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My California Corporation is Suspended. How Can I Revive my Suspended California Corporation?

 
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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
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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. 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 may not be able to collect 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 of Information of Officers and Directors with the California Secretary of State. 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 of Information of Officers and Directors with the $25 filing fee. Failure to file the Statement of Information of Officers and Directors on time may also result in a $250 late fee. If the Statement of Information remains unpaid, the Franchise Tax Board may also impose additional penalties and interest on the past due filing fee.

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 tax return (a tax return is required even if the corporation transacted no business); or (3) fails to file the Statement of Information 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.

Until the California corporation corrects its suspended status, the corporation will be prohibited from transacting business, 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 by amendment to its articles of incorporation (which may be necessary to revive a suspended corporation), and (2) 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 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 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.

If the corporation was suspended by the Secretary of State because the corporation failed to file the required annual Statement of Information, 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 corporate name is still available, the Secretary of State will send a "Notice of Revivor" 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 to 5 months to process your paperwork. If time is of the essance, you will need to arrange for the appropriate documentation and payment to be hand delivered and processed on an expedited basis.

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 for a "certificate of revivor" (Form 3557) with the Franchise Tax Board.

Before the Franchise Tax Board issues the certificate of revivor, 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 corporationís 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 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 authorizing the Board of Directors to change the corporation's name, and (4) prepare and file amended Articles of Incorporation with the $45 filing fee and optional $350 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 the request for a walk through revivor. A walk through revivor is a one-day process that requires a representative of the suspended California corporation to obtain an appointment and personally appear at a FTB field office. This typically occurs, when the suspended California corporation is faced with a pending escrow, loan or lawsuit.

Conclusion.

As noted above, suspension can create serious problems. To avoid suspension, the owners of a California corporation should regularly review their compliance with the filing obligations imposed by the Secretary of State and the 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 may require the assistance of both a corporate attorney and an accountant, or tax preparer.

If you would like Melissa C. Marsh, a California business attorney, to assist you in reviving a suspended California corporation, with amending your articles of incorporation, or anything else, please call 818-849-5206, 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 Secretary Of State and/or Franchise Tax Board, we can provide you with that information typically within 24 hours for a flat fee of $350.

If, on the other hand, you would like us to fully perform the Revivor, 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 suspended you and what each agency wants from you. Once we have that information (which we can acquire on your behalf for as little as $350), we can provide an accurrate fee quote for the full revivor.

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Ms. Marsh provides various low cost In House Counsel Plans designed specifically for the small business owner, and if you just have a few simple questions she provides a Telephone Consultation for as little as $69.

California Cases on Suspended Corporations.

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.

© 2009 Melissa C. Marsh. All Rights Reserved.

 
 

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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.


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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.