By Andrew Sevanian, ESQ.
Poole & Shaffery, LLP
Jane and Roy decide to form a business entity in California and their operations are going smoothly.
Suddenly, they hit a snag when they receive a notice that their business entity (e.g., corporation or limited liability company) has been deemed “SOS/FTB SUSPENDED” or “FTB SUSPENDED.”
A “SOS/FTB Suspended” designation means that the business entity has been suspended by California’s Secretary of State. The reasons for this suspension can vary and might include a failure to file certain documents (e.g., a Statement of Information with the California Secretary of State) or a failure to meet certain tax requirements, including the failure to file tax returns or important exemption papers, pay taxes, penalties and/interest when due. Such failure might be the result of a simple oversight.
Most importantly, a “suspended” business entity loses many of its powers, rights and privileges within the State of California. If the business entity is a tax-exempt organization, e.g., a 501(c)(3), the California Franchise Tax Board may also revoke such tax-exempt status. After a certain period of delinquency, the business entity might receive the “SOS/FTB SUSPENDED” designation on the California Secretary of State’s website.
The consequences of this suspended status can include the business entity being unable to sell, transfer or exchange real property in California, as well as risking any contracts entered into by the business entity during the time of suspension being voidable. Additionally, the suspended business entity may lose its ability to file or defend lawsuits. Moreover, the lack of any functioning legal entity, as a result of the suspension, could expose the suspended business entity’s owners to personal liability based on the debts, obligations and/or liabilities of the business entity.
The first step toward rectifying this issue is to find out why the suspended status has occurred. The next step is to take corrective action.
At Poole & Shaffery LLP, we help numerous clients as it relates to the formation and governance of their business entities in the State of California. If you seek legal assistance as it relates to the maintenance of your California buiness entity, please feel to call us. The headquarters of Poole & Shaffery, LLP, are located at 25350 Magic Mountain Parkway, Second Floor. You can reach the firm by calling 661-290-2991 and more information can be found at www.pooleshaffery.com.