CAN YOU SUE A SUSPENDED CORPORATION?

A suspended corporation is a corporation that the California Secretary of State has put on suspended status.   Typically, that means that they have not complied  with one of their obligations under state law, such as filing their annual taxes.  We’ve talked about what happens when your corporation is suspended.  What happens if you learn that a corporation that you intend to sue is a suspended corporation?   Can you sue a suspended corporation?

You Can Sue a Suspended Corporation

Yes, you can sue a suspended corporation.   Although a suspended corporation does not have a right to sue or defend itself while it is suspended (Cal. Rev. & Tax. Code, section 23301)  that does not mean that it can’t be sued.   The question, however, is whether you want to sue a suspended corporation.

Reasons to Sue A Suspended Corporation

There are several reasons why you may want to sue a suspended corporation.

First, a corporation’s suspended status may be only temporary.   A corporation can revive itself by paying the taxes.    So, if you have a valid claim against a corporation, you should pursue it.    This is particularly so if you are facing a statute of limitations deadline.   The corporation may revive itself and defend itself in the lawsuit and meanwhile you will have moved forward on your claim.

Second, if you sue a suspended corporation, the corporation will  have to hire a lawyer to defend itself.  The corporation also has to pay the back taxes to revive itself or face a default.   This increased burden may be a powerful incentive for the corporation to settle with you.

Third, if you sue a suspended corporation and they cannot or will not pay the taxes due to revive itself, you may be able to obtain a default judgment against the corporation which you will then be able to try to enforce.     This brings us to the reason not to sue a suspended corporation.

Reason Not to Sue a Suspended Corporation

If you know that the suspended corporation has no assets and if you don’t have any reason to sue the owners of the corporation to pierce the corporate veil, suing a suspended corporation may be a waste time.   But, of course, it rarely, if ever, makes sense to a sue a party when you know they have no assets, right?

Conclusion

You can sue a suspended corporation.   The question is whether it makes sense to do so.    This is a decision that should be made with your lawyer who, of course, will know the specific facts of your case.

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