New Corporate and LLC Startups May Find Relief with the Passage of a New Bill in California

In Silicon Valley, home to many large technology corporations and thousands of innovative startups, businesses need to move quickly to stay ahead of the competition. As a small business attorney in San Jose, I have formed countless of limited liability companies (LLCs), partnerships and corporations with the Delaware and California Secretaries of State over the years. And one of the first questions my eager small business clients ask me in our initial meetings is almost always, “How long will it take to form my company?”

For many years my answer was that we could have the filed Articles of Incorporation (for a Corporation), Articles of Organization (for an LLC), or Certificate of Partnership within about a week. When the California Secretary of State slowed down a few years ago, I had to tell clients that it could take as much as several weeks. However, in the last year or so the delays crept up to three months or more for the California Secretary of State to process and return a business filing.

Of course, California does provide a 24-hour expedited filing option, for an additional $350 over the usual filing fees. In my more cynical moments I have had to wonder whether it was the California budget crisis that was causing filing times to slow down because of lack of resources, or if the Secretary of State was purposefully taking longer to return routine filings in order to force virtually everyone to pay the “rush” fees.

Now it seems my cynicism may have been misplaced. Governor Brown just signed a bill (AB 113) which will provide $1.6 million in funding to the California Secretary of State to be used to eliminate the backlog of over 100,000 filings and speed up the business filing process. The stated goal is to reduce waiting times for a business filing to be processed and returned from three months to between 5 and 10 days by November, 2013. [Source: Spidell’s California Taxletter, Vol 35.6, June 1, 2013, p.71]

Although I applaud the Governor for trying to do something, I think we need to go a lot further than this. As the home of Silicon Valley, California should be setting the standard for the use of technology in business. Never mind that we can form corporations and LLCs usually the same day by email in Delaware (with no extra fees). I want to be able to form entities immediately on-line, without extra State charges, and without the need to pay extra fees to filing agents in Sacramento to walk my client’s filings into the Secretary of State’s office to be at the front of the line (processing times for filings by mail are much slower).

If our business owners and inventors can start their business in California faster and less expensively (with no rush fees), this will benefit everyone. The State will collect more franchise taxes and will likely start collecting more payroll taxes and sales taxes from new businesses sooner. With this in mind, I hope the Secretary of State is seriously considering significant investments in technology both as part of the $1.6 million and in addition to the AB 113 funds.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.

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