5 minute read
Corporate Housekeeping: SOS and FTB Compliance
By Kyle Lakin, Esq.
Community associations must periodically file informational and tax forms with the California Secretary of State (SOS) and California Franchise Tax Board (FTB). Failing to file the forms in a timely way could result in suspension of the association’s corporate and tax-exempt status with the State, financial penalties, and unbudgeted expenses for legal or CPA assistance.
A suspension is a serious matter that should not be taken lightly. It means the association’s corporate powers, rights, and privileges are suspended in California. While actions taken by a suspended corporation may be retroactively validated after the suspension has been lifted and the corporate status has been reinstated, there is no guarantee that the negative consequences of suspension can be reversed entirely.
For instance, contracts a suspended corporation entered during suspension may be voided at the option of the other party to the contract. Moreover, a suspended corporation cannot appear before courts, which can have significant implications for an association involved in a legal proceeding (either as the plaintiff or the defendant).
Suspension may also lead to the FTB revoking the association’s tax-exempt status, requiring the association to submit a new Exemption Application form (Form 3500) along with the required tax forms to obtain active status.
Statements of Information
Every two years, California non-profit mutual benefit corporations must file a Statement of Information (Form SI-100) with the SOS. This form includes crucial information about the corporation’s addresses, officers, and agent for service of process. The filing deadline is based on the date the corporation’s articles of incorporation were filed with the SOS, and any delay in filing can have serious implications.
If any information on a previously filed Form SI-100 changes, an updated form should be filed. An updated form must be filed if the name or agent of the corporation’s agent for service of process changes. Forms, address changes, and other filings can be made via the SOS’s online business portal at https://bizfileonline.sos.ca.gov/.
CID Forms
Community associations, both incorporated and unincorporated, must file a Statement of Common Interest Development (CID) form with the SOS every two years. The form must include, among other things, information about the association’s name, addresses, managing agent, and type of development. Civil Code §5405 lists all the information required on the form. Incorporated associations must file a CID form with the Form SI-100.
Unincorporated associations must file a CID form every two years from July 2003.
Community associations must notify the SOS of any change in the street address of the association’s onsite office or the responsible officer or managing agent within 60 days of the change. Thus, an updated CID form must be filed with the SOS whenever an association changes management companies.
Tax Forms
Associations must also file annual information returns with the FTB. Consult with a CPA or tax professional to confirm the correct forms and filing deadline. Resolving a suspended corporate status due to FTB violations is often more complex. As such, it can take more time to reinstate the status.
Checking Corporate & Exempt Statuses
Check an association’s SOS status on the SOS website at https://bizfileonline.sos.ca.gov. In the “search” field, enter the association’s name. From the results list, click on the matching name. Information for the association will appear on the right side, including the initial filing date, entity status, and due date for Form SI-100. Warning: If the status states “Suspended” instead of “FTB Suspended,” it does not necessarily mean the association is not suspended by the FTB.
You can check an association’s FTB status by requesting an entity status letter on the FTB website at https://www.ftb.ca.gov/help/business/entity-status-letter.asp. Click “Check Status,” then enter the association’s name and click “Perform Search.” On the results page, click on the entity ID. The next page allows you to generate a formal letter showing the association’s status.
Penalties and Suspension
If the association is SOS suspended, contact the SOS to confirm:
1. What must be done to reinstate the association as “Active” with the SOS?
2. Are the association’s forms with the SOS current?
3. Are there any outstanding fees or penalties?
If the SOS imposes a penalty, the association can request a penalty waiver in writing through the SOS’s website. The request must show reasonable cause or unusual circumstances for the association’s failure to file the required form timely. However, the delinquent form should be filed before submitting the waiver request.
If the association is FTB suspended, contact the FTB’s Exempt Unit (contact information can be found at www.ftb.ca.gov). Be ready to provide the association’s full name, entity number (this can be obtained on the SOS’s website), and the name and address of the association’s agent for service of process. If the FTB states that the association must file an Exemption Application, ask for an extension. If they refuse, confirm how long the FTB will take to process Exemption Applications. For more information about FTB suspensions, see https://www.ftb.ca.gov/help/business/mybusiness-is-suspended.html.
Tips
1. Don’t wait to receive an SOS reminder notice.
Neither the failure of the SOS to send a reminder notice nor the failure of the association to receive the notice is an excuse to file the required forms timely.
2. Update the association’s address.
SOS notices are sent to the last address on record. If the address with the SOS is not current, the association will not receive the SOS’s notices.
3. Check the association’s statuses with the SOS and FTB annually to ensure its information is up to date and its forms are current.
4. Calendar the biennial deadline for the Form SI-100 and CID form.
5. Timely file required annual tax forms and pay the appropriate fees/taxes.
6. Ask for help.
Ask the association’s attorney and CPA for help on what forms must be filed, the filing deadlines, and addressing any penalties or suspensions. In a time crunch, some services can help, for an additional fee, to potentially expedite the reinstatement of an association’s corporate status to active.
