My California Corporation is Suspended. How Can I Revive my Suspended California Corporation?
Prepared By: Melissa C. Marsh, Los Angeles Business And Corporate Attorney
Written: March 2009 - Last Updated: November 2016
Last Updated: November 2016
So Your California Corporation Has Been Suspended?
When a California corporation is suspended, the corporation has lost all of its rights and privileges and cannot legally operate. Technically, the corporation is required to close its doors, and to stop all business related activity. Recently we have seen many commercial banks suspend credit lines and close the bank accounts of suspended California corporations and LLCs. A suspended California corporation cannot sue, or defend, any action in court. In addition, a suspended California corporation that provides a service, or goods, to third parties while suspended is prohibited from collecting payment for such services and goods since the suspended California corporation technically was not permitted to engage in any business transactions. For a suspended California corporation to once again achieve good standing, the California corporation must be revived.
Reasons Why a California Corporation Is Suspended.
Every corporation formed in California is registered with the California Secretary of State's office, assigned a corporate identification number, and is required to file an annual Statement. In addition, every California corporation is required to file an annual tax return with the Franchise Tax Board and to remit payment of the $800 minimum franchise tax, even if the California corporation didn't engage in a single business activity. Either the California Secretary of State's office and/or the Franchise Tax Board (FTB) can suspend a California corporation.
The Secretary of State will suspend a California corporation if the corporation fails to timely file the required annual Statement. Failure to file the Statement may also result in a $250 late fee. If the Statement remains unpaid, the Franchise Tax Board may also impose additional penalties and interest on the past due filing fee up to $696.
The Franchise Tax Board will suspend a California corporation if the corporation: (1) fails to pay the minimum annual franchise tax of $800, or fails to pay any taxes due and owing; (2) fails to file a state tax return (a tax return is required even if the corporation transacted no business); or (3) fails to file the annual Statement with the Secretary of State which resulted in a $250.00 late fee that has accrued additional penalties and interest.
Effects Of Suspension.
Whichever agency suspends the corporation will mail the California corporation a suspension notice, at which time the corporation is thereafter disqualified from exercising its corporate powers, rights and privileges. In other words, the California corporation cannot legally operate. Recently we have seen many commercial banks freeze credit lines and close the bank accounts of California corporations and LLCs that are suspended.
Until the California corporation corrects its suspended status, the corporation will be prohibited from transacting business, filing a lawsuit, answering a lawsuit filed against it, closing an escrow, initiating litigation, or protecting and preserving its name. See, Timberline, Inc. v. Jaisinghani, 54 Cal.App.4th 1361 (1997). Any contract executed by a California suspended corporation is voidable at the demand of the other party. And, any person who attempts or purports to use any of its corporate privileges while the California corporation is suspended is subject to fines and/or imprisonment. The only exceptions to the loss of corporate privileges upon suspension are that the corporation may (1) change its name (which may be necessary to revive a suspended corporation), (2) file its annual statement and (3) apply to the Franchise Tax Board for tax-exempt status. Nevertheless, a suspended corporation is still required to pay all the applicable taxes and to file its state tax returns (even if no money is earned).
The Franchise Tax Board will issue a delinquent penalty for failure to file a timely tax return of 5% per month up to a maximum of 25%. Interest begins on the original due date of the tax return. The Franchise Tax Board will issue a demand penalty when a corporation fails or refuses to furnish information requested by it or fails to file a tax return after written notice and demand. In either case, the demand penalty is 25% of the FTB's assessment of what is owed or 25% of the tax shown on the return when filed before any refundable credits and payments from the original notice to the date full payment is received.
How To Revive or Reinstate a Suspended California Corporation.
If your California corporation is suspended, and during the suspension period you were operating the business (e.g. entering into contracts, selling goods or services, etc.) we strongly suggest you use an attorney to ensure the reviver is retroactive to the date of suspension. However, if you insist on doing it yourself, you will need to contact both the California Secretary of State and the Franchise Tax Board to determine what triggered the suspension and what is required to revive the California corporation back to "active" status. My office will perform this service within 1 business day for a flat fee of $499. If desired, please call 323-655-1002, or email us at firstname.lastname@example.org with the name of the corporation/LLC, the corporation/LLC identification number printed on the Articles of Incorporation (if available), the current address of the corporation/LLC and your name and telephone number.
If the corporation was suspended by the Secretary of State because the corporation failed to file the required annual Statement, the corporation 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. So long as the corporation's 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. BUT WAIT! If you attempt to do this via mail, it will take the California Secretary of State about 3 months to process your paperwork. If time is of the essence, we can help you revive a suspended California corporation on an expedited basis typically within 3 business days.
If, on the other hand, the corporation was suspended by the Franchise Tax Board, the suspended California 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 with the Franchise Tax Board. If you attempt to do this with your accountant via an electronic filing or mail, it will take the California Franchise Tax Board 3-8 months (yes up to 8 months) to process your paperwork. If time is of the essence, we can help you revive a suspended California corporation with the Franchise Tax Board on an expedited basis typically within 3-5 business days.
Before the Franchise Tax Board issues a Reviver, the Secretary of State must again approve the corporation's name. Why? As stated above, during any period of suspension, another corporation may reserve and/or adopt the suspended corporation's name. If the application is accepted, the Franchise Tax Board will notify the Secretary of State, at which time the restoration of the corporation's powers and privileges will become effective and the revivor will become a matter of public record.
Two Common Problems That May Arise When Trying To Revive a California Corporation.
When a California corporation has been suspended, another individual or entity is free to assume the "suspended" corporation's name. Although you may love your corporate name, when this occurs to finalize the reviver process you will have to: (1) select a new corporate name, (2) perform a name clearance check, (3) prepare corporate minutes, and (4) prepare and file amended Articles of Incorporation with the proper filing fee and optional state expedite fee.
If you would like a California business attorney to Amend your Articles of Incorporation, we can help. Typically we can prepare and file the necessary minutes and Certificate within 24 hours. Simply call (818)849-5206 or Email Us.
A second common problem faced by a suspended California corporation is time, especially if the suspended corporation is seeking to file or respond to a lawsuit, close an escrow, or open a credit line. In such a case, my office can perform an in person walk through reviver with either or both the California Secretary of State and the Franchise Tax Board and typically get the suspended California corporation back to active status within 3-5 business days.
As noted above, suspended status can create serious problems for a California corporation. To avoid suspension, the owners of a California corporation should regularly review their compliance with the filing obligations imposed by the California Secretary of State and the California Franchise Tax Board. If a California corporation learns of an impending suspension, or discovers it has already been suspended, the officers of the corporation should act quickly to restore its good standing which typically will require the assistance of a corporate attorney.
If you would like Melissa C. Marsh, a California business attorney, to assist you in reviving a suspended California corporation, with amending the articles of incorporation for a California corporation, or anything else, please call 323-655-1002, or Email Your Request.
If you merely want us to find out which department(s) suspended your California corporation and what you approximately owe to the California Secretary Of State and/or the Franchise Tax Board, and what needs to be done to revive your suspended California corporation or LLC, we can provide you with that information typically within 1 business day for a flat fee of $499.
If, on the other hand, you would like us to fully perform the Reviver, our turn-a-round time is typically 3-7 business days and our fee is dependent on the basis of the suspension. Typically the cost can be as low as $500, but as much as $3,500+ when the suspension is complicated and involves multiple state offices. Remember, the first step is to figure out which agency(ies) suspended your California corporation and what each agency wants from you. Once we have that information (which we can acquire on your behalf within 24 hours for as little as $499), we can provide an accurate fee quote for the full reviver to lift the suspension.
In Timberline, Inc. v. Jaisinghani, 54 Cal.App.4th 1361 (1997), the California Court of Appeals stated that a suspended corporation is disqualified from exercising any right, power, or privilege, including prosecuting or defending an action, or appealing a judgment. The Court reasoned as follows:
"This means a suspended corporation may not prosecute or defend an action in a California court.(Ransome-Crummey Co. v. Superior Court (1922) 188 Cal. 393, 396-397 [205 P. 446]; Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1957) 155 Cal. App.2d 46, 50-51 [317 P.2d 649].) Nor may a suspended corporation appeal from an adverse judgment (Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 20-21 [68 P.2d 968]; Gar-Lo, Inc. v. Prudential Sav. & Loan Assn. (1974) 41 Cal. App.3d 242, 245 [116 Cal. Rptr. 389]), or seek a writ of mandate (Brown v. Superior Court (1966) 242 Cal. App.2d 519, 635 [51 Cal. Rptr. 633]). However, if the corporation's status only comes to light during litigation, the normal practice is for the trial court to permit a short continuance to enable the suspended corporation to effect reinstatement (by paying back taxes, interest and penalties) to defend itself in court. (See, e.g., Schwartz v. Magyar House, Inc. (1959) 168 Cal. App.2d 182, 190 [335 P.2d 487].)"
The Court in Timberline went on to note that
"In a number of situations the revival of corporate powers by the payment of delinquent taxes has been held to validate otherwise invalid prior action. (Traub Co. v. Coffee Break Service, Inc. [(1967)] 66 Cal.2d 368, 370 [57 Cal.Rptr. 846, 425 P.2d 790]; Diverco Constructors, Inc. v. Wilstein [(1970)] 4 Cal.App.3d 6, 12 [85 Cal.Rptr. 851]; A. E. Cook Co. v. K S Racing Enterprises, Inc. [(1969)] 274 Cal.App.2d 499, 500 [79 Cal.Rptr. 123]; Duncan v. Sunset Agricultural Minerals [(1969)] 273 Cal.App.2d 489, 493 [78 Cal.Rptr. 339].) In all of the above cited cases it was held that the purpose of section 23301 of the Revenue and Taxation Code is to put pressure on the delinquent corporation to pay its taxes, and that purpose is satisfied by a rule which views a corporation's tax delinquencies, after correction, as mere irregularities." Id. at p. 1366.
Therefore, when a corporation's suspended status "comes to light during litigation, the normal practice is for the trial court to permit a short continuance to enable the suspended corporation to effect reinstatement... to defend itself in court." See, Cadle Company v. World Wide Hospitality Furniture, Inc., 144 Cal.App.4th 504 (2006), in which the Court held that denying the defendant the right to prosecute a lawsuit without first giving it the opportunity to revive its corporate status was too harsh because the suspension statutes are not intended to be punitive. See also, Center For Self-Improvement and Community Development v. Lennar Corporation, 173 Cal.App.4th 1543 (2009), in which the Appellate Court reversed the judgment of the trial court and held that "having attained reinstatement prior to judgment, the Center regained its capacity to proceed with prosecution of the pending litigation." See also, Cahill v. San Diego Gas & Electric Co., 194 Cal.App.4th 939 (2011)
California business lawyer, Melissa C. Marsh, is based in Sherman Oaks and West Hollywood, and serves individuals and businesses throughout Los Angeles County, including: West Hollywood, Miracle Mile, Beverly Hills, Century City, Santa Monica, Burbank, North Hollywood, Valley Village, Toluca Lake, Studio City, Sherman Oaks, Van Nuys, Encino, and Woodland Hills.
If you have additional questions or need specific legal advice tailored to your specific needs, please schedule a low cost Telephone Consultation. If you would like to inquire about my services, please call (818)849-5206.
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