Fake Government Entities Prey on California Small Businesses

Fake entities on return address of envelopes and masthead of letters appear as a branch of government. The letter informs the business owner he will violate law if he or she does not prepare minutes or does not file a Statement of Information.
By: Mark W. Bidwell, Attorney at Law, CPA Inactive
 
May 21, 2010 - PRLog -- Fake “governmental” agencies are manipulating for their own financial gain two requirements of California law; the annual filing of a Statement of Information and the requirement to keep minutes.

Statement of Information

California law does require each corporation and limited liability company to file within 90 days after the filing of its original articles and annually thereafter a one page document titled the Statement of Information. The statement requires the following information: the names and addresses of  directors, managers, chief executive officer, secretary, and chief financial officer; the principal executive office street address; the principal business activity of the business; and identification of an agent service of process.

The filing fee for a Statement of Information is $25 for a corporation and $20 for a limited liability company. Failure to file in a timely manner will result in a penalty of $250. Failure to file for a period of 2 years will result in the suspension of the business entity.

The Secretary of State's office has been advised that solicitation letters are being sent to California businesses encouraging them to comply with their California Corporations Code filing obligations by submitting fees and documents to a third party rather than by filing directly with the Secretary of State's office.

These solicitations are not being made by the California Secretary of State's office and are not being made by or on behalf of any governmental entity. Although a business entity can use an intermediary to submit filings and fees to the Secretary's office, no business is required to go through another company in order to file its documents with the Secretary of State's office.

Minutes

California law requires each corporation to keep adequate and correct books and records of account and minutes of the proceedings of its shareholders, board and committees of the board. There is no requirement to submit books, records or minutes to any California government agency. The books, records and minutes are for the owners of the corporation.

Fake entities have well crafted “seals of government,” an official appearing name as a branch of an ambiguous government entity and embossed lettering on both envelopes and letters. The envelope implies enclosed is an important government notice. The letter implies without annual minutes, the business owner will be in violation of law.  The fake entity offers to prepare the documents to keep the business in compliance. Careful review of the letter and envelop will show the address is a mail box and there is no real way to contact anyone except by sending a check to the address provided.

A corporation that neglects, fails or refuses to keep or maintain minutes is subject to a penalty of $25 per day up to a maximum penalty of $1,500. This penalty is not as onerous as it appears.  The penalty is payable to the shareholder or shareholders who make the request, not any governmental entity or third party and only if the corporation fails to take action with 30 days of the request.

Corporations are required to keep books, records of account and minutes of shareholders’ meetings and minutes of board meetings. Corporations are also required to provide an annual report to shareholders.

But these requirements are between the owners of the business and are not imposed by or owed to a third party. If the business entity is a small business owned by one owner the reporting requirements are by and to the same person.  If there is more than one owner, and each owner is actively involved in the operations of the business, the failure to keep adequate documentation may become a squabble between the owners. If there are silent owners, those not involved in the operation of the business, the record and reporting requirements keep them informed on the performance of their investment.

California law also recognizes as a practical matter, many business owners are not the best at keeping records. Record keeping and reporting requirement s do not apply to “close” corporations.” Close corporations are those corporations who elect in the articles not to have more than 35 shareholders. A corporation with fewer than 100 shareholders may opt-out of providing the annual report by stating so in its bylaws.  

The fake entities deliberately confuse the issue. There is an obligation to maintain documents and records, but that obligation is between the owners of the business and is not an obligation to any third party including any government entity

There are many practical reasons to keep adequate and correct books and records of account and minutes.  Books and records are needed to file California and Federal taxes. The failure to observe corporate formalities, such as keeping minutes and adequate books and records, is a factor considered by courts in determining whether or not the corporation is the alter ego of its shareholders and to hold the shareholders personally liable for the debts of the corporation. Record and reporting requirements provide an element of protection to a shareholder’s investment in the business.

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About Mark W. Bidwell: Mark W. Bidwell, Attorney at Law and CPA Inactive has provided legal services in corporate law, business law, estate planning, trusts, elder law and probate since 2002. Mark can be contacted at www.BidwellLaw.com, by email at Attorney@BidwellLaw.com or by phone at 949-474-0961.
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Source:Mark W. Bidwell, Attorney at Law, CPA Inactive
Email:***@bidwelllaw.com Email Verified
Zip:92612
Tags:Statement Of Information, Annual Minutes, Minutes, Board Meetings, Fake Entities, California Secretary State
Industry:Business, Legal, Government
Location:Irvine - California - United States
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