DON’T GET SUSPENDED! (Part 1 of 2)

You know that suspension from school is something to be avoided by all students. Well, corporations and limited liability companies in California can also be suspended by the Secretary of State and it can be a serious problem. When an entity is suspended, it is sort of in legal limbo. Among other things, it cannot legally enter into contracts, sue or defend a suit while suspended. Because a corporation or limited liability company only exists as a creature of the State, the State can “suspend” its existence if that entity does not obey certain State rules.

Statement of Information

The most common way a corporation or LLC  gets suspended is the failure to file a Statement of Information. Within 90 days of the date of formation, the initial Statement of Information must be filed. The date of formation is the date of the filing of 1) Articles of Incorporation for a corporation, 2) Articles of Organization for an LLC, or 3) initial Statement of Doing Business and Designation of Agent by a foreign entity.

The Statement of Information consists of certain information about the entity including the names of the officers and directors of the entity and the designated agent for service of process. The Statement must be signed by someone with the proper authority within the entity such as the President or CEO. The Secretary of State has an online filing system for corporations to file their Statements of Information. LLCs must make paper filings either by mail or in person. The Secretary of State charges fees of $25.00 for these filings.

After the initial Statement of Information, a corporation must file a Statement of Information every year. This yearly Statement is due by the end of the calendar month of the corporation’s anniversary date. Thus, if your corporation was formed on July 30, the Statement must be filed on or before July 31 each year. Of course, you can always file early. Annual Statements of Information are accepted for filing for the five calendar months “immediately preceding” the anniversary month. This time period is considered the “applicable filing period” for your entity.

The filing deadlines for LLCs are basically the same, except that LLCs only have to file their statements biennially (every other year). Many new entities delay the filing of their Statement because they haven’t actually done business or held their initial board meeting. This is folly! You can always make revisions to the Statement if you decide to change or add officers or directors. In fact, the Secretary of State does not charge a fee for the filing of a Statement simply to show such amendments. Also, regardless of whether your entity has done any business, the Statement must be filed as long as the entity exists, in other words, unless the entity has been dissolved, the Statement must be filed.

If the deadline is missed, the Statement generally can still be filed, but there will be an automatic $250.00 penalty. Further, your entity will not have any legal powers while it is suspended. You do not want to be at the bank trying to receive funding for a loan when the underwriter looks up your entity on the California Secretary of State website and sees that it is “SUSPENDED”.

There are specialized forms with instructions on the Secretary of State’s website for each type of entity to file the appropriate Statement of Information. The Williams Firm includes preparation and filing of the initial Statement of Information as part of the package for every corporate or LLC formation that we complete. Upon request, we also prepare and file annual Statements or occasional periodic amendments to the Statements for our entity clients on an hourly fee basis.

In our next blog entry we will examine the second most common reason for suspension–Franchise Tax Board suspension.