In the state of California, the Secretary of State’s office and the Franchise Tax Board both have the legal authority to suspend a California corporation. Each government entity can suspend a corporation for different reasons.
The Secretary of State’s office can suspend a corporation if its officers or directors fail to file and pay the fee for the Statement of Information. Corporations must complete this Statement, which confirms the identity of all officers, directors, and its agent for the purposes of services of process. Failure to file the Statement as required can result in a $250 fine.
The Franchise Tax Board can suspend a corporation if it fails to pay the minimum tax of $800 per year, or any other taxes that it owes. Another reason that the Franchise Tax Board can suspend a corporation is if it fails to file tax returns on an annual basis.
Suspension is a serious matter for any corporation. While it is suspended, a corporation cannot legally operate. This means that the business should close its doors and cease to do any sort of business. The corporation cannot engage in any court proceedings, and if it provides goods or services to a third party, it may not be able to collect payment for those goods or services. During a period of suspension, any contracts into which a corporation enters is voidable, or enforceable. In fact, the only action that the corporation may legally take is to change its name by amending its Articles of Incorporation and apply to the Franchise Tax Board for tax-exempt status.
In order to get back into good standing, a California corporation must remedy the situation that caused it to become suspended in the first place. For example, if the Secretary of State’s office suspended the corporation because it failed to file its Statement, it can gain reinstatement if it files the missing Statement and the payment of overdue fees and penalties. Similarly, if the Franchise Tax Board suspended the corporation for non-payment of taxes, the corporation can only have its suspended status lifted if it files all delinquent tax returns and pays the outstanding taxes, along with penalties, interest, and fees.
At Heit Law Group, P.C., we are dedicated to helping you build the business that you envision, one step at a time. We know how to evaluate your situation, explore your options, and provide you with the strongest legal strategy possible to get your business off the ground. Contact your California business development attorney today and set up an appointment to speak with us right away.