If you own a San Diego or California corporation, it is possible for your corporation to be suspended involuntarily by the California Secretary of State or by the California Franchise Tax Board. The Secretary of State might declare your corporation out of “good standing” or suspend your business if your corporation fails to file its annual Statement and pay the applicable fees. The Franchise Tax Board might suspend or involuntarily dissolve your corporation is there is a failure to file annual tax returns and/or failure to pay annual franchise taxes. In general, your corporation will receive a notice of suspension. What does this mean?
There are several important consequences of having your corporation’s existence suspended. First, legally speaking, your corporation loses its legal “rights and privileges.” Among these are the ability to file and defend lawsuits, and the ability to enforce business contracts. This means that your corporation will not be able to sue a customer, for example, for non-payment of an invoice. (However, the customer can still sue your corporation for non-performance. As noted, however, a suspended corporation cannot defend itself in court.) Second, of importance to the owners of the corporation, the shield that the corporate entity provides to protect personal and family assets is lost. Third, as a practical matter, some banks routinely check corporate status and some will suspend bank accounts and lines of credit until the corporate status is revived or reinstated. Usually some grace period is given, but not always. Fourth, shareholders of your corporation may be able to sue for breach of fiduciary duties because a corporation that has ceased to exist puts investor’s money at risk. Keeping the corporation in good standing is among the most basic of duties owed by corporate officers to the shareholders.
The specifics of how to reinstate the corporation depends on what triggered the revocation and which agency has sent a notice of suspension. However, in either case, to revive your corporation, any and all past-due documentation must be completed and filed and all taxes, penalties, fees, and interest will have to be paid. If your corporation has been suspended, it is essential to hire an experienced San Diego corporate attorney to help fix the problem and avoid a suspension in the future. It is important to move quickly if your corporation has been suspended and your attorney will know the methods of expediting the process.
It is important to move quickly to reinstate your corporate status because, while your corporation is suspended, it is possible for another person to claim your corporate name. If that happens, you will be required to choose a new name for your corporation as part of the reinstatement process. That involves having the board of directors approve the new name and authorize the filing of change-of-name forms with the Secretary of State’s office and other tasks.
One other key aspect of reinstatement is to ensure that the reinstatement is retroactive to the date of suspension. This is another reason for retaining an experienced corporate attorney to help. The reinstatement must be retroactive to ensure that there is no lapse in your ability to enforce contracts made during the suspension.
Contact San Diego Corporate Law
For more information, call Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.