What does it mean to suspend a business?

On Behalf of | Sep 15, 2022 | business formation | 0 comments

For many California business owners who have recently launched their enterprise, the possibility of their business getting suspended doesn’t typically come to mind. However, state law requires businesses follow certain rules. If they don’t, they could face a business suspension.

When the state of California suspends your business, it effectively stops your ability to carry out your business operations. You cannot sell or transfer real property connected to your entity, start civil actions to defend your company in court, or retain tax-exempt status. You might even lose your business name.

Causes of business suspension

The State of California Franchise Tax Board explains different reasons why state authorities suspend a business. Failing to file a proper tax return or failing to pay your taxes or any penalties, fees or interest you owe as a result of unpaid taxes or other delinquent payments are possible reasons, among others.

Additionally, the state Secretary of State might impose a suspension if you fail to file a Statement of Information as required by law. This document provides certain information about your business to the state.

Choose a business structure within your control

Sometimes entrepreneurs do not know what they are getting into when they form a liability limiting entity like a corporation or limited liability company. Failing to understand the legal requirements for maintaining the entity’s good standing can cause serious problems. For that reason, business owners should always consider all entity formation options, including those that may be more manageable. Seeking guidance from a business law attorney can help determine the best way to proceed.