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State of California Franchise Tax Board

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Contracts at Risk

Did you know if you are a suspended or forfeited business entity or a foreign nonqualified corporation, you are at risk of having your contracts voided?

Besides losing the right to conduct business, another consequence of suspension or forfeiture is being subject to contract voidability for the period in which the entity is suspended or forfeited.

California law provides that specified limited liability companies (LLCs) and corporations that are suspended or forfeited for failure to file a tax return or for failure to pay delinquent taxes, penalties, or interest are subject to specified consequences, including contract voidability for the time period the entity is suspended or forfeited.

What if the entity does not qualify to do business in California?

Did you know business entities do not have to be suspended or forfeited to be at risk of having their contracts voided?

Foreign Business Entities Contract Voidability

Foreign[1] corporations, including LLCs classified/taxed as corporations, that have not qualified to do business in California with California’s Secretary of State (SOS) and failed to file a return with us are also at risk of having their contracts voided.

Foreign nonqualified corporations that do not have an FTB-assigned account number because we are unaware of the entities’ business activities within the state, that fail to file a return are immediately subject to contract voidability. Foreign nonqualified corporations that have an FTB-assigned account number may be subject to contract voidability for failure to file a tax return or for failure to pay delinquent taxes, penalties, fees, or interest within 60 days of our mailing a final notice before contract voidability.

Contract voidability can be asserted by any party to the contract other than the suspended taxpayer.

Every contract made in this state by a taxpayer during the time that the taxpayer’s corporation powers, rights, and privileges are suspended or forfeited can be voided by any party to the contract other than the taxpayer, including, but not limited to any sale, transfer, or exchange of real property in California.

Foreign Business Entities Public Record — Failure to Comply

Any contracts made by a foreign corporation or LLCs classified/taxed as a corporation, that is not qualified to do business in California that fails to file a return or to pay any tax owed within 60 days of our demand, may be voided at the instance of any party to the contract, except the taxpayer. When such taxpayers fail to comply with our demand, the taxpayer's contract voidability status becomes a public record which may be obtained upon request to us, as specified in Revenue and Taxation Code (R&TC) Section 23304.1(d).

Purchasing Relief is an Option

In most cases, the law does allow us to give a taxpayer who applies for relief the option to file form FTB 2518BC, Application of Relief from Contract Voidability, and pays the daily penalty relief from the voidability provisions of R&TC Section 23304.1.

The facts and circumstances of each taxpayer need to be considered to determine:

  • If relief can be granted.
  • The period covered by the relief.
  • The amount of daily penalty that must be paid.

Generally, relief can be granted to corporation taxpayers, including LLCs that are taxed as corporations and taxpayers that have an approved voluntary disclosure agreement. LLCs, foreign or domestic, that are registered with the SOS can request relief. Relief can only be granted if the contract has not already been rescinded by a final court order.

In addition to filing all required returns and paying all taxes due, a taxpayer wishing to obtain contract voidability relief must file an application with us and pay a penalty of $100 per day (maximum penalty not to exceed the tax owed for each tax year). The taxpayer’s application for relief needs to specify the period for which relief is being requested.

The period for relief must begin on the first day of a tax period in which contract voidability relief is sought and ends on the date that relief is granted. However, if the taxpayer requests relief after a certificate of revivor has been issued, the period for relief will begin on the date the taxpayer’s powers, rights, and privileges were suspended or forfeited.

We will not issue a certificate of relief if we determine Section 23304.1 contract voidability provisions do not apply.

Why would I need relief from contract voidability (RCV)?

The purpose of relief from contract voidability is to allow entities the opportunity to make their voidable contracts enforceable.

A suspended or forfeited business entity loses the right to enforce its legal contracts. Such contracts will remain voidable and unenforceable by the entity unless relief from contract voidability is applied for and granted by us. If a business enters a contract while suspended or forfeited and then revives its active legal status, the business still cannot enforce that contract unless it gets relief from contract voidability.

Entities that are subject to contract voidability are able to overcome contract voidability by filing and paying all delinquent tax returns, taxes, penalties, fees, and interest, and then may file an application for revivor if the entity is also suspended or forfeited.

Relief Period

Relief period is the period of time that taxpayers can request to have their contracts relieved of contract voidability.

Non-qualified entities with contract void status must purchase relief from contract voidability for all periods to be reinstated to an active status.

Relief Period — During Revivor

During the revivor process, you can choose when the relief period begins. The relief period ends on the date of revivor. The relief period can start on either the beginning of the tax year:

  • Of suspension/forfeiture.
  • After the tax year of the suspension of forfeiture.

Example: Harp, Inc., a calendar year filer, was suspended in 2006 and revived on March 19, 2014. The corporation can choose to start the relief period from the beginning of any of the 2006 through 2014 tax years. If the corporation chooses the 2008 tax year to start the relief period, the relief period would be January 1, 2008, to March 19, 2014.

Relief Period – After Revivor

After the revivor process, the relief period starts with the tax year the corporation or LLC was suspended. The relief period ends on the date of revivor.

Example: Cello, Inc., a calendar year filer, was suspended in 2007. The LLC revived on April 1, 2009. The corporation did not request relief of contract voidability. On March 1, 2014, the corporation requests relief of contract voidability. The corporation’s relief period is January 1, 2007, to April 1, 2009.

Voluntary Disclosure Program

Corporations and LLCs that have fully complied with their voluntary disclosure agreements, will be considered to have applied for and been granted relief from contract voidability. See our website for additional information on the Voluntary Disclosure Program.


Interest on the contract voidability is charged from the original notice date of the penalty assessment to the date paid.

Penalty Waiver or Abatement

The contract voidability penalty cannot be waived for reasonable cause.

The Revivor Process

The reviver process starts with two steps. First, call our Revivor Unit at 888.635.0494 to determine what your client needs to do to bring their corporation or LLC into compliance, also known as “good standing.” Second, contact the Secretary of State or call 916.653.2447 to make sure that entity’s name is still available. If the name is no longer available the entity will have to amend its Articles of Incorporation or Article of Organization to change its name.


[1] ]“Foreign” refers to any business entity’s whose legal existence is formed or organized in any jurisdiction (state or country) other than California.

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