2010 California Law Affects Business Startup Companies

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Business Formation & Planning on Monday, July 16, 2012.

Many times startup businesses can be fragile in a tough economy. This can be especially true when a broad and vague law affects the hard work and creativity of entrepreneurs. This is exactly what the California Money Transmission Act is doing to the currency transaction industry. The September 2010 law makes it more costly for a business startup to enter this market.

The law requires businesses considered to be money-transmitters to comply with stricter regulations. However, the law also broadly defines what constitutes a 'money-transmitter,' which means more businesses will be affected by the law. As of now, the state defines a money-transmitter as any 'nonfinancial institution which receives money for transmission.' California's Department of Financial Institutions required money transmitters to have received a license by July 2011, but has also said it will not pursue companies that are trying to comply and have opened a dialogue with regulators.

Some of the compliance requirements set forth by the law include a lengthy application procedure, a minimum amount of capital and requirements of net-worth. Some cases require as much as $750,000 in surety bonds that are required to be deposited with the state government. For beginning businesses this can be quite a challenge to overcome. One company, which failed to gain an exemption from the law, decided to stop doing business in California.

Changes in the law can potentially affect any type of business in California. These laws can either help businesses get off the ground or make it more difficult to begin a business startup. Keeping up to date on the latest legislation and then applying this knowledge to a specific business is important for entrepreneurs looking to break into most industries.

Source: Business Insider, "This Innovation-Killing California Law Could Get A Host Of Startups In Money Trouble," Owen Thomas, July 11, 2012

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