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Editorial 10 MIN READ

The SOS backlog of 2020: data from four states

A pandemic-driven surge in new business applications, four filing offices with four different answers

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 7 sections
  1. The shape of the surge
  2. Delaware: pace held, expedited tiers crowded
  3. California: bizfile absorbed, paper-dependent filings lagged
  4. New York: the Albany backlog widened
  5. Wyoming: steady through the wave
  6. What the four-state cut reveals
  7. Sources

he Census Bureau's Business Formation Statistics put the scale of it in print. New business applications in the United States ran at a seasonally adjusted 804,398 in the third quarter of 2020, up 77.4% from the second quarter and the highest three-month total the series has recorded since it began in 2004. The SOS backlog of 2020 is the back half of that number: what happened at the counters, portals, and mail rooms that had to absorb the wave.

The four states below are the four most useful reference points. Delaware is the national default for venture-backed formations, and its Division of Corporations was already a remote operation when the pandemic began. California is the largest filing jurisdiction in the country and the one that moved the most software during the spring. New York is the paper-dominant laggard whose Division of Corporations still does not accept online LLC formation. Wyoming is the small-state low-friction alternative that a rising share of out-of-state founders pick when the home-state office is underwater. By September 2020, the gap between the four is wider than at any point a contemporaneous observer could remember.

The shape of the surge

The Census Bureau's Business Formation Statistics, released monthly and quarterly by the Center for Economic Studies, track new Employer Identification Number applications filed on IRS Form SS-4. The series is not a perfect proxy for state-level entity formations, because the IRS issues EINs to sole proprietorships and other non-entity filers too, but the movement is directionally clean. Weekly applications ran in a band of roughly 70,000 to 80,000 during January and February 2020, collapsed to around 50,000 in the first three weeks of April, and then climbed on a nearly vertical line through July. The week ending July 18 printed 140,143 applications, almost double the January baseline.

Applications classified as high-propensity for payroll (a Census Bureau subset meant to isolate the formations likeliest to become employers) ran at 436,042 in Q3 2020, up from 278,006 a year earlier. The line between those applications and what ends up at a state filing desk is imperfect, but a majority convert into LLC or corporation filings within sixty days. The Business Formation Statistics frame the question every state filing office had to answer in July and August: volume is up roughly 60% year over year, and the question is whether the mechanical infrastructure can keep up. It is the same question the April field report on remote SOS filings asked about the first four weeks of lockdown, now with another five months of data to grade it against.

Delaware: pace held, expedited tiers crowded

Delaware's Division of Corporations ran through Q2 and Q3 on the same posture it had in February. The eCorp filing system for registered agents, the document-upload service, the 24-hour and same-day and two-hour expedited tiers all continued to accept work. The public guidance through the summer directed filers to online and telephone channels rather than the New Castle County walk-in counter, which is not where the serious volume arrives anyway. The Division's fee schedule for expedited service held steady: $1,000 for one-hour processing, $500 for two-hour, $100 to $200 for same-day, $50 to $100 for next-day, each on top of the $90 Certificate of Formation fee for an LLC.

What changed inside that steady posture was the mix. Secretary of State Jeffrey W. Bullock's office does not publish weekly turnaround metrics, but the Division's annual reports track total filings and registered-agent volumes, and the publicly facing cut was that the premium tiers absorbed more traffic than the ordinary tier. The registered-agent community reported through the summer that the $50 twenty-four-hour tier was still returning confirmations inside the day, the $100 same-day tier was reliable, and the $500 and $1,000 tiers were effectively the guaranteed-clock lanes for transactional closings. A Delaware filing made through a commercial agent at the ordinary $90 fee during July and August took roughly three to five business days, not the one to two days that had been typical in February. The bottleneck was document review of complicated filings, not the online intake.

For the purpose of the four-state comparison, Delaware's answer to the Q2 and Q3 surge was that there was no backlog visible at the filer level if the filer paid for an expedited tier, and a small widening of ordinary turnaround if the filer did not. The premium option is what kept the state off any list of cratered jurisdictions.

California: bizfile absorbed, paper-dependent filings lagged

California processed roughly 500,000 corporate filings in fiscal year 2018-2019 and another 1.03 million Statements of Information, and the Secretary of State's office was working from a pre-pandemic baseline that already put it among the highest-volume filing offices in the country. The early spring response was an accelerated software rollout. Secretary Alex Padilla's office launched the Corporation Formation Online Submission Tool on March 27, 2020, pulling the last major paper workflow onto the web during the first week of statewide lockdown, and followed on April 21 with a revamped online Statement of Information tool for corporations.

Those two launches held through the summer volume. California LLC formations, already online through bizfile since 2018, routed through the portal at the ordinary pace. Routine Statements of Information filed through bizfile processed cleanly. The $70 LLC filing fee and the $20 Statement of Information fee (with the separate $800 annual franchise tax under R&TC § 17941) continued to apply at the original schedule.

The lag showed up in the filings bizfile does not yet handle. Certificate amendments, mergers, conversions, and the paper-only drop-box filings at the Sacramento and Los Angeles offices slowed from a pre-pandemic range of a few business days into a range that was visibly longer. The Secretary of State's published "Processing Times" page, which the office updates to reflect the current working date of each paper queue, showed paper Limited Liability Company filings in several months of Q2 and Q3 working on a queue that was four to six weeks behind. The posted processing dates are the clearest public data California publishes on its own backlog, and the summer snapshots of those dates tell a consistent story: bizfile transactions moved at full speed, and paper-only transactions slipped from days to weeks.

The net result at the founder level is that a California LLC formed through bizfile during July 2020 was filed in close to the same time as one filed in February. A California statement of merger or a paper amendment filed during the same window was not.

New York: the Albany backlog widened

New York's Department of State does not accept online formation of domestic LLCs. Articles of Organization are delivered to One Commerce Plaza in Albany by mail, fax, or in person. The state fee is $200, which is cheap, and the delivery channel is physical, which is not. Governor Andrew Cuomo's Executive Order 202.8 of March 20, 2020 directed non-essential state workforces home and tolled statutory deadlines, and the Department's Division of Corporations, State Records, and Uniform Commercial Code thinned the staff handling paper mail as a consequence.

What began in April as a visible slowdown had become, by September, a measurable paper-LLC backlog of roughly eight weeks or more for ordinary filings. The Department's standard processing window was, in normal times, five to ten business days for a new LLC filing delivered by mail; the $25 expedited-24-hour, $75 expedited-same-day, and $150 expedited-two-hour tiers under 19 NYCRR § 141.1 provided a premium lane. Through Q2 and Q3, the expedited lanes continued to operate, but the ordinary lane stretched. Practitioner reports through the summer consistently described domestic LLC filings submitted by mail in June and July that had not returned stamped copies to filers by early September. Fax filings ran faster than mail but still lagged the pre-pandemic baseline.

The downstream bite is the N.Y. LLC § 206 publication requirement. The statute requires a newly formed LLC to publish notice in two county newspapers for six consecutive weeks and file a Certificate of Publication within 120 days of formation. The clock starts from the filing date on the Articles of Organization, not the date the filer receives the stamped receipt. A New York LLC whose paper filing sat in Albany for eight weeks in July and August was not running up against the 120-day window (EO 202.8 tolled it in any case), but was paying to publish a notice months after operations had already begun, and under a formation date the registered agent had to certify from the executed Articles rather than from a returned receipt. New York corporate lawyers through the summer increasingly advised clients with the flexibility to do so to form in Delaware or another jurisdiction and qualify as a foreign LLC into New York under N.Y. LLC § 802, paying the $250 application fee and accepting the same publication requirement on a clearer formation timeline.

The February 2020 pilot for online New York LLC formation, reported at the time as "in development," had not launched as of the start of September. The cost of that non-launch, across six months of pandemic-scale paper volume, is the clearest number the New York Department of State did not publish this summer.

Wyoming: steady through the wave

Wyoming's Business Division absorbed the Q2 and Q3 surge with the fewest visible moving parts of the four. The state's online filing portal at wyobiz.wyo.gov continued to form LLCs at the $100 state fee (plus the processor charge that brings the effective total to around $102.40) with a routine turnaround that stayed at roughly one to two business days through the summer. The state does not publish an expedited tier because the ordinary tier is already fast, and the population base means even a sustained national surge did not produce anything resembling an Albany-style queue.

The qualitative signal during the summer is that Wyoming's share of out-of-state formations rose. The state does not publish monthly formation counts in a form that cleanly separates domestic from foreign-purposed filings, but Secretary of State Edward Buchanan's office reported new business filings through 2020 on an upward slope that outpaced the state's historical trend. A share of that upward slope is founders in states with slower filing offices picking Wyoming as a formation-of-convenience and then foreign-qualifying into the operating state, a pattern the April field report flagged and the summer confirmed. Wyoming's annual report is the $60 minimum license tax under W.S. § 17-29-209, due on the first day of the anniversary month, and the formation mechanics did not change during the pandemic.

For a founder weighing where to form during Q3 2020, Wyoming's pitch was not the usual privacy-and-simplicity line. It was the more prosaic one that the office was simply open, the filing took a business day, and the fee was $100.

What the four-state cut reveals

The four states bracket the range of what was possible during the Q2-to-Q3 2020 surge, and the dispersion between them is wider than at any point since state-level online filing began. Delaware's and Wyoming's entity-formation turnaround remained near pre-pandemic pace. California's online-channel formations remained near pre-pandemic pace, while paper-dependent filings slipped by weeks. New York's paper-only formation channel slipped by months, to the point that the practical advice during the summer often ran toward not forming in New York at all.

The Business Formation Statistics will continue to record applications regardless of how long the filing office takes to act on them, so the national number is not sensitive to backlog. What is sensitive is where those formations land. A cohort of founders who learned in July 2020 that Wyoming took a day and New York took two months does not go back to the old default once the surge ends. The states that held pace in Q2 and Q3 did not just avoid a bad summer. They added filings that, in a different year, would have gone somewhere else.

Sources

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