California vs. Delaware

Earlier this month, I travelled to Delaware for a family event.

Before the event, I had been trying to open a business bank account for an LLC I incorporated in Delaware several year ago. I intended the LLC to be a placeholder for any future business I might start.

I decided to open an LLC in Delaware because it has a business-friendly legal climate, and its annual business franchise fee of $250 was a fraction of California’s $800.

This year, I finally generated income from my business and decided to open a bank account in California to safeguard it.

Talk about being naive.

I registered my Delaware-headquartered business in California, which took two months. Just when I thought I was ready to open an account, I next had to apply for a California business license. The state estimated that the time to complete this process would be four months.

Four months!

Frustrated that my check would no longer be valid by the time California’s labyrinthine bureaucracy stamped my paperwork, I decided to see if I could simply open a business account in Delaware.

The catch: I needed a business license.

So I went online, filled out a form in less than 3 minutes, and the state of Delaware granted me a temporary business license online.

I opened a bank account in Delaware the following day.

It costs $85 and takes four months to get a business license in California. In Delaware, it costs $43.50 and takes three minutes.

In the end, it is California’s economy that suffers. A California credit union lost my business to a Delaware one solely because Delaware’s government ran a process that was over 57,000 times more efficient, but cost half as much.

Ridiculous.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, California, Finance and Economics, Mathematics, Policy, Politics, Taxes and tagged , , , , . Bookmark the permalink.

7 Responses to California vs. Delaware

  1. pino says:

    In the end, it is California’s economy that suffers. A California credit union lost my business to a Delaware one solely because Delaware’s government ran a process that was over 57,000 times more efficient, but cost half as much.

    No one ever believes this; it’s great that you were able to use a real life story to demonstrate.

    And the thing is, people resonate with this in their own lives but don’t seem to be able to translate. Consider Red Box. That business model has exploded DVD rentals for the same reason Delaware got your business. Red Box is easy, cheap and convenient. Who wants to drive to a brick and mortar building, wait in line drive all the way home only to have to pay an extra 3 bucks?

    Other than Californians, no one.

  2. Scott Erb says:

    The benefit of having 50 state governments is that we should be able to have them learn from each other on what works best. Unfortunately bureaucrats tend to be insular, and I suspect in California they just assume that since the state is so big that their way of doing things is fine. Hopefully with the information revolution, blogs and other ways to get the world out, such comparisons become common knowledge and pressure is put on states to learn from each other, with recognition of what works.

  3. hmmm… 4 months or 3 minutes? tough call

  4. Pingback: Unintended Consequences: California Style « Tarheel Red

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