By: Lee Osborne, CPA, CFE, Partner
Once a year, or every other year for some organizations, the Secretary of State will send you a small postcard asking you to update your organization's Statement of Information. If this form is not filed or is filed late, the state will assess a penalty of up to $250 and will suspend your corporation or LLC. If for some reason, the Franchise Tax Board has not received any required tax filings or all of the taxes and/or penalties have not been paid, then your organization could be suspended from operating. The fine may not be too bad, but the suspension of your company can be very problematic.
Suspension could mean you cannot continue to operate and any contracts you have may be negated. This can be a tremendous problem. Banks are also now checking on this status for lending and loan covenants or to just open a bank account.
The state won't tell you if they have suspended your company. There are numerous reasons that your organization may owe the state taxes, fees or penalties. As California continues to be less of a friend to business, it will suspend your organization from operating and never tell you that they have done this.
It could take over six weeks to file for reinstatement. You will need to contact the Franchise Tax Board on any and all taxes and penalties due along with filing the form 3557 for the Certification of Revivor. There are a number of problems that can occur if your organization has been suspended from operations. You may be headed towards litigation and have no corporate or LLC protection from your personal assets. You may be in the middle of a real estate transaction and suddenly the process must stop. You may be trying to open a new company bank account.
Unfortunately, you cannot depend on the state of California to tell you if you have a problem with the state. If you happen to uncover it, they will make it extremely difficult and time consuming to correct.
Contact Lee Osborne, CPA, CFE at 760-777-9805 for more information on protecting your business.