You may sometimes hear the term “good standing” when asked about your nonprofit corporation and its status with one or more government agencies. What the term means varies depending on the context. And it’s received particular attention with AB 488, which went into effect on January 1, 2023. Here is a brief summary.
Secretary of State
Good standing is the description of a corporation whose status is “active” – meaning that it may exercise all of its corporate powers, rights and privileges (contingent on its status with other agencies) and is not delinquent on the filings of any reports or payments of any fees owed to the Secretary of State.
If a corporation is suspended by the Secretary of State (generally, for the failure to file a Statement of Information), it may not exercise its corporate powers, rights, and privileges except for the purpose of filing an application for exempt status or amending the articles of incorporation as necessary either to perfect that application or to set forth a new name. This means that the corporation may not operate its programs, though, at this time, such prohibition is generally not strictly enforced absent additional egregious circumstances.
A suspended corporation may lose the right to keep its legal name. Further, any contract with a suspended corporation may be voidable by the other party and unenforceable (but see Application of Relief from Contract Voidability). Such repercussions would likely be far worse consequence than the $50 penalty for a late filing.
A nonprofit corporation can check its status with the Secretary of State here.
A suspended corporation may be revived by filing a current Statement of Information online at bizfileOnline.sos.ca.gov. You’ll first need to set up an account with the Secretary of State.
Franchise Tax Board
Good standing is the description of a corporation which may exercise all of its corporate powers, rights and privileges (contingent on its status with other agencies) and is not delinquent on the filings of any tax and information returns or payments of any taxes owed to the Franchise Tax Board (FTB).
Any contract with a suspended corporation may be voidable by the other party and unenforceable (but see Application of Relief from Contract Voidability). Further, if a nonprofit’s state tax exemption is revoked, it will be subject to California income tax and a minimum $800 annual franchise tax, which may be imposed on a nonprofit corporation even if it has no income. A corporation may be suspended by the FTB and Secretary of State at the same time.
A nonprofit corporation can check its status with the FTB here.
Generally, a suspended corporation may be revived by filing all past due information returns and paying any past due taxes, penalties, and interest owed to the FTB. However, if the suspended corporation has lost its state tax-exempt status (which may occur for failure to timely file three consecutive information returns), reinstatement may require filing of Form 3500 with the FTB (see this FTB website for more details).
Attorney General
Good standing is defined in the context of AB 488 (which went effective January 1, 2023) and means that a platform charity, recipient charitable organization, or other charitable organization’s tax-exempt status has not been revoked by the Internal Revenue Service (IRS), or the FTB, or is not prohibited from soliciting or operating in the state by the Attorney General (AG). In a broader context, good standing means that the charitable organization is either (1) current and not unregistered or delinquent on its registration status (if it’s required to register) or (2) not suspended or revoked. The definitions of various statuses can be found here.
A charitable organization’s registration status with the AG may be withheld, suspended, or revoked if it (1) misuses charitable assets, (2) makes false or misleading statements and/or conduct in connection with a solicitation for charitable purposes, (3) makes false or misleading statements (including omissions) in a government filing (including with the IRS, FTB, or AG), (4) fails to comply with the Standards of Conduct for nonprofit corporations in the applicable sections of the Nonprofit Corporation Law, (5) fails to prepare annual financial statements using generally accepted accounting principles that are audited by an independent certified public accountant in conformity with generally accepted auditing standards, (6) fails to produce records in response to a subpoena or written request from the AG, (7) receives an adverse action by a governmental entity related to its operation or its conduct of a solicitation for charitable purposes
Its registration status will automatically be suspended if it (1) fails to file registration renewals for three consecutive years, (2) has its status with the FTB suspended or revoked, or (3) has its corporate status with the Secretary of State suspended or revoked. A registration that has been continuously suspended for one year pursuant to this regulation will be automatically revoked.
A charitable organization that is not in good standing is subject to a cease and desist order prohibiting the organization from further operating or soliciting in the state. While we have been informally assured that the AG will not hold board members personally liable for distributing or expending any charitable assets held in charitable trust while a charitable organization is suspended or revoked absent egregious circumstances, the regulations do provide that board members and certain others may be held personally liable for such actions.
Generally, a suspended charitable organization should contact the AG Delinquency Unit at (916) 445-2021 or delinquency@doj.ca.gov to determine the reasons for the delinquency or suspension and which forms and documents must be submitted in order to correct any delinquencies. See also this AG website for more details and a webinar on delinquencies). If the charitable organization’s registration has been revoked, the AG may determine whether reinstatement would pose any threat to the public or to the charitable assets and decide at its sole discretion whether to grant or deny a petition for reinstatement.
A charitable nonprofit organization can check its status with the AG’s Registry of Charitable Trusts here.
Resources
Guide For Reinstatement of Good Standing With Corporate and Tax Regulatory Agencies For California Nonprofit Public Benefit Corporations (Public Counsel)
