If you do a business entity search using the California Secretary of State database, you might find that the status of a corporation or limited liability company (LLC) is “suspended” or “forfeited“. This post explains what those terms mean.
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
Corporations and LLCs have many “powers, rights and privileges” under California law. Those powers, rights and privileges can be taken away if the entity:
- Fails to file any required return or fails to make any required payment to the Franchise Tax Board, and/or
- Fails to file a required Statement of Information.
“Suspension” is what happens to California corporations and LLCs (Corporations Code Sections 2205 and 17713.10; Revenue and Taxation Code Sections 23301 and 23301.5). “Forfeiture” is what happens to foreign corporations and LLCs that have qualified to transact business in California (Corporations Code Sections 2206 and 17713.11; Revenue and Taxation Code Sections 23301 and 23301.5).
Suspension or forfeiture is pretty serious because, for example:
- The entity cannot bring a lawsuit, and cannot defend itself if it is sued. (See, e.g., Palm Valley Homeowners Association v. Design MTC.)
- The entity cannot sell, transfer or exchange real property. (Revenue and Taxation Code Section 23302(d))
- The other party to any agreement with the entity may have the agreement voided by a court. (Revenue and Taxation Code Sections 23304.1, 23304.5 and 23305.5)
- Any attempt to exercise the rights, powers or privileges of a corporation that the FTB has suspended or forfeited constitutes a misdemeanor. (Revenue and Taxation Code Section 19719)
- The entity’s name may be taken by another entity. (See, e.g., Boyer v. Jones.)
Related post: How Can I Revive My Suspended / Forfeited Entity?
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.