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Revival Rectifies Removal

California pressures corporations to pay their taxes by suspending their corporate powers, rights and privileges when they fail to do so.   Cal. Rev. & Tax Code § 23301.  Consequently a suspended corporation may not litigate.   Welco Constr., Inc. v. Modulux, Inc., 47 Cal. App. 3d 69, 71, 120 Cal. Rptr. 572 (1975).   

Suspension, however, is not the final word because a corporation can pay its taxes and then apply with the Franchise Tax Board for reinstatement. Cal. Rev. & Tax Code § 23305.  Assuming the corporation meets the applicable statutory requirements, the Franchise Tax Board issues a "certificate of revivor."  Id.  "Upon the issuance of the certificate [of revivor] by the Franchise Tax Board the taxpayer therein named shall become reinstated but the reinstatement shall be without prejudice to any action, defense or right which has accrued by reason of the original suspension or forfeiture . . . ."  Cal. Rev. & Tax Code § 23305a.

What happens when a suspended corporation files a notice of removal and is thereafter revised?  According to U.S. District Court Judge John A. Houston, the answer depends upon whether the action is considered substantive or procedural.  Jimenez v. CRC Prop. Mgmt. West Inc., 2021 U.S. Dist. LEXIS 177618  Substantive actions are not validated by revival while procedural actions are.  Filing a notice of removal falls into the procedural category and are therefore validated by a suspended corporation's subsequent revival.

© 2010-2023 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 333

About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...