What Does It Mean to Forfeit a Business?

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# Understanding Forfeiture in Business

## What is Forfeiture?

Forfeiture is the loss of property without compensation for defaulting on contracts or as a penalty for illegal conduct. Forfeiture of a business means the company loses rights to operate, transfer assets, bring lawsuits, or use its name in that state. A forfeited company still owes state taxes and fees. Companies receive a warning before forfeiture, so they can fix problems to prevent it. To revive a forfeited corporation, file the required paperwork and pay fees. Forfeiture penalties ensure companies fulfill obligations. However, forfeiture does not mean a business legally ceases to exist.

## Implications of Forfeiture

- What are the consequences for a company? 
  - Forfeiture means a company loses rights to operate, transfer assets, bring lawsuits, or use its name in that state.
- How to resolve forfeiture?
  - To revive a forfeited corporation, file the required paperwork and pay fees.
- Why do states forfeit companies?
  - Forfeiture penalties ensure companies fulfill obligations, such as filing certain paperwork or information with the state.
- What about forfeited shares?
  - Forfeited shares revert to the issuing company, which can then reissue them at a discounted price.
- Does a forfeited company owe taxes?
  - Yes, a forfeited company still owes state taxes and fees.

## Dissolution and Tax Forfeiture

- Dissolving a company
  - Fully liquidating a company usually takes between six and 24 months.
- Voluntary dissolution
  - This occurs when a company dissolves itself by choice.
- Tax forfeiture
  - Property tax forfeiture is a process where the state takes ownership of real property if property taxes are not paid.

## Forfeiture for Non-compliance

- If a company is “forfeited,” the Secretary of State and/or the California FTB has revoked the powers and privileges of the company for failing to file or pay taxes. The company still owes state taxes even when forfeited.

## Taxation of LLCs

- How do LLCs pay taxes?
  - Single-member LLCs default to pass-through taxation.
  - Multi-member LLCs pay partnership taxes.
  - LLCs can opt for corporate taxation, requiring income tax filings even without profits.

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