We have an startup that was recently incorporated in Delaware but is based in California. We tried to open a business bank account at two different banks in California, and both said they require a certificate of good standing from the State of California. From what I've learned, it seems like we would need to get a certificate of good standing from Delaware ($50+), then register as a foreign corporation in California ($$$), wait for that to be processed (two+ months), and then we can request a certificate of good standing from California ($$$).
While we understand that we need to register as a foreign corp in California and are happy to comply, can all of this really be necessary for a bank account? Should it take this long? Am I missing something? Is there a workaround for this?
The process you've outlined to get a certificate of good standing from the State of California is correct, with one exception, you don't have to wait 2 months.
You can expediate this process by paying an additional fee. From Form S&DC-STOCK/NONPROFIT :
FeesThe Expedited Filing Services fees are as follows:
In addition to the filing fee, there is a non-refundable $15.00 special handling fee for processing documents that are delivered in person
(drop off) at the Sacramento or Los Angeles regional office.
The preclearance and/or expedited filing of a document within a guaranteed time frame can be requested for an
additional fee in lieu of the special handling fee. For detailed information about special handling or preclearance
and expedited filing services, go to www.sos.ca.gov/business/be/service-options.htm.
•4-Hour Filing Service (Class A) - $500.00. Filing response guaranteed within 4 hours (e.g., submitted Monday at 10:00 a.m., filing confirmation or filing response available Monday by 2:00 p.m.)I don't have personal experience with CA, but in most other states, in person drop-offs are usually processed the same day (as long as you arrive early enough). So, you may be able to get away with just paying the $15 special handling fee, but I don't know for sure. You'll probably have a better shot at it if you pick a slow day. I would call them and ask them, or ask someone else who has been through this process.
Note: A document must be precleared and approved to be eligible for the 4-Hour Filing Service.
•Same Day Filing Service (Class B) - $750.00. Filing response guaranteed by 4:00 p.m. the same day. Note: The document must be received by the Secretary of State by 9:30 a.m., and a filing confirmation or filing response will be available the same day by 4:00 p.m.
•24-Hour Filing Service (Class C) - $350.00. Filing response guaranteed within 24 hours (e.g., submitted Wednesday at 11:00 a.m., filing confirmation or filing response available Thursday by 11:00 a.m.)
The reason for this is simple: the Franchise Tax Board (FTB) is very aggressive, perhaps even more than the IRS. They have the highest corporation fee of any state - I believe it's $800 per year last I checked, which means you could fly to Delaware and open up your bank account and save money! Once you register in California as a foreign corp, you have to pay that franchise fee to them. It's all about the money. And California state finances are an utter disaster. They are desperate for dollars and will get them any way they can. If you have an out-of-state corp and you do business in California, they will not look kindly on you. Of course you can legally incorporate anywhere you choose, but California will insist on their cut (and they define "their cut"). I'm not sure about Delaware, but I hear that Nevada now shares information with the FTB about NV corporations. Which is one reason Wyoming is fast becoming the state to go to. My advice is to get very smart about the law here to work out what is best for your situation. Get legal advice from an attorney and not from the FTB. They will not always tell you the truth. I know from personal experience and checking with an attorney confirmed this.
The steps are necessary.
The way to avoid the two-month delay is to request expedited filing (at an additional cost), which requires in-person filing at the Secretary of State's office. In-person filing can be accomplished by either (a) having a lawyer help you (I e-mail documents to a filing service that walks them over to the Secretary of State) or (b) going to Sacramento yourself.
Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.