Annual Maintenance and Compliance for California Corporations: The Complete Guide
Incorporating your business in California is just the beginning. What many business owners don’t realize is that maintaining your corporation’s good standing requires consistent annual compliance work. Miss a filing deadline, skip board minutes for a year, or forget about your franchise tax obligations, and you’re not just risking penalties—you’re potentially compromising your limited liability protection and creating legal vulnerabilities that could haunt you during a dispute, acquisition, or lawsuit.
I’m a California-licensed attorney (CA Bar #279869) with over 14 years of experience helping businesses navigate corporate compliance. Through more than 1,750 completed projects, I’ve seen firsthand how corporations get into trouble—not because they intended to cut corners, but because they simply didn’t understand what was required or when. This guide will walk you through every annual compliance obligation for California corporations, explain why each requirement matters, and give you a practical framework for staying on top of your corporate maintenance.
Whether you’re running a bootstrapped startup, managing a growing tech company, or advising a foreign entrepreneur setting up a U.S. subsidiary, understanding these requirements isn’t optional. It’s the difference between a corporation that can withstand scrutiny and one that crumbles when it matters most.
About the Author: Sergei Tokmakov is a California-licensed attorney (CA Bar #279869) with over 13 years of experience helping businesses navigate corporate compliance, contract drafting, and business formation. With more than 1,750 completed Upwork projects and a 4.9/5 client rating, Sergei focuses on providing practical, actionable legal guidance to tech startups, online businesses, and entrepreneurs worldwide. For more information, book a consultation directly.
Why Annual Corporate Compliance Actually Matters
Before diving into the specific requirements, let’s address the elephant in the room: Why should you care about filing statements, holding meetings, and maintaining minutes when you’re busy building an actual business? The answer comes down to three critical reasons that go beyond simply “following the rules.”Limited Liability Protection Isn’t Automatic
When you incorporated, you created a separate legal entity. That separation—the “corporate veil”—is what protects your personal assets from business liabilities. But California courts won’t respect that separation if you don’t respect it yourself. Failure to maintain corporate formalities is one of the most common factors cited in “alter ego” cases where courts pierce the corporate veil and hold shareholders personally liable for corporate debts. I’ve reviewed litigation where companies lost veil protection not because they committed fraud, but because they couldn’t produce board meeting minutes, failed to keep adequate financial records, or hadn’t held an annual shareholder meeting in five years. The corporate formalities aren’t busywork—they’re evidence that your corporation is a real, separate entity deserving of limited liability protection.Due Diligence Will Expose Your Gaps
If you ever plan to raise institutional funding, sell your company, or bring on strategic partners, you’ll go through due diligence. Buyers and investors will request your corporate records, tax returns, and governance documents. Missing statements of information, incomplete minutes, gaps in your tax filings, or failure to document key decisions are red flags that can kill deals, reduce valuations, or force you to accept unfavorable terms. I’ve participated in transactions where purchase prices were reduced by hundreds of thousands of dollars because the target company’s corporate records were a mess, requiring extensive remediation work and creating contingent liability concerns. The cost of maintaining proper records throughout the year is a fraction of the cost of scrambling to reconstruct them during due diligence—or worse, explaining why they don’t exist.Suspension Isn’t Just Administrative
California has teeth when it comes to non-compliance. Both the Secretary of State and the Franchise Tax Board can suspend or forfeit your corporation’s powers, rights, and privileges. A suspended corporation cannot legally conduct business in California, cannot sue to enforce contracts (though it can be sued), and may find that contracts entered during suspension are voidable. Beyond the administrative headaches, suspension signals to counterparties, customers, and potential partners that your company isn’t properly managed. Anyone can check your corporation’s status through the Secretary of State’s online database. Operating with a “SUSPENDED” status next to your company name is not a good look when you’re trying to close a deal or establish credibility with a new client.Secretary of State Requirements: Statement of Information
California corporations must file a Statement of Information with the Secretary of State both initially and on an annual basis. This is your corporation’s public-facing information update, and it’s governed by California Corporations Code Section 1502.What the Statement of Information Contains
Form SI-550 (for stock corporations) requires you to disclose basic identifying information about your corporation, including the names and addresses of your principal officers (CEO, Secretary, and CFO), the street address of your principal executive office, your mailing address if different, and a general description of your business type. This isn’t sensitive strategic information—it’s public record that anyone can access through the Secretary of State’s business search tool. The purpose is to maintain current contact information for the corporation so that the state and third parties can reach your company if needed.Initial Filing Deadline
Your initial Statement of Information must be filed within 90 days after your corporation files its articles of incorporation. This catches many new business owners off guard because it comes relatively quickly after formation, and it’s a separate filing from the articles themselves. The Secretary of State typically sends a notice, but don’t rely on receiving it. Set a reminder for yourself when you incorporate so you don’t miss this initial deadline.Annual Filing Period
After the initial filing, you must file an annual Statement of Information during your designated filing period. This is where it gets slightly confusing: your filing period is the calendar month in which you originally filed your articles of incorporation, plus the five preceding months. For example, if you incorporated in March, your annual filing period runs from October through March. You can file anytime during this six-month window, but the statement must be filed before the period ends. Most businesses file early in the window to avoid last-minute complications. The current filing fee is $25 for most domestic stock corporations, though you should verify the current fee on the Secretary of State’s website as fees can be adjusted periodically.Filing Process
California has modernized this process significantly. You can file your Statement of Information online through the Secretary of State’s BizFile system. The online portal is straightforward: you look up your corporation, verify the existing information, update what’s changed, and pay the filing fee electronically. I recommend filing online rather than by mail. It’s faster, you get immediate confirmation, and you avoid potential mail delays or processing backlogs. The BizFile system will show you your next filing due date after you complete your submission.Consequences of Non-Compliance
Failure to file your Statement of Information on time triggers several negative consequences. First, the Franchise Tax Board can assess a penalty under Revenue and Taxation Code Section 19141—currently $250, though this amount is subject to adjustment. More seriously, failure to file can result in the Secretary of State suspending or forfeiting your corporation’s powers, rights, and privileges. This isn’t just theoretical. The Secretary of State actively monitors compliance and will suspend corporations that don’t file their required statements. Additionally, if your corporation is suspended by the FTB for tax non-compliance, you cannot revive your good standing until you’ve filed all required Statements of Information. The requirements stack—you can’t just pay your taxes and ignore the SI filing.Special Requirements for Publicly Traded Corporations
If your corporation has equity securities registered under Section 12 of the Securities Exchange Act or is required to file reports under Section 15(d)—essentially, if you’re a publicly traded company—you have additional disclosure obligations under Corporations Code Section 1502.1. These corporations must file a separate “Corporate Disclosure Statement” with enhanced information about directors, executive compensation, and other matters. For most startups and private companies reading this article, Section 1502.1 won’t apply to you. But if you’re considering going public or have registered securities, be aware that your Secretary of State filing obligations expand significantly.Internal Corporate Governance: Meetings, Minutes, and Formalities
While Secretary of State filings are external regulatory requirements, California law also imposes internal governance obligations designed to ensure corporations operate as legitimate separate entities with proper oversight and decision-making processes.Annual Shareholder Meetings
California Corporations Code Section 600 requires every corporation to hold an annual meeting of shareholders for the election of directors. Your bylaws should specify when this meeting occurs, and it should happen every year even if the same directors are being re-elected. The requirement isn’t merely bureaucratic. Annual shareholder meetings serve several important functions. They provide formal accountability between ownership and management, create a regular checkpoint for major corporate decisions, and establish a documented decision-making process that courts will respect if disputes arise. In practice, many closely held corporations don’t hold formal in-person meetings each year. That’s fine—California law allows you to satisfy the meeting requirement through unanimous written consent of shareholders. If all shareholders sign a written consent agreeing to elect directors and handle other annual business, that’s legally equivalent to holding an actual meeting. What you cannot do is simply skip the meeting requirement entirely without documentation. Having no record of shareholder meetings year after year is exactly the type of corporate formality failure that undermines your liability protection and creates problems during due diligence.Board of Directors Meetings and Actions
Your board of directors is responsible for managing the corporation’s business and affairs. Under Corporations Code Section 307, the board can act either through formal meetings with a quorum present or through unanimous written consent without a meeting. At a minimum, your board should meet or act by written consent at least once per year to handle core governance matters. This typically includes approving annual financials, ratifying officer compensation, approving any equity grants or option exercises, reviewing major contracts or strategic decisions, and confirming that the corporation is meeting its compliance obligations. For startups and smaller corporations, unanimous written consent is the norm. It’s faster and more practical than trying to coordinate physical meetings. However, the written consent must be actually signed by all directors and maintained in your corporate records. A mental agreement among directors or an email thread doesn’t satisfy the legal requirement. Larger or investor-backed corporations often prefer actual board meetings, particularly when there are independent directors or when more complex matters require discussion and debate. Your bylaws will specify notice requirements, quorum rules, and voting procedures for formal meetings.Maintaining Corporate Minutes and Records
California Corporations Code Section 1500 requires every corporation to keep “adequate and correct books and records of account” and to keep “minutes of the proceedings of its shareholders and board and committees of the board.” You must also maintain a record of your shareholders showing names and shareholdings. This isn’t a suggestion—it’s a statutory mandate. And unlike some corporate law provisions that are rarely enforced, inadequate recordkeeping has real consequences. Courts considering whether to pierce the corporate veil routinely examine whether the corporation maintained proper minutes and records. The failure to do so is one of the factors supporting a finding that the corporation wasn’t truly a separate entity. What constitutes adequate minutes? At a minimum, your corporate records should document the who, what, when, and why of major decisions. Who was present at the meeting or signed the consent? What matters were discussed and decided? When did the meeting occur? Why was the decision made (especially for non-routine actions like major expenditures, equity issuances, or changes in business direction)? Minutes don’t need to be elaborate transcripts. They should be clear, professional records that could withstand scrutiny from a judge, investor, or buyer. I generally advise clients to aim for minutes that tell a coherent story of how the company is governed—not so sparse that they’re meaningless, but not so detailed that they create unnecessary risks by documenting every preliminary discussion or internal debate. Your corporate records should also include copies of key contracts, shareholder agreements, stock certificates and transfer ledgers, bylaws and any amendments, board and shareholder resolutions, and annual financial statements. These documents should be organized and accessible. During due diligence or litigation, you’ll need to produce them quickly, and gaps or disorganization create negative inferences about how the company is managed.The Annual Report to Shareholders
Here’s a compliance obligation that almost nobody talks about, but it’s right there in California law: Corporations Code Section 1501 requires your board to send an annual report to shareholders no later than 120 days after the end of your fiscal year. This report must include a balance sheet as of the end of the fiscal year, an income statement, and a statement of cash flows. The financial statements must be accompanied by either an independent accountant’s report or a certificate from an authorized officer stating that the statements were prepared without audit from the corporation’s books and records. Before you panic, there’s an important exception: corporations with fewer than 100 shareholders of record can waive this requirement in their bylaws. Most startups and closely held corporations do exactly that. If your bylaws include a waiver provision and you have fewer than 100 shareholders, you’re exempt from the Section 1501 annual report requirement. However, even if you’re exempt, consider whether providing annual financial statements to shareholders makes good business sense. If you have outside investors or multiple shareholders who aren’t involved in day-to-day operations, providing annual financials maintains transparency, reduces information asymmetry, and demonstrates good corporate governance. You don’t need to prepare audited GAAP financials (unless your investor agreements require it), but some form of annual financial summary can strengthen relationships and prevent disputes. For corporations with 100 or more shareholders, the Section 1501 report is mandatory. If your corporation reaches that threshold—which can happen if you’ve done multiple fundraising rounds with numerous small investors—you need to be aware of and comply with this requirement. Failure to provide the annual report allows shareholders to seek court enforcement and potentially recover their expenses and attorney’s fees if your noncompliance was unjustified.Tax Compliance: Franchise Tax Board Obligations
If corporate governance formalities protect your liability shield, tax compliance protects your ability to operate. California’s Franchise Tax Board (FTB) takes corporate tax obligations seriously, and the penalties for non-compliance can be severe.C Corporations: Form 100 and Franchise Tax
C corporations operating in California must file Form 100 (California Corporation Franchise or Income Tax Return) annually. This is true whether you’re incorporated in California or a foreign corporation qualified to do business here. California imposes an 8.84% tax on net income for most C corporations, with special rates for banks and financial institutions. But even if your corporation has no income or operates at a loss, you’re still subject to California’s minimum franchise tax of $800 per year. The $800 minimum is a flat annual fee for the privilege of being a corporation in California. It’s not based on revenue, profit, or business activity—if you exist as a California corporation, you owe it. The only exception is the first taxable year. For corporations incorporated or qualified in California on or after January 1, 2000, the $800 minimum franchise tax is waived for the first taxable year. This gives new corporations a one-year break, but starting with your second year of existence, the $800 minimum applies regardless of whether you have any income. Form 100 is due by the 15th day of the 4th month after the close of your taxable year. For calendar-year corporations (which most are), that means April 15. You can request an extension to file using Form 3539, but an extension to file is not an extension to pay. If you owe tax, you need to estimate and pay it by the original deadline to avoid penalties and interest. Many corporations are also required to make quarterly estimated tax payments using Form 100-ES if they expect their tax liability to exceed certain thresholds. The estimated tax rules are complex and depend on your prior year’s tax and expected current year tax, so consult the Form 100 instructions or work with a tax professional to determine whether you need to make estimated payments.S Corporations: Form 100S and the 1.5% Tax
S corporations benefit from pass-through taxation at the federal level, meaning the corporation itself generally doesn’t pay federal income tax—instead, income passes through to shareholders who report it on their personal returns. California respects S corporation elections, but it still imposes a corporate-level tax. California S corporations must file Form 100S annually and pay a tax of 1.5% of net income, with a minimum of $800. Like C corporations, the $800 minimum applies every year except the first taxable year for newly formed or qualified S corporations. The 1.5% tax is lower than the 8.84% C corporation rate, but it’s still a corporate-level tax on top of the individual income tax that shareholders pay on their distributive shares. This is one of the costs of doing business in California—even pass-through entities pay some state-level tax. Form 100S is due by the same deadline as Form 100—the 15th day of the 4th month after the close of the taxable year for most corporations. S corporations also use Form 100-ES for estimated tax payments when required.Understanding “First Taxable Year” for the $800 Exemption
The first-year exemption from the $800 minimum franchise tax causes confusion because “first taxable year” isn’t always the same as your first calendar year of operation. Your first taxable year is the period covered by your first tax return. For most corporations, this runs from your incorporation date to December 31 of that year. If you incorporated in January, your first taxable year is nearly a full year. If you incorporated in November, your first taxable year is only two months. The key is that you get the exemption for that first return period, regardless of its length. Starting with your second taxable year—which for calendar-year corporations begins January 1 of the year after incorporation—you owe the full $800 minimum even if you file a tax return showing no income. This catches some business owners by surprise. They incorporate late in the year, file their first tax return a few months later showing no income and no tax due, then get a bill for $800 the following year even though they still haven’t generated revenue. That’s how it works—the minimum franchise tax is an annual fee for corporate status, not a tax on income.Payment Methods and Timing
The FTB has modernized payment options significantly. You can pay online through the FTB’s Web Pay system, which I recommend because it’s faster and you get immediate confirmation. You can also pay by check when you file your return, though paper processing is slower. If you owe tax, pay it when you file your return or by the original due date if you’ve requested an extension. The FTB charges penalties for late payment and interest on unpaid balances. The penalties can add up quickly—there’s a penalty for failure to file, a penalty for failure to pay, and interest that compounds.What Happens If You Don’t File or Pay
FTB non-compliance triggers a cascade of consequences. Initially, you’ll receive notices and be assessed penalties and interest on any unpaid amounts. If you continue to ignore your obligations, the FTB will suspend your corporation. A suspended corporation cannot legally conduct business in California, cannot sue in California courts to enforce contracts or collect debts, and may find that contracts entered while suspended are voidable. You’ll still be subject to being sued—suspension doesn’t protect you from liability—but you lose the ability to affirmatively enforce your rights. FTB suspension also prevents you from filing a valid Statement of Information with the Secretary of State, which can trigger additional Secretary of State suspension. The two agencies coordinate, and you can find yourself suspended by both for interconnected compliance failures. Reviving a suspended corporation requires filing all past-due tax returns, paying all outstanding taxes, penalties, and interest, and filing any missing Statements of Information. The longer you wait, the more expensive revival becomes. I’ve seen situations where corporations accumulate tens of thousands of dollars in penalties and interest on top of the base tax owed, all because the business owner didn’t realize they were required to file or thought they could ignore the notices.S Corporation Special Topic: Reasonable Compensation for Shareholder-Employees
If you’ve elected S corporation status, you have an additional annual compliance issue that’s primarily federal but has significant practical and financial implications: ensuring that shareholder-employees receive reasonable compensation for services they provide to the corporation.Why Reasonable Compensation Matters
The IRS requires that S corporation shareholder-employees who provide services to the corporation be paid reasonable compensation in the form of wages subject to employment taxes (Social Security, Medicare, and unemployment taxes). Distributions of S corporation profits, on the other hand, are not subject to employment taxes. This creates an incentive for S corporation owners to minimize wages and maximize distributions, thereby avoiding employment taxes. The IRS is well aware of this incentive, and it actively challenges S corporations that pay unreasonably low wages to shareholder-employees while taking large distributions. If the IRS determines that distributions should have been classified as wages, it will reclassify them, assess employment taxes, and impose penalties and interest. The shareholder ends up paying employment taxes retroactively, along with penalties that can be substantial. The corporation may also face penalties for failure to withhold and pay employment taxes when they were due.What Is “Reasonable Compensation”?
The IRS doesn’t provide a bright-line rule or formula for reasonable compensation. Instead, it uses a facts-and-circumstances test based on factors outlined in case law and IRS guidance, including IRS Fact Sheet FS-2008-25. Key factors include your training and experience, your duties and responsibilities at the corporation, the time and effort you devote to the business, your corporation’s dividend history, payments made to non-shareholder employees for similar services, compensation agreements in place, and what comparable businesses pay for similar services in similar locations. As a practical matter, reasonable compensation should approximate what you would need to pay an unrelated third party to perform the same services. If you’re the CEO working full-time to build and run the business, you should be paid a salary comparable to what a CEO with your experience and responsibilities would earn at a similar company. The compensation doesn’t need to be at the high end of market rates—particularly for startups with limited cash flow—but it should be defensible if questioned. Paying yourself $20,000 per year while distributing $300,000 in S corporation income is a red flag that invites IRS scrutiny.Annual Compliance Steps for Reasonable Compensation
Each year, your board of directors should formally approve officer compensation in your board minutes or by written consent. This serves two purposes: it satisfies corporate governance requirements by documenting the board’s approval of officer compensation, and it creates contemporaneous evidence of the corporation’s rationale for the compensation level. When approving compensation, include some reference to the factors supporting the reasonableness determination. For example, the minutes might note that the compensation was set based on market data for comparable positions, the officer’s experience and time commitment, and the corporation’s current financial position. You don’t need to conduct an exhaustive comparability study (though larger S corporations sometimes do), but having some documented basis strengthens your position if the compensation is ever challenged. Make sure you’re actually paying the approved salary through regular payroll with proper withholdings. Deciding to pay yourself a reasonable salary but then taking irregular distributions throughout the year without running payroll undermines the entire structure. The compensation needs to be paid as wages, reported on Form W-2, and subjected to employment tax withholding.Health Insurance for Greater-Than-2% Shareholders
A related S corporation wrinkle: if you’re a shareholder owning more than 2% of the S corporation’s stock, the IRS treats you as a partner for purposes of health insurance. The corporation can pay your health insurance premiums, but those premiums must be included in your W-2 wages (though they’re not subject to employment taxes, only income tax). This is a compliance trap that catches many S corporation owners. They think health insurance paid by the corporation is a tax-free fringe benefit, but for greater-than-2% shareholders, it must be included in compensation and reported on the W-2. Failing to do so creates an IRS reporting discrepancy when the shareholder tries to take the self-employed health insurance deduction on their personal return.Books, Records, and Protecting the Corporate Veil
We’ve touched on recordkeeping requirements throughout this article, but it’s worth dedicating a section to why adequate books, records, and corporate formalities are essential—not just for compliance, but for protecting your limited liability.The Corporate Veil and Alter Ego Liability
When you incorporate, California law creates a legal presumption that your corporation is a separate entity distinct from its shareholders. This separation—the “corporate veil”—means that corporate debts and liabilities belong to the corporation, not to you personally. But this protection isn’t absolute. California courts will “pierce the corporate veil” and hold shareholders personally liable for corporate obligations if they find that the corporation is the “alter ego” of its shareholders. This requires proving two elements: unity of interest and ownership between the corporation and the individual such that separate personalities no longer exist, and that treating them as separate entities would sanction fraud or promote injustice. The first element—unity of interest—is where corporate formalities come in. Courts look at whether the corporation was adequately capitalized, whether corporate and personal funds were commingled, whether corporate formalities were observed, whether corporate assets were diverted for personal use, whether corporate records were maintained, and numerous other factors suggesting that the corporation wasn’t truly independent. Failure to maintain adequate records and observe corporate formalities is one of the most frequently cited factors in veil-piercing cases. If you can’t produce board minutes, you’ve never held a shareholder meeting, your corporate records are non-existent or hopelessly disorganized, and your financial records don’t clearly separate corporate and personal transactions, you’re providing evidence that your corporation was never truly separate from you.What “Adequate and Correct” Means in Practice
Corporations Code Section 1500 requires “adequate and correct” books and records. This isn’t a vague aspiration—it’s a legal standard that has practical meaning. At a minimum, adequate books and records include accounting records that accurately reflect the corporation’s financial position and activities, corporate minutes documenting major decisions and showing that the corporation is governed by its board and shareholders (not unilaterally by one person), a stock ledger showing who owns shares and tracking all issuances and transfers, copies of material contracts and agreements, corporate bylaws and any amendments, and filed tax returns and correspondence with taxing authorities. These records should be organized, accessible, and current. Having five years of disorganized documents stuffed in a box isn’t adequate recordkeeping. You should be able to produce your corporate records with reasonable effort if requested by a shareholder exercising inspection rights, a buyer conducting due diligence, or a court in litigation.Shareholder Inspection Rights
California law gives shareholders extensive rights to inspect corporate records. Under Corporations Code Sections 1600 and 1601, shareholders can inspect and copy the shareholder list, bylaws, minutes of shareholder proceedings, accounting books and records, and minutes of board proceedings. Shareholders must make their inspection requests for proper purposes related to their interests as shareholders—they can’t demand inspection to further competitive purposes or for other improper reasons. But legitimate purposes include evaluating the corporation’s financial health, investigating potential mismanagement, determining the value of shares, or preparing for a shareholder meeting. If the corporation denies an inspection request without justification, shareholders can seek court enforcement under Corporations Code Sections 1603 and 1604. If the court finds the denial was unjustified, the shareholder can recover expenses and attorney’s fees. The existence of these inspection rights reinforces why maintaining proper records is essential. You can’t deny an inspection request on the grounds that the records don’t exist or are too disorganized to produce—that’s not a valid reason, it’s an admission of non-compliance with Section 1500.Practical Recordkeeping Systems
Most corporations don’t need elaborate document management systems. A systematic approach to recordkeeping can be as simple as maintaining a corporate records binder (or secure electronic equivalent) with separate sections for articles of incorporation and amendments, bylaws and amendments, board minutes and consents, shareholder minutes and consents, stock certificates and transfer ledger, material contracts, tax returns, and correspondence with state agencies. Update this file throughout the year as events occur, rather than trying to reconstruct everything retroactively. When your board acts by written consent, immediately file the signed consent in your records. When you issue shares, immediately update the stock ledger. When you file your tax return, immediately save a copy to your corporate records. For technology companies and startups, consider using corporate records software or a platform designed for cap table management and corporate governance. These tools help ensure that equity grants, option exercises, and board approvals are properly documented and tracked. They’re particularly valuable if you have multiple classes of stock, convertible notes, or options outstanding.Suspension, Forfeiture, and Restoring Good Standing
Understanding how corporations lose good standing—and how to restore it—is essential because suspension happens more often than business owners expect, and the consequences extend beyond administrative inconvenience.Paths to Suspension or Forfeiture
California corporations can be suspended or forfeit their good standing through several mechanisms, primarily involving the Secretary of State and the Franchise Tax Board. The Secretary of State can suspend or forfeit corporate powers for failure to file required Statements of Information as mandated by Corporations Code Section 1502. If you don’t file your initial SI-550 within 90 days of incorporation or fail to file your annual statement during your designated filing period, the Secretary of State can act against your corporation. The Franchise Tax Board suspends corporations for failure to file required tax returns or failure to pay taxes, penalties, and interest. FTB suspension is the more common scenario. If you don’t file Form 100 or Form 100S, or if you file but don’t pay the tax owed, the FTB will send notices and eventually suspend your corporation. Under Revenue and Taxation Code Section 19141, the FTB can also assess a $250 penalty specifically for failure to file the Statement of Information required under Corporations Code Section 1502. This ties the two agencies together—your Secretary of State filing obligations connect to FTB enforcement.Consequences of Operating While Suspended
A suspended corporation cannot legally conduct business in California. This prohibition is more than theoretical. California courts will not allow a suspended corporation to prosecute a lawsuit to enforce its contractual rights or collect debts. If you try to sue someone to collect on a contract or recover damages, the defendant can move to dismiss your case on the grounds that your corporation is suspended and lacks capacity to sue. Importantly, suspension doesn’t protect you from being sued. A suspended corporation can still be named as a defendant in litigation and held liable for its obligations. The suspension is one-directional—it prevents you from using the courts offensively but doesn’t shield you from defensive claims. Suspension also affects your ability to enforce contracts more generally. While contracts entered into before suspension typically remain valid, contracts entered into while suspended may be voidable at the option of the other party once your suspension becomes known. This creates uncertainty and risk in your business relationships. From a practical business standpoint, sophisticated counterparties often check corporate status through the Secretary of State’s online search before entering significant contracts. Seeing “SUSPENDED” or “FORFEITED” next to your company name raises immediate red flags about your business management and credibility.Revival Process
Restoring good standing requires addressing all of the underlying compliance failures. If your corporation was suspended by the FTB for tax non-compliance, you must file all past-due tax returns, pay all outstanding taxes with penalties and interest, and file any missing Statements of Information with the Secretary of State before the FTB will lift the suspension. The costs compound over time. In addition to the base tax owed, you’ll owe penalties for failure to file (typically a percentage of tax due) and failure to pay (another percentage), plus interest that accrues daily on the unpaid balance. A corporation that’s been suspended for several years can face revival costs many times the original tax due. The FTB’s website provides a process for revivor, typically requiring you to contact them directly to determine the exact amount owed and the required filings. Once you’ve satisfied all obligations, the FTB issues a certificate of revivor, which you can then file with the Secretary of State if needed to restore full good standing.Avoiding Suspension: Set Up Systems Early
The best approach to suspension is prevention. Set up calendar reminders for your Statement of Information filing period, your tax return due dates, and quarterly estimated tax payment deadlines. Many corporations use their attorney or CPA as a registered agent, partly because professional service providers tend to track filing deadlines and send reminders. If you’re facing cash flow problems and can’t pay your full tax liability, don’t ignore it. The FTB offers payment plans and installment agreements in some circumstances. Filing your return on time and working out a payment arrangement is better than not filing at all and triggering suspension.Creating Your Annual Compliance Calendar
With all of these requirements and deadlines, it’s easy to see how corporations fall out of compliance simply because they lose track of what’s due when. The solution is to create a comprehensive annual compliance calendar customized to your corporation’s specific situation.Key Dates to Calendar
Start with your incorporation date. This determines your Statement of Information filing period and your first taxable year. From there, build out your calendar with the following recurring items. Within 90 days after incorporation, file your initial SI-550 with the Secretary of State. This is a one-time item, but critical to get right. During your designated filing period (the calendar month of incorporation plus five preceding months), file your annual SI-550. Set reminders for the beginning of this six-month window so you don’t file at the last minute. If your corporation is required to send an annual report to shareholders under Corporations Code Section 1501, set a reminder for 120 days after your fiscal year end. Most corporations with fewer than 100 shareholders waive this requirement in their bylaws, so verify whether it applies to you. For your board of directors, schedule at least one annual board meeting or set a reminder to prepare an annual written consent. This should happen each year to approve financials, ratify officer compensation, and handle other governance matters. For shareholders, calendar your annual shareholder meeting or prepare annual written consents. This typically happens once per year for director elections and any other matters requiring shareholder approval. For tax compliance, calendar your corporate tax return due date—the 15th day of the 4th month after your fiscal year end for most corporations. If you’re on a calendar year, that’s April 15. Set a reminder at least two weeks before the due date so you have time to gather information and prepare the return. If you’re required to make estimated tax payments, calendar the quarterly estimated tax deadlines—typically April 15, June 15, September 15, and January 15 for calendar-year corporations, though the dates shift if you’re on a fiscal year. For S corporations, calendar your annual compensation review and approval. This should happen at least once per year through your board, and you may want to review quarterly to ensure your salary level remains reasonable relative to distributions.Using Technology to Stay Compliant
Calendar systems on your phone or computer are obvious tools for tracking compliance deadlines. Set recurring annual reminders for each requirement, and set them to alert with enough advance notice that you can actually complete the task. For corporations with more complex equity structures—multiple classes of stock, options outstanding, convertible notes—consider investing in cap table management software. Platforms like Carta, Capshare, or Pulley help track ownership, manage equity grants, and generate reports needed for tax purposes and due diligence. Corporate governance platforms can help with meeting minutes, board consents, and document retention. While you don’t need specialized software for a simple corporation, these tools become valuable as you grow, add investors, and need to demonstrate professional governance practices.When to Involve Professionals
Some aspects of annual compliance are straightforward enough that business owners can handle them—filing the Statement of Information online, for example, or preparing simple board minutes if you’re comfortable doing so. Other aspects warrant professional assistance. Tax compliance is complex, particularly if you have multi-state operations, significant transactions during the year, or need to optimize tax positions. Working with a CPA or tax attorney ensures your returns are filed correctly and takes advantage of available deductions and credits. Legal assistance is valuable for preparing minutes and corporate records that will withstand scrutiny during due diligence or litigation. While you can prepare these documents yourself, having an attorney review them periodically or assist with complex transactions (equity issuances, major contracts, structural changes) provides quality control and helps avoid errors that create problems later.Final Thoughts: Compliance Is an Investment, Not a Cost
Annual corporate compliance can feel like administrative overhead, particularly when you’re focused on building products, serving customers, and growing revenue. But proper compliance is actually an investment in your corporation’s value and defensibility. Corporations with clean records, current filings, and proper documentation command higher valuations in M&A transactions because they present less risk to buyers. Corporations with good governance practices are more attractive to institutional investors who want to see professional management and proper oversight. Corporations that observe formalities maintain strong liability protection that can be crucial in disputes or litigation. The costs of compliance—filing fees, professional fees, time invested in maintaining records—are modest compared to the costs of non-compliance: penalties and interest, suspension, veil-piercing risk, reduced valuations, and failed transactions. Build compliance into your annual rhythms. Make it part of your corporate calendar just like financial planning, budgeting, or strategic reviews. Assign responsibility for tracking deadlines and completing filings. When you bring on new team members or when your corporation reaches milestones, review your compliance practices to ensure they scale appropriately. If you’ve fallen behind on compliance—if you haven’t filed Statements of Information, if your minutes are non-existent, if you’ve never held a shareholder meeting—now is the time to catch up. Reconstruct what you can, document a plan to stay current going forward, and consider working with legal and tax professionals to remediate past gaps and establish proper systems. California corporate compliance isn’t optional, and it isn’t something you can fix at the last minute when you need your corporation to withstand scrutiny. It’s an ongoing obligation that requires attention and systems. But with proper planning and consistent execution, it’s entirely manageable—and it provides the foundation for a corporation that can grow, attract investment, and eventually exit successfully.Frequently Asked Questions
What happens if I miss the Statement of Information deadline by just a few days?
Even a brief delay can trigger consequences. The FTB can assess the $250 penalty under Revenue and Taxation Code Section 19141 for failure to file the required statement on time. While the Secretary of State may not immediately suspend your corporation for a minor delay, the filing isn’t considered timely, and the penalty exposure exists. More importantly, if you’re habitually late with your SI filings, it signals to potential investors or buyers that your corporate governance is lax. File during your six-month filing period—there’s no reason to wait until the last day when you have months to complete it.Do single-shareholder corporations really need to hold annual meetings and keep minutes?
Yes, even if you’re the sole shareholder and director, corporate formalities still matter. The law doesn’t exempt single-shareholder corporations from governance requirements. Courts evaluating whether to pierce the corporate veil look at whether formalities were observed regardless of the number of shareholders. The practical reality is that single-owner corporations can satisfy these requirements through written consents rather than formal meetings, which is much simpler. Prepare an annual written consent as the sole shareholder electing yourself as director, and a board consent approving key actions for the year. It takes minimal time but provides critical documentation that the corporation was properly maintained as a separate entity.Can I backdate board minutes or shareholder consents if I realize I forgot to do them?
No. Backdating corporate documents is not only ineffective, it’s potentially fraudulent. If you discover that you failed to hold required meetings or prepare consents, the proper approach is to document the situation accurately going forward. You can prepare ratification resolutions where the board or shareholders acknowledge that certain actions were taken in the past and now ratify and approve those actions as of the current date. This creates a contemporaneous record without falsifying dates. If you’re facing due diligence and discover gaps in your corporate records, address them transparently with buyers or investors rather than trying to manufacture false documentation. Sophisticated parties will often discover backdating through metadata in electronic documents or inconsistencies in the records, which destroys credibility and can kill transactions.How do I determine what’s “reasonable compensation” for myself as an S corporation shareholder-employee?
Start by researching what comparable positions earn in your industry and geographic area. Look at salary data for executives with similar responsibilities, experience levels, and company sizes. Websites like Glassdoor, Salary.com, or Bureau of Labor Statistics data can provide benchmarks. Consider the amount of time you’re dedicating to the business—if you’re working full-time, your salary should reflect that. A reasonable approach is to ask yourself what you would need to pay an arm’s-length third party to perform your role. Document your analysis in your board minutes when approving compensation. If your corporation is profitable and you’re taking distributions, make sure the salary is substantial enough that it doesn’t appear you’re trying to avoid employment taxes. Working with a CPA who has experience with S corporation compensation issues can help you strike the right balance between tax efficiency and defensibility.If my corporation gets suspended by the FTB, can I just dissolve it and start a new one?
This is a common but problematic idea. First, you can’t properly dissolve a suspended corporation until you bring it back into good standing by satisfying all outstanding obligations. The Secretary of State won’t accept a certificate of dissolution from a suspended entity. Second, if you form a new corporation to continue the same business while abandoning a suspended corporation with unsatisfied obligations, you risk successor liability claims and potential veil-piercing arguments that the new entity is merely a continuation of the old one designed to evade liabilities. Third, forming a new entity doesn’t eliminate your personal obligations to deal with the suspended corporation’s tax debts—the FTB can pursue collection against responsible officers and shareholders in some circumstances. The proper approach is to revive the suspended corporation by filing past-due returns, paying outstanding taxes and penalties, and then either maintaining it in good standing or formally dissolving it after satisfying all obligations.What’s the difference between the Statement of Information and the annual report to shareholders?
These are completely different requirements that serve different purposes. The Statement of Information (SI-550) is filed with the Secretary of State under Corporations Code Section 1502 and is a public regulatory filing containing basic information about your corporation’s officers and business address. Everyone can access this information through the Secretary of State’s business search. The annual report to shareholders under Corporations Code Section 1501 is an internal corporate governance obligation requiring the board to send financial statements to shareholders. This is not a public filing—it’s sent directly to shareholders and is not filed with any government agency. Many corporations with fewer than 100 shareholders waive the Section 1501 annual report requirement in their bylaws, but the Statement of Information must always be filed regardless of shareholder count. Both are separate from your FTB tax return filing obligations.As a California corporation, do I need to do anything at the county level for business licenses or permits?
Corporate formation and annual maintenance at the state level—through the Secretary of State and Franchise Tax Board—is distinct from local business licensing. Most California cities and counties require businesses operating within their jurisdiction to obtain local business licenses or permits. These are separate from your corporate status and are typically based on where you physically operate your business. Requirements vary significantly by locality—some cities charge flat annual fees, others charge based on gross receipts or number of employees. Contact your city or county business licensing office to determine what’s required for your specific situation. Additionally, depending on your business type, you may need specialized permits or licenses (health permits for restaurants, professional licenses for certain services, sales permits if you sell goods, etc.). This article focuses on corporate-level compliance, but local business licenses are a separate layer of compliance you shouldn’t overlook.How long should I retain corporate records and tax returns?
For tax purposes, the general rule is to retain corporate tax returns and supporting documentation for at least four years from the later of the due date or the date you filed the return. California’s statute of limitations for tax assessments is generally four years, though it extends to eight years if you substantially understate income. The IRS has a three-year statute for most assessments and six years for substantial omissions. However, from a corporate governance and veil protection standpoint, I recommend retaining core corporate documents indefinitely—articles of incorporation, bylaws, minutes of major decisions, stock issuance records, and material contracts should be permanent records. These documents establish the corporation’s history and may be needed decades later if ownership is questioned or historical corporate actions become relevant in litigation. For routine annual minutes and consents, many corporations maintain them indefinitely simply because the storage burden is minimal and there’s no compelling reason to destroy corporate governance records.I’m a foreign corporation qualified to do business in California—do all these requirements apply to me?
Yes, with some modifications. Foreign corporations (meaning corporations incorporated in another state but qualified to do business in California) must file annual Statements of Information using Form SI-550 (or the foreign corporation equivalent) and must file California tax returns (Form 100 or 100S) if they have sufficient California nexus. The $800 minimum franchise tax applies to qualified foreign corporations. Your corporate governance obligations—board meetings, shareholder meetings, minutes—are primarily governed by your state of incorporation, but California will still examine whether you observed corporate formalities if veil-piercing issues arise in California litigation. If you’re a foreign corporation, make sure you’re tracking compliance requirements in both your state of incorporation and in California. The Statement of Information filing period for foreign corporations is based on the date you qualified to do business in California, not your original incorporation date in your home state.Can I use electronic signatures for board consents and other corporate documents?
Yes. California law recognizes electronic signatures under the Uniform Electronic Transactions Act (California Civil Code Section 1633.1 et seq.). Electronic signatures have the same legal effect as handwritten signatures for most corporate documents, including board consents, shareholder consents, and corporate resolutions. However, there are some practical considerations. First, make sure your electronic signature process creates a reliable record that can be authenticated later—major e-signature platforms like DocuSign, Adobe Sign, or HelloSign provide audit trails and verification features that help establish authenticity. Second, ensure that your bylaws don’t prohibit electronic signatures (most modern bylaws either explicitly permit them or are silent, which allows them under California’s default rules). Third, keep in mind that some third parties may request original wet-signature documents for major transactions even though electronic signatures are legally valid. For routine corporate governance, electronic signatures are efficient and perfectly acceptable.About the Author: Sergei Tokmakov is a California-licensed attorney (CA Bar #279869) with over 13 years of experience helping businesses navigate corporate compliance, contract drafting, and business formation. With more than 1,750 completed Upwork projects and a 4.9/5 client rating, Sergei focuses on providing practical, actionable legal guidance to tech startups, online businesses, and entrepreneurs worldwide. For more information, book a consultation directly.