Suspension and Revivor 101 – Part 1
In a four part series of articles, we will cover why a corporation or limited liability company (LLC) is suspended, how to revive your corporation or LLC, penalties associated with suspension, contract voidability, and how to apply for relief of contract voidability. In addition to these articles you can also find information on suspension and revivor on our website.
Suspension applies to domestic corporations and LLCs. Forfeiture applies to foreign corporations and LLCs. Both the Secretary of State and FTB have the authority to suspend or forfeit a corporation or an LLC. Although, foreign corporations and LLCs that have not registered with the Secretary of State cannot be forfeited, their contracts may become voidable if they are not in compliance with filing and payment obligations. We will discuss contract voidability in more detail in Part 4 of this series of articles.
We suspend or forfeit a corporation’s or LLC’s rights, powers, or privileges for:
- Failure to file a return.
- Nonpayment of taxes, penalties, interest, and fees (collection, filing enforcement, lien, or sheriff).
Before we can suspend or forfeit a corporation or an LLC, we are required to notify them that they are in danger of being suspended, forfeited, or having their contracts become voidable. We first send FTB 4974BC M (corporation) or FTB 4974LLC M (LLC), Final Notice Before Suspension/Forfeiture. If the entity does not comply within 60 days after we send the first notice, we send FTB 2520BC M (corporation) or FTB 4974LLC M (LLC), Notice of Suspension or Forfeiture. Finally, if the entity still does not comply after this final notice, we will suspend or forfeit. Generally, the suspension or forfeiture occurs on the first working day of the month.
Sometimes, we suspend or forfeit a corporation or LLC in error. Generally, this happens when a taxpayer sends the required returns or payment close to the suspension or forfeiture date, and we process the return or payment after that date. If this should happen to your client, contact us and we will restore the entity’s status.
If the corporation or LLC continues to do business or receives income after it is suspended or forfeited, it is still required to file tax returns (R&TC 23303). In addition, we can assess a penalty on corporations that continue to do business while they are suspended or forfeited. We will discuss this penalty in Part 3 of this series.
In Part 2 of this series, we will discuss the effects of suspension or forfeiture and the how to revive your corporation or LLC.