Does Your Asset Purchase Agreement Require the Seller to Deliver a Good Standing Certificate?

What Business Owners Should Know

• Always require a current certificate of good standing before closing an asset purchase
• A standing certificate confirms the seller’s legal authority to transfer assets.
• Check the issue date of the certificate; most buyers request one dated within 30–60 days of closing.
• A seller not in good standing cannot deliver a valid certificate until it cures missed filings or fees with the State.
• Ask your attorney to review the certificate and supporting documents before you finalize the transaction.

If you’re just joining us, this is the seventh article in our ongoing series for business owners: “What’s Missing From Your Asset Purchase Agreement?” Today, we turn to the certificate of good standing and why it matters in an asset sale. This certificate confirms an entity’s status, showing that the company has met filing requirements, paid the required fees, and remains authorized to transact.

For a buyer, it is more than a formality. A missing or outdated certificate raises doubts about whether the seller has the legal authority to transfer assets at all. That’s why most agreements require a current certificate of good standing before closing. It’s a basic safeguard against buying from an entity that is revoked, suspended, or dissolved.

What Is a Certificate of Good Standing?

A certificate of good standing tells you that, on the date it was issued, a business entity has been confirmed by as meeting three conditions:

1. It is legally formed and on record with the State (corporations, LLCs, LLPs, LPs, and other entity types)
2. It is authorized to transact business and has not been dissolved, revoked, or suspended
3. It is current on filings, reports, and fees required by the State’s office

Put simply, it is the State’s verification that the entity exists and is operating within the law. To obtain that status in New Jersey, the company must have:

• Registered with the State through proper formation documents and paid the required fees
• Filed its annual reports on time with the Division of Revenue and Enterprise Services (DORES)
• Paid annual report fees and other obligations tied to its entity type
• Kept an active registered agent and business address on file
• Responded to notices and requests from the State when compliance issues arose

When a seller cannot provide this certificate, it usually means the company has fallen out of good standing. That signals missed filings or unpaid fees and raises questions about whether the entity has the legal authority to proceed with an asset sale.

Why a Certificate of Good Standing Matters in Your Asset Purchase Agreement

As the buyer, you rely on the seller’s legal authority to transfer the assets listed in the contract. A certificate of good standing affirms that authority. It verifies that the seller’s business entity is legally in existence, that its entity’s status is active with the State, and that it is in compliance with the filing registry maintained by the Division of Revenue and Enterprise Services.

Because of that, most asset purchase agreements condition closing on the seller providing a current certificate of good standing. It is common to see it referenced in three places:

• The seller’s representations and warranties (affirming that the company is duly organized and validly existing)
• The conditions to closing (delivery of a recent certificate)
• Schedules or exhibits, where the certificate is attached alongside other required documents such as permits, certified copies, and approvals.

What Business Owners Should Do

A certificate of good standing plays a small but crucial role in verifying a company’s legal authority before an asset purchase closes. The checklist below summarizes what every buyer should confirm before signing.

Following these steps can help business owners avoid last-minute delays and ensure that the seller’s company is properly authorized to complete the transaction.

Final Words

We hope this article clarified why a certificate of good standing matters in an asset purchase agreement. In our next installment, we will examine another key issue: Does Your Asset Purchase Agreement Include Representations by the Owners of the Seller?

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

At Wilkinson Law, we give business owners the clarity they need to fund, grow, protect, and sell their businesses. We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®

FAQs

How Recent Does a Certificate of Good Standing Need to Be for Closing?

Most agreements require a certificate dated within 30–60 days of closing. If closing is delayed, the buyer may request an updated certificate.

What if the Seller Is Not in Good Standing at the Time of Closing?

The seller must cure the issue (by filing missing annual reports or paying fees) before the State will issue the certificate. Until then, the buyer should not proceed with closing.

Does the Certificate of Good Standing Prove That All Taxes Are Paid?

Not necessarily. The certificate verifies the company’s registration and compliance with the State’s office. For tax-specific clearance, a separate tax status or clearance certificate may be required.

Is the Certificate Required for All Business Entity Types?

Yes. Corporations, limited liability companies, limited partnerships, and limited liability partnerships may all be asked to provide one. Even though sole proprietorships do not issue certificates, they may have business registrations, trade name filings, and permits.

Where Do I Obtain a Certificate of Good Standing in New Jersey?

Certificates can be requested online through the Division of Revenue and Enterprise Services website, or by mail, fax, or in person. A fee applies, and expedited processing is available for an additional charge.