Legal Question in Business Law in California

Non-qualifying Foreign Corporations
As Non-Qualifying Foreign Corporations, i.e., those that have failed to comply with Cal. Corp. Code Section 2105, may have their corporate powers suspended or forfeited for non-payment of franchise taxes; it is my understanding that one of these powers they forfeit is vodiable contracts that were entered into during the period of suspension or forfeiture. Is the ''period'' of forfeiture defined as the time after a formal judgment/claim has been made by the Secretary of State? Or can any contracts that were entered into with a Non-Qualifying Foreign Corporation, be considered void, even if during the time when they have not been formally served a judgment? In other words, if said corporation is found to be non-qualified to conduct business in California.... subsequent to certain contracts they've entered into, is it possible to contend that those contracts are thus void, since the corporation had forfeited it's corporate powers, even if not formally served or judged at that time?

Thank you for any information offered.

Asked on 5/04/05, 9:52 pm

3 Answers from Attorneys

Terry A. Nelson Nelson & Lawless

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Re: Non-qualifying Foreign Corporations

Corporations don't get to avoid responsibility for contracts just because they are suspended. They can't sue, but others can sue them. If you are the one suing the corporation, then you need counsel to work through the problems you described. If you are a principle of the corporation, then you really do need counsel, and need to follow his advice about cleaning up the problems before have personal liability for the corporate debts on your head. Contact me if interested in doing so.

Answered on 5/05/05, 12:33 pm

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Antonio Maldonado Maldonado Myers LLP

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Re: Non-qualifying Foreign Corporations

If you are looking to avoid liability on a contract you formed in behalf of the corporation and the corporation did not legally exist then you are personally liable for the contract that you entered into in behalf of the corporation.

Additionally, if a court finds that the plaintiff relied on the corporation to be a valid one to his detriment and you acted as if the corporation were a valid one then the corporation may be deemed to exist for this transaction only under the corporation by estoppel doctrine.

Either way you will not be able to avoid liability on the contract.

Answered on 5/04/05, 10:28 pm

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