What happens if my California LLC or corporation is suspended?

Suspension often surprises owners: a missed $800 payment or an unfiled form, and months later a deal, a loan or a lawsuit stalls because the company is not in good standing. Keeping a company's legal footing intact is part of the work described on our business law page. This page explains why suspension happens, what it blocks, what it does to contracts and lawsuits, and how revivor works, using the Revenue and Taxation Code, the Corporations Code and the official pages of the Franchise Tax Board (FTB) and the Secretary of State.

How does a company become suspended?

1. A return or payment is missed. Under Revenue and Taxation Code section 23301, a company's powers may be suspended if tax, penalties or interest due with its return are not paid by the last day of the 12th month after the close of the taxable year, or if an amount the FTB demands is not paid by the last day of the 11th month after its due date. Section 23301.5 allows suspension for failing to file a required return.
2. The FTB sends a warning. A company may not be suspended under those sections unless the FTB has mailed a notice preliminary to suspension at least 60 days before the date it names (section 21020).
3. The suspension takes effect. The FTB sends the company's name to the Secretary of State, and the suspension becomes effective (section 23302(c)).
4. Or the Statement of Information is missed. After notice and 60 days without a filing, the Secretary of State certifies the company to the FTB, which assesses a $250 penalty (Corporations Code sections 2204 and 17713.09; Revenue and Taxation Code section 19141).
5. A repeat miss can suspend the company. If the company misses the statement again, has filed none in the preceding 24 months and was already certified for the penalty, the Secretary of State gives 60 days' notice and then suspends it (Corporations Code sections 2205 for corporations and 17713.10 for LLCs).

A company can be suspended by both agencies at the same time, the FTB notes, and then must clear both.

What can a suspended company not do?

The FTB says that a suspended business is not in good standing and loses its rights, powers and privileges to do business in California. Its list of what a suspended business cannot do includes:

• Do business. It cannot legally do business.
• Deal in real property. It cannot sell, transfer or exchange real property in California (also section 23302(d)).
• Go to court. It cannot bring an action or defend itself in court, or file or maintain an appeal before the Office of Tax Appeals.
• Use tax procedures. It cannot file with an automatic extension, be issued a refund, or start or continue a protest.
• Close down properly. It cannot legally close or dissolve.
• Keep its name. It cannot maintain the right to use its business name; the Secretary of State will deny revivor if the name is no longer available and require a new one.

The FTB also warns of a $2,000 penalty per tax year for failing to file missing returns within 60 days after a written demand, and says it may hold owners personally responsible for unpaid taxes if they took assets out of the business, have unpaid shareholder loans or paid officers excessive salaries.

What happens to contracts signed while suspended?

Every contract a company makes in California while its powers are suspended or forfeited by the FTB is voidable at the request of any party other than the company (section 23304.1(a)). That right can be exercised only in a lawsuit, and a court may not order rescission unless the company has been given a reasonable opportunity to cure the voidability and receives full restitution of the benefits it provided under the contract (section 23304.5).

To cure it, the company can apply to the FTB for relief from contract voidability under section 23305.1: file the required returns, pay what is owed and pay a penalty of $100 for each day of the relief period, capped at the tax for that period. The FTB says that when no return is due, the $800 minimum is treated as the tax due for the period. Once relief is granted, contracts made during the relief period that a court has not already rescinded may be enforced as if they had never been voidable (section 23305.1(c)). The FTB says this relief does not apply to general partnerships, limited partnerships or limited liability partnerships. If you are unsure whether a deal was valid in the first place, our page on whether a verbal business agreement is enforceable covers the basic rules.

How do you revive a suspended company, step by step?

1. Find out why. The FTB says the reason for suspension may be available in MyFTB, and it lists a phone number for suspension questions. Also check the company's status on the Secretary of State's business search.
2. File every missing return. The FTB says a registered company must file and pay at least the $800 tax from its registration date to the present, regardless of activity.
3. Pay the balances. Pay all past-due taxes, penalties, interest and other amounts (section 23305).
4. Bring the Secretary of State filings current. File any missing Statement of Information; the statute allows it even while suspended (Corporations Code sections 2205(d) and 17713.10(d)). The FTB says the business must be in good standing with the Secretary of State to revive.
5. Apply for revivor. File FTB 3557 BC for a corporation or FTB 3557 LLC for an LLC, online or by mail. Any stockholder, creditor, officer, majority of surviving directors or other interested person may apply (section 23305).
6. Clear the name. Before the FTB issues the certificate, the Secretary of State must confirm the company's name is still available (section 23305a); if it is not, the company must choose a new one.
7. Use a walk-through revivor if it is urgent. The FTB offers in-person walk-through revivor at its field offices for businesses involved in litigation, escrow, a pending loan or a pending federal grant. The request cutoff is 2 p.m., or 1 p.m. in Los Angeles, and documents should be dated within 30 days.

What changes the answer?

Which agency suspended the company

A Secretary of State suspension under section 2205 or 17713.10 can be relieved by filing the missing Statement of Information, unless the FTB also holds the company in suspension. An FTB suspension needs the full revivor process. The table above compares the two.

Whether a lawsuit is pending or coming

The FTB says a suspended company cannot bring or defend an action. If your company has been sued, revival may be the first step toward responding; our page on how long you have to respond to a lawsuit in California explains the response deadline that keeps running. If the company wants to sue, the same problem applies in reverse. Section 23305a says reinstatement is without prejudice to any action, defense or right that accrued because of the suspension, so reviving does not automatically undo what happened in the meantime. Our page on deadlines to sue for breach of contract in California lists the time limits that can matter.

Whether contracts were signed during the suspension

Contracts made during an FTB suspension are voidable by the other side until relief is granted under section 23305.1. Revivor alone does not erase that voidability, but section 23305a lets it be cured through the relief process for contracts not yet rescinded.

Whether the goal is to close the company

A suspended company cannot legally dissolve, so owners who want to shut down usually must revive first and then file the termination documents. The annual tax keeps accruing until the company is formally ended; our page on what an LLC or corporation costs to keep in California explains the $800 tax and the filing schedule. If the shutdown is part of a split between owners, see what happens when a co-owner wants out.

Whether the company also uses a fictitious name

The Los Angeles County Clerk requires a Secretary of State print-out showing good standing before it will accept or renew a fictitious business name statement for an LLC or corporation, so a suspended company cannot complete that filing. Our page on fictitious business names in Los Angeles County explains the process.

A worked example

For example, imagine a hypothetical Glendale catering LLC whose owner stopped paying attention to state filings after a slow year. The LLC did not file its returns or pay the $800 annual tax for two years. After notices, the FTB suspended it. Months later, while still suspended, the LLC signed a contract to cater a series of corporate events. The client paid the first invoice, then refused to pay the rest and said the contract was voidable.

The owner wants to sue for the unpaid balance, but a suspended company cannot bring an action. She files the two missing returns, pays the two years of annual tax, $800 + $800 = $1,600, plus the penalties and interest the FTB assesses, and applies for revivor on FTB 3557 LLC. Because the contract was signed during the suspension, she also applies for relief from contract voidability. As an illustration of the arithmetic only: a 30-day relief period at $100 a day would be $3,000, but the FTB says the charge cannot exceed the tax due for the relief period, with $800 treated as the tax when no return is due.

Once revived and granted relief, the LLC may treat the contract as if it had never been voidable, unless a court has already rescinded it. Whether the client has other defenses, and what the LLC could recover, depends on facts this example does not address.

Common mistakes with a suspended company

• Ignoring FTB notices. The notice preliminary to suspension gives at least 60 days to act; that is the cheapest time to fix the problem.
• Assuming an inactive company owes nothing. The FTB says a registered company owes at least $800 a year from its registration date, whether or not it does business.
• Signing new contracts while suspended. The other side gets a right to void them until relief is granted.
• Walking away instead of closing. A suspended company cannot legally dissolve, and the tax keeps accruing.
• Waiting until a lawsuit forces the issue. Litigation does not wait for revivor, and rights that accrued during the suspension are not automatically undone.
• Forgetting the Secretary of State side. Paying the FTB does not cure a missing Statement of Information, and the FTB requires good standing with the Secretary of State before it revives a company.

What to do this week

1. Look up the company on the Secretary of State's business search and print the status page.
2. Log in to MyFTB or call the FTB's suspension line to learn which returns or payments are missing.
3. Gather prior tax returns, bank records and any FTB or Secretary of State notices.
4. File any missing Statement of Information online.
5. List every contract the company signed since the suspension date, and decide whether relief from contract voidability is needed.
6. If a lawsuit, escrow, loan or federal grant is pending, ask about a walk-through revivor and calendar any court deadlines.
7. Talk with a business attorney and your tax professional about the order of the steps.

Frequently asked questions

How do I know whether my company is suspended?

Check the company's status on the Secretary of State's business search, and look for FTB notices; the FTB says the reason for a suspension may be available through MyFTB. A suspended or forfeited status means the company is not in good standing.

Can a suspended LLC or corporation be sued?

A suspension does not keep a lawsuit from arriving, and the FTB's list says a suspended business cannot bring an action or defend itself in court. That is why a pending or threatened lawsuit makes revival urgent.

Are the owners personally liable for a suspended company's debts?

The FTB says it may hold owners personally responsible for unpaid taxes if they took assets out of the business, have unpaid shareholder loans or paid officers excessive salaries.

How long does revivor take?

That depends on how quickly the missing returns, payments and filings are completed and processed. For urgent situations involving litigation, escrow, a pending loan or a pending federal grant, the FTB offers walk-through revivor at its field offices.

Will I keep my company's name after revivor?

Only if it is still available. Section 23305a requires the Secretary of State to confirm the name meets the naming rules before revivor, and the FTB says the Secretary of State will require a new name if the old one is taken.

Can I just form a new company instead?

You can form a new entity, but the old one's tax liability does not disappear, and the FTB says a suspended business cannot legally close or dissolve. Discuss the choice with a lawyer and tax professional first.

How can Glendale Law help?

We help owners sort out a company's standing, sequence the revivor steps with their tax advisor, and deal with contracts and lawsuits that the suspension affected. When a dispute is already in court, our civil litigation practice can step in. Call (818) 244-9000 or request a consultation.