Updated: May 13
What is “FTB Suspended?”
A search for businesses at the California Secretary of State’s website (https://www.sos.ca.gov) can sometimes result in a business labeled “FTB Suspended.” Such a label means that the business has been suspended by the California Franchise Tax Board.
How does a business become suspended?
A business is required to comply with certain requirements in order to maintain good standing with the State of California. For example, a business is required to file a tax return and pay its taxes or it can be suspended by the Franchise Tax Board (FTB). In California, a business entity registered with the California Secretary of State (SOS) must file and pay at least an $800 franchise or annual tax from its registration date to the current date, regardless of business activity, or it will be subject to suspension by the FTB.
The SOS may also suspend a business for not filing the required Statement of Information. It is possible for a business to be suspended by the SOS and the FTB at the same time.
What does it mean when your business is suspended?
If your business is suspended, you cannot:
Legally do business
Sell , transfer, or exchange real property
File taxes with an automatic extension
File a claim for a tax refund
Start or continue a protest
Legally close or dissolve your business
Bring an action or defend your business in court
File or maintain an appeal before the Office of Tax Appeals
Maintain the right to use your business name
Retain tax-exempt status (it will be automatically revoked as of the suspension date)
Your business may be subject to a $2000 penalty per tax year for failure to file missing tax returns within 60 days after receiving a written demand to do so.
If you enter into any contracts while you are not in good standing, the other party can void the contract. Also, unless you apply for and are granted relief from contract voidability, your business contracts will remain voidable and unenforceable.
Reviving a business:
Generally, filing Form FTB 3557 requires:
Filing of all delinquent tax returns; and
Paying all delinquent taxes, including penalties and interest
Once the FTB is satisfied the business is again compliant, it will issue a Certificate of Revivor. When the FTB issues a Certificate of Revivor and the business is “reinstated,” the FTB informs the Secretary of State and the Secretary of State updates its website to reflect an “active “ corporate status.
Can a business owner “walk away” from a suspended business?
If your business cannot pay its taxes, the FTB may make you personally responsible if you
Took assets out of your business
Have unpaid loans to shareholders
Paid excessive salaries to officers
AB 2503. However, a recent amendment to Californa’s Corporations Code and Revenue and Taxation Code, known as AB 2503, authorizes the state to administratively dissolve a corporation or an LLC if its powers were suspended by the FTB for at least 60 continuous months (5 years). The administrative dissolution may be cancelled if the LLC or corporation objects and takes all the steps necessary to revive the company. However, for those business owners who are concerned about the state somehow catching up with them and personally assessing them for their business's back taxes, the law provides some assurance that, provided they ceased doing business but had filed all required returns and paid all required taxes for the years during which they did business, the owners may avoid any personal liability.
Spiller Law can help. If your business has been suspended, a lawyer can help you revive it and bring it back into good standing. In many instances, a lawyer can negotiate a reduction in the costs and penalties you are facing. Should you wish to let your business “die a natural death” under AB 2503, a lawyer can advise you as to which steps to take and which steps to avoid. Spiller Law offers such services and would be happy to help you. Feel free to contact Spiller Law at 415-501-0156.
Lindsay Spiller is the founder of Spiller Law, a San Francisco business, entertainment, and estate planning law practice. Mr. Spiller is a San Francisco business lawyer who serves clients throughout California and particularly in San Francisco and Los Angeles.
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