Legal Question in Business Law in California

The answer to your first question is basically no. A suspended corporation is prohibited from transacting business while suspended. This doesn't mean that you're going to get locked up if you continue to operate. I suppose someone could seek an injunction to stop you from continuing to do business, but I've never heard of that being done. The primary risk is that any contracts made while the corporation is suspended are voidable at the option of the other party. Depending on the nature of your business, this could be disastrous.

As to forming a new corporation or other business entity, I know of no restrictions on forming a new business entity. You'd need to be very careful about you operate the business, making sure that you treat it as completely separate from the suspended corporation. You don't want to risk a later finding that the new business was simply a subsidiary of the suspended corporation. For example you wouldn't want to commingle the funds, i.e., write checks to FTB on the new business checking account. Further, once sufficient funds to reinstate are available, the revived corporation must account for those funds, identifying them as either loans or new paid-in capital. Other pitfalls and traps for the unwary exist.

I'd strongly suggest you contact a local attorney who is practices corporate law for help in getting this done. Be sure and ask about "purchasing" relief from voidability as part of the reinstatement process.

Best of luck, let me know if you have further questions.

Regards,

Tom Newton