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California Board of Equalization Drops Tight Security Deposit Requirements for Small Businesses

Small businesses in California generally find it very difficult to fare well due to high taxes and strict regulations. The state holds a reputation of being one of the worst in the country in regards to starting a business. However, a decision made on December 17 by the Board of Equalization (BOE) may give California business owners much needed relief.

For many years, the BOE enforced an automatic security deposit requirement from all of the state’s new corporations and LLCs. The amount of the deposit typically ranged from $2,000 to $50,000 per company. New business owners considered the requirement a “shake-down” since paying such a deposit often crippled already vulnerable businesses.

After receiving countless complaints about the security requirement, the BOE convened and discussed it. They reached a decision that the requirement was harmful to new businesses and consequently harmful to the state. All automatic security requirements for corporations and LLCs have been suspended since then. The BOE is planning to establish a new rule that will require only high-risk or noncompliant businesses to pay security.

The BOE will also conduct a thorough review of currently held security. Business owners may be given back their deposit as early as February 2014.

The executive director of the National Federation of Independent Business said, “This money is capital that is desperately needed to help new businesses stay solvent and grow, but California was choosing to penalize businesses before taxes were even owed. Now those small businesses can focus on what is critically needed in this state – creating jobs for the nearly two million unemployed.”

The experienced Orange County small business lawyers at McFarlin LLP are glad to hear about this new development and its implications regarding the success of small businesses. We know how tough the political and economic climate in California can be for business owners. That’s why we have dedicated ourselves to defending the livelihoods of business owners all across the state. If you have any questions regarding your own business, please contact us by calling (888) 728-0044.