BILL ANALYSIS �
Bill No: AB
554
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2013-2014 Regular Session
Staff Analysis
AB 554 Author: Mullin
As Amended: April 9, 2013
Hearing Date: June 25, 2013
Consultant: Paul Donahue
SUBJECT
Secretary of State: Fees
DESCRIPTION
This bill changes accounting procedures for the Business
Fees Fund at the Secretary of State (SOS), and establishes
a new account for deposit of a portion of funds from the
existing corporate disclosure fee. Specifically, this bill :
1)Authorizes the SOS to adopt regulations establishing fees
to be charged and collected for copying and special
handling in connection with filing documents, issuing of
certificates, and other services performed by the SOS,
but that such fees shall approximate the estimated cost
of copying and special handling.
2)Specifies that fees charged for preclearance of documents
and expedited filings may be in different amounts, not to
exceed $1,000. <1>
3)Deposits revenues from expedited business fees filings
into the Business Fees Fund rather than accounting for
these revenues as reimbursements to the SOS.
4)Deposits one-half of the existing $5 disclosure fee into
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<1> Those fees may be charged only if the special handling
does not cause disruption or delay in the process of normal
handling of documents.
AB 554 (Mullin) continued
PageB
the newly created Business Programs Modernization Fund.
EXISTING LAW
Existing law authorizes the Secretary of State to collect
business filing fees, and directs the Secretary of State to
utilize the Business Fees Fund to perform business-related
functions for the state.
Existing law specifies maximum fees that may be charged for
expedited filings, the filing of articles of incorporation,
and for mergers of corporations. Some fees charged,
including those for expedited filings, cannot exceed the
maximum specified in statute.
BACKGROUND
1)Purpose : According to the Secretary of State, "due to a
quirk of statute, two businesses filing identical
documents have the fees they pay go into separate funds,
depending on whether they filed the document using the
standard process or paid an expedite fee to have it filed
more quickly. While immaterial to the businesses filing
the documents, the end result is those expedite fees?are
counted as reimbursements. As a result, the money does
not show up in the Business Fees Fund, which obscures how
much money is being collected from businesses and how
that money is spent.
"AB 554 directs these expedite fees into the existing
Business Fees Fund where other fees are deposited...it
will give the Legislature and the public a more complete
and accurate picture of the money being paid by
businesses to file their documents."
2)Business entity filings generally : The Secretary of State
is responsible for the management of over 150 different
types of filings of business entities and receives over
one million filings annually. The majority of the filings
submitted to the Secretary of State are recorded on index
cards. The Business Programs Division, which is
responsible for the management of the filings, is
comprised of three sections: the Business Entities
Section, Notary Public/Special Filings Section, and the
Uniform Commercial Code/Statement of Information section.
AB 554 (Mullin) continued
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The SOS's Business Programs Division processes business
filings and is authorized to collect fees, including
those for expedited filings. Businesses have the option
of paying expedited filing fees (ranging from $350 to
$750) so their documents are processed more quickly.
According to the SOS, budget cuts resulted in the
processing time for business filings increasing from less
than 15 days in May 2009 to more than 120 days in January
2012. The SOS indicates that its business filing system
is largely paper based and needs to be modernized.
Business filing fees generate more than $70 million per
year and plans to use a portion of these revenues to
implement its California Business Connect project, which
will automate the paper-based filing process and allow
for more extensive online filings and records requests.
3)Accounting change : Business filing fees that undergo
standard processing are currently accounted for
differently than the filing fees for expedited filings.
Standard process fees are paid to SOS's Business Fees
Fund, while expedited filing fees are classified as
reimbursements to the SOS, which the SOS contends
obscures the presentation of the total amount of business
fees collected. Depositing all business fees to the same
fund would more accurately show how much businesses are
paying for filings.
4)New fund created : Current law imposes a $5 annual
disclosure fee on corporations for filing their articles
of incorporation. Half of this fee is deposited in the
Victims of Corporate Fraud Compensation Fund and half is
used for the SOS's administrative costs, including
maintaining an online business database. This rather
limited online database contains a search function
allowing users to view basic business information like
the name, address, and status of entities. Under the
bill, this half of the fee would instead be deposited to
the Business Programs Modernization Fund, and, upon
appropriation by the Legislature, could be used for
modernizing the filing system, including the further
development of the online database. According to SOS, the
approximate $1.6 million per year that would be deposited
in the new fund would create a dependable stream of
funding to assist with the California Business Connect
modernization project and to prevent the business filing
systems from again becoming antiquated.
AB 554 (Mullin) continued
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5)Recent legislation approved to reduce backlog : Earlier
this year the Legislature approved AB 113, which
appropriates $1.6 million to the SOS to end a two-month
backlog in processing business filings in California.
According to the Secretary of State's office, state
budget cuts were largely responsible for creating the
conditions that caused backlog of 122,000 applications.
The SOS must process the forms before businesses can hire
employees. The $1.6 million granted to the SOS by AB 113
would let the office hire temporary employees and pay for
overtime to process thousands of business applications.
PRIOR/RELATED LEGISLATION
AB 113 (Committee on Budget), Chapter 3, Statutes of 2013.
Appropriates $1.6 million to the Secretary of State in
order to address the backlog associated with the processing
of business filings. Requires the Secretary of State report
to the Joint Legislative Budget Committee on the 30th day
of each month regarding the Secretary of State's progress
on reducing the processing time for business filings.
SUPPORT: Secretary of State
OPPOSE: None on file
FISCAL COMMITTEE: Senate Appropriations Committee
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