware Secretary of State for the company, the Secretary of State can effectively place a “block” on the release of a Certificate of Good Standing (or charter document, like a Certificate of Incorporation or Formation) until the pending filing is approved.
For example, if there is a Certificate of Amendment, Merger or Conversion pending that has not been approved for filing yet, it can delay turnaround on a requested Certificate of Good Standing.
The good news (in most cases) is that if you urgently need a Certificate of Good Standing, there is an option to expedite the review and approval of the pending filing at an additional cost. Delaware offers 5 tiers of expedite fees as noted below, ranging from $50 to $1,500:
As noted above, this is good news in most cases. There is one scenario when upgraded expedite options for a pending filing are not available and can cause a delay in a closing or finalizing a business matter: If a corporation has a Certificate of Validation pending approval, there is no option to expedite the filing review.
Certificates of Validation are reviewed by a special designated team at the Delaware Secretary of State’s office. Under Section 204 of the Delaware General Corporation Law (DGCL), corporations have the means to ratify defective corporate acts, including “administrative errors” that may have resulted in stock not being validly issued. Depending on the complexities of these “administrative errors,” the time needed for the Secretary of State to complete the review can vary greatly.
We recently worked with a client that had requested a same-day Delaware Certificate of Good Standing to support a closing scheduled for the next day. We were unable to obtain it due to a block on any documents being released for the corporation in question, pending review of a Certificate of Validation that was submitted one month prior to our Certificate of Good Standing request. Unfortunately for the client, this block in obtaining the Certificate of Good Standing caused a delay in their transaction.
While the number of Certificates of Validation filed is small compared to other types of certificates (amendments, mergers, conversions as mentioned above), it is worth pausing to double-check whether there are pending filings, franchise taxes or annual reports owed by an entity that may cause a delay in obtaining a State of Delaware Certificate of Good Standing, especially when maneuvering around tight deadlines.
How does Delaware require annual reports to be filed?
Delaware requires that all annual reports are filed online. These final annual reports can be submitted up to 30 days in advance of the merger filing, as long as the date of filing is in the same calendar year as the merger.
In the case where there is a pending merger, it is best to coordinate the filing of the annual report in advance of the merger date to avoid delays. To learn more, visit our article, Year-End Checklist for Mergers or Consolidations of Delaware Corporations.
What happens if a Delaware alternative business entity fails to meet the June 1 deadline to pay the annual LLC/partnership tax?
Delaware will assess a penalty of $200 for non-payment or late payment, plus interest which will accrue on both the tax and penalty at the rate of 1.5% per month.
Delaware entities that fail to pay their annual taxes for 3 consecutive years will be deemed void on the Secretary of State’s records. However, Delaware statutes allow you to reinstate the entity by filing a Certificate of Reinstatement and paying all past-due taxes, penalties and interest. (Your registered agent can assist you with this filing.) Head on over to FAQs: Annual Tax Payments for Delaware Alternative Business Entities, to read more.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.