corporate lawIn California, both the Secretary of State’s office and the Franchise Tax Board have the authority to suspend a California corporation. The Secretary of State’s office can suspend a corporation based upon the failure to file and pay the annual Statement of Information. This statement contains the identity of the officers and directors of the corporation, as well as its agent for service of process. The failure to file a Statement of Information on time may result in a $250.00 late fee.

The Franchise Tax Board has the authority to suspend a corporation based upon the failure to pay the minimum tax of $800.00 a year or the failure to pay any taxes that are owed. In addition, a corporation may be suspended for the failure to file tax returns. Tax returns are required on an annual basis even if the corporation is not doing business.

The impact of a corporation being placed in suspended status is substantial. When a corporation is suspended, it has lost all rights and privileges as a corporation and cannot legally operate. In that regard, technically a suspended corporation is required to close its business and stop all business related activity. Moreover, a suspended corporation cannot sue or defend any action in court. Furthermore, a suspended corporation that provides a service, or goods, to third parties while suspended may not be able to collect payment for such services or goods since the suspended corporation technically was not permitted to engage in any business transactions.

A California corporation can be placed back in good standing after its has been suspended by being revived or reinstated. Until the corporation corrects its suspended status, the corporation is prohibited from transacting business and any contract executed by a suspended corporation is voidable at the demand of the other party. The only exceptions to the loss of corporate privileges upon suspension are that the corporation may (1) change its name by amendment to its Articles of Incorporation and (2) apply to the Franchise Tax Board for tax exempt status.

Once notification is received of the suspension, it is important to move as quickly as possible to have the corporation revived or reinstated. A corporation that was suspended by the Secretary of State because of the failure to file the required annual Statement of Information can be revived by sending a letter to the Secretary of State along with (1) the delinquent Statement of Information and (2) the payment of the overdue fees and/or penalties imposed. Provided that the corporate name is still available, the Secretary of State will send a “Notice of Reviver” to the corporation and notify the Franchise Tax Board. If the corporation’s name was taken by another corporation during the suspension period, then the Secretary of State will advise the corporation that it must change its name by amending its Articles of Incorporation before the corporation can be revived.

In the event that the corporation was suspended by the Franchise Tax Board, the suspended corporation may have its corporate privileges reinstated only by filing all delinquent tax returns and statements, paying all applicable taxes, penalties, interest and fees, and filing an application for a Certificate of Revivor with the Franchise Tax Board. Before the Franchise Tax Board issues the Certificate of Revivor, the Secretary of State must again approve the corporate name to insure that another corporation did not take the name during the period of suspension.

In summary, the potential adverse consequences that can flow from the suspension of the California corporation dictate that both the required Statement of Information and the payment of the minimum annual franchise tax and tax return be transmitted on a timely basis. While a corporation can be revived or reinstated following a suspension, the danger exists that the corporation’s name will be taken by another entity during the time of the suspension. Additionally, the risk of being unable to participate in litigation, as well as the risk of having a contract voided by the other party, greatly outweigh the burden of complying with the requirements of the Secretary of State and the Franchise Tax Board.

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About Michael G. Kerbs

Michael Kerbs joined Reid & Hellyer in 1987 and has spent the entirety of his 22-year legal career with the firm. A 15-year partner, he was nominated as president of the firm in 2009. Michael practices business and real estate litigation as well as writs and appeals. He is a graduate of the University of San Diego, obtaining his B.A. in 1984 and his J.D. in 1987, graduating magna cum laude after serving as an editor of the San Diego Law Review. He can be reached at mkerbs@rhlaw.com and via phone at (951) 682-1771.

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Comments

  1. avatar
    Wayne

    Hello,
    If my corporation is suspended, can I incorporate a new entity in CA or DE?

    Thanks,

    Reply
  2. I am attempting to negotiate a settlement with a corporation that I found out is in a suspended status with the secretary of state of Ca. They have sent a check with a settlement letter that has terms that are unacceptable to me.. If I cash the check, can I later void the settlement agreement since the company is suspended?

    Reply
  3. Hi Michael,

    I was wondering you can answer this question. When I didn’t know better I open a corporation in 2005 and since then I had accumulated taxes to the Franchise Tax Board. I did not do anything with the business. I got the paper works and pretty much just through it into a cabinet and left it alone. Now I owe roughly about 8k back taxes. Now I understand that the corporation owes that money and it will keep going up yearly. The corporation is currently suspended due to back taxes. What should I do i really can’t afford to pay. If I just don’t pay forever what can the government do to me?Can they take my personal stuff? If one day i decided to open a business will this affect my business in the future? What can happen to someone who doesn’t ever pay? What are things I can’t do personally if I just let the taxes build up on the suspended corporation.

    Reply
  4. avatar
    Michael

    What is the California statue number regarding, “When a corporation is suspended, it has lost all rights and privileges as a corporation and cannot legally operate. In that regard, technically a suspended corporation is required to close its business and stop all business related activity.

    Reply
  5. Michael,

    I worked for a a very abusive person for the past 11 months or so, and he recently fired me, rehired me a day later, then called later than night to scream and rant – yet again … and his many many calls and texts to me ended up with “I’m done with you.” Very disturbing person … so, I began researching his corporate structure, which I should have done many months ago.

    It turns out that he has a long trail of FBNs (dba’s) in California, not to mention a corporation that is *Suspended.* My questions are as follows:

    1. If a Corp is filed as “ABC Company, Inc.” can they setup another (different) Corp under virtually the same name without spelling out “Company?” In other words, can they start a different Corp called “ABC Co., Inc”? Or are they one in the same, given the nature/similarity of the name?

    2. If “ABC Company, Inc.” was the owner of 3 fictitious business names that have all expired, but then an FBN was started (in CA) called “ABC Company, Inc.” (in an attempt to keep operations going under a dba that was the same name as the suspended Corp.), then what are the rules and repercussions of such deceitful activities?

    3. And finally, since I am without work and funds to hire an atty, I’m wondering what the most inexpensive way would be to research a couple of corporation names on a national basis, since I suppose “ABC Company, Inc.” and/or “ABC Co., Inc.” could go into another state to start a new corporation, right? Or, is that prohibited???

    Thank you in advance for your time and expertise!

    Phil

    Reply

 

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