What is a suspension or forfeiture?

If a company falls out of good standing in a state, it may lose its legal authority to do business there through suspension or forfeiture—the exact name for the process varies by state. The company can restore its good standing by bringing itself into compliance with state law and seeking reinstatement, which often involves filing required paperwork and paying franchise taxes.

What Leads to Business Suspension or Forfeiture?

A company that is subject to suspension or forfeiture cannot legally operate a business. Suspension or forfeiture typically happens after a business entity fails to file required documents.

When Can a Business Be Subject to Suspension or Forfeiture?

Failure to File Required Documents

• Most states mandate periodic reports about a company’s management.
• Businesses must file state franchise tax returns or reports declaring that they do not owe franchise tax.

Failure to Pay State Franchise or Privilege Taxes

• Business entities that provide liability protection to owners must pay state franchise or privilege tax in most states.
• Franchise tax is based on income, net worth, or another measure established by state law. A company does not owe tax if its annual income is below that amount, but it must still file a report.
• Unpaid franchise tax often results in late fees and interest.

Failure to Maintain a Registered Agent

• Every business entity organized or registered in a state must have a registered agent.
• The agent must have a physical address in the state.
• Businesses must promptly notify the state if their registered agent resigns or moves.

What Does Forfeited Existence Mean?

Some states use the term “forfeited existence” to describe a business that has lost its legal status for failing to meet certain state requirements, such as filing reports or paying fees. Unlike a simple suspension, forfeited existence means the business’s legal standing is effectively terminated until it is reinstated.

While the entity technically continues to exist for limited purposes—like winding up or applying for reinstatement—it no longer has the authority to operate, enter contracts, or maintain liability protections. Reinstatement restores the business’s legal existence and its ability to act as a recognized entity once again.

Is Forfeiture the Same as Dissolution?

No, suspension and forfeiture are not the same as dissolution.

• A business entity that is subject to suspension or forfeiture still exists; it just does not have the right to do business in the state.
• Dissolution is the process of ending a business entity’s legal existence.
• Under certain circumstances, a business could face an administrative dissolution by the state.

Who Handles Suspensions and Forfeitures?

Suspensions and forfeitures typically involve two state offices. The names may vary, but the roles are generally the same in most states:

Secretary of State Suspension

• The Secretary of State often handles suspensions and forfeitures related to failure to file required documents.
• Most states require registered business entities to file information reports that list directors or managers and identify the registered agent.
• These reports must be filed by a certain deadline.

Department of Revenue Suspension

• The state tax office usually handles suspensions and forfeitures related to state franchise/privilege taxes.
• This typically involves failure to pay taxes or file a return stating that no tax is due.

If a Business Says “Suspended,” Can You Reopen It?

Yes, an LLC or corporation that is suspended or forfeited can be reopened. The most common term for this is reinstatement. It typically involves several steps:

Get the business back in compliance

• File all missing or overdue information reports and franchise tax returns.
• Pay all overdue franchise taxes.
• Pay late fees and other penalties.

Obtain a tax clearance letter

• Confirm that the business has met all of its obligations.
• Request a letter from the state tax office showing that the business is in compliance.

Reinstate the business

• Submit a reinstatement request to the Secretary of State.
• Include the tax clearance letter.
• Pay the Secretary of State’s filing fee.

Suspension or forfeiture can prevent a business from legally operating and may complicate the owners’ liability protections. While reinstatement is often possible, it requires prompt action and compliance with state law.

If you have questions about your business’s standing or need guidance on navigating suspension or forfeiture, our attorneys can provide personalized advice to help you restore your business to good standing confidently.