In an earlier post we address why a California corporation’s status sometimes becomes suspended and how to avoid this (May, 2015: Why Does The “Active” Status of a California Corporation Get Suspended, and How is This Avoided?”) As we explained, a corporation can be suspended either by the Secretary of State for failing to file its annual Statement of Information, or by the Franchise Tax Board (FTB) for failing to pay taxes or file tax returns. As one might anticipate, reviving a California corporation which has been suspended by the FTB is more involved.
Reviving a Corporation Suspended for Failing to File Its Annual Statement
A corporation suspended by the Secretary of State for failing to file a Statement of Information can be revived by filing the Statement of Information and paying any penalty. If a corporation is suspended by the FTB, however, it must also comply with the FTB’s rules for revivor.
Reviving a Corporation Suspended by the FTB for Failing to File a Tax Return or Pay Taxes
A corporation suspended by the FTB can be revived by filing an Application for Revivor on FTB Form 3557. To begin one calls the FTB Revivor Unit at 888-635-0494 to determine exactly what the FTB believes is required to revive the corporation. Once this information is obtained and confirmed, Form 3557 can be submitted by any corporate officer, shareholder, corporate creditor, or a majority of the corporation’s board of directors. Only an officer, however, can sign a back tax return that needs to be filed to obtain the certificate of revivor.
Generally, filing Form FTB 3557 requires:
- filing of all delinquent tax returns; and
- paying all delinquent taxes, including penalties and interest.
The gating item is typically causing the corporation’s tax preparer to prepare delinquent returns. Given this, and considering that the FTB generally takes about six weeks to process a revivor application, the entire process could take several months – all there are circumstances where the FTB will expedite its review.
Once the FTB is satisfied the corporation is again compliant (the FTB 3557 has been submitted with all back tax returns and all taxes paid), it will issue a Certificate of Revivor. Before doing so it first checks with the Secretary of State to confirm that the corporation’s name is still available. This is because during a suspension, the corporation lost all right to conduct business as a corporation – including maintaining its corporate name, which means while it was suspended its corporate name was available to be adopted by another entity.
When the FTB issues a Certificate of Revivor, and corporation is “reinstated,” the FTB informs the Secretary of State, and the Secretary of State updates its website to reflect an “active” corporate status. This takes several days to occur.
Obtaining Relief from Contract Voidability
The reinstatement, however, is said to be “without prejudice” to any action, defense or right which has accrued in favor of a third party during the suspension. This means that a contract that was voided (canceled) by a counter-party during the period of suspension remains voided after the corporation is revived. And, generally, a contract that became voidable (capable of being voided) but was not voided during the suspension could still be voided by the counter-party after the revivor. The suspended corporation can cure this voidability risk, but it requires more than just reviving the corporation.
To obtain Relief from Contract Voidability (RCV), any person who could have filed the From 3557 files a Form 2518 with the FTB. The corporation must be revived before it can obtain RCV, but the forms can (and typically are) filed together.
In addition to applying for the RCV, the corporation must pay a “penalty.” The penalty is the lesser of (i) $100 per day ($36,500 for each full year), and (ii) an equal to amount of tax due for the year, excluding from the “tax” for purpose of penalty calculation interest and penalties. Once the penalty is paid, the FTB issues a Certificate of RCV.