Suspended by the Secretary of State? What’s Next?

Corporations and limited liability companies operating in the State of California are required to be organized or qualified to do business in the State through the office of the Secretary of State. As a part of that regulatory authority, the Secretary of State has the authority to suspend or forfeit an entity’s rights, privileges and powers to do business in certain circumstances. If an entity fails to respond on a timely basis to a notice of delinquency, its right to do business ceases and it may lose the right to its entity name.

Suspension (for a California entity) or forfeiture (for an out-of-state entity) can happen for one of three reasons:

(1) by the Secretary of State for a failure to file a Statement of Information. Corporations are required to file Statements of Information with the Secretary of State on an annual basis and limited liability companies on a biannual basis (i.e., only in odd years or in even years based on the year if its initial registration). If an entity fails to file on a timely basis, the Secretary of State provides a notice of delinquency and an additional 60 days in which to file. However, it remains the entity’s responsibility to submit a Statement of Information even if it does not receive a notice. Failure to file a Statement of Information is the most frequent reason for a suspension or forfeiture.

(2) by the Secretary of State in the case of a corporation for failure to reimburse the Victims of Corporate Fraud Compensation Fund (“VCFCF”) for a paid claim. The VCFCF provides limited restitution to victims of corporate fraud who have otherwise been unable to collect on their judgment.

(3) by the Franchise Tax Board for failure to meet tax requirements—filing returns and paying taxes, penalties and interest.

Once suspended or forfeited, an entity loses its right to do business in the State and the right to its entity name. Thus, another entity is free to file with the Secretary of State to use that name. If another business entity claims the name of the suspended/forfeited entity prior to its revivor, the suspended/forfeited entity must change its name, obtain a release of any business entity that has reserved the name or convince the other business entity to change its name.

Subject to the availability of the name of the suspended/forfeited entity, it can seek a revivor from the Secretary of State by filing a current Statement of Information and/or reimbursing the VCFCF for a paid claim. For a revivor from the Franchise Tax Board, the entity will need to contact the Franchise Tax Board for the applicable revivor requirements. Further, if the entity has been suspended/forfeited by both the Secretary of State and the Franchise Tax Board, the entity must first satisfy the Secretary of State requirements and request a Proposed Relief Letter. Upon receipt of the Proposed Relief Letter, the entity must complete an Application for Certificate of Revivor (Form FTB 3557) and submit the Proposed Relief Letter and the Application to the Franchise Tax Board.

If you have any issues with the Secretary of State regarding your business entity, the attorneys of Poole Shaffery would be happy to be of assistance.