PROVIDENCE – The R.I. Department of State has already surpassed its record for the number of new business filings in a year, with 10,938 as of Oct. 21, and is on pace to see over 12,000 this year.
The Department of State recorded 10,533 business filings in 2020, the first time it had more than 10,000 business filings in a single year. The previous high mark for filings was 9,562 in 2019. Filings have trended upward since 2010, when the number of filings was 6,850.
March was the high water mark month for business filings in 2021 with the state recording 1,263 business filings, per data recorded by the Department of State. The largest number of business filings to date by category is 41,420 by domestic limited liability companies, followed by 16,323 in domestic profit corporations.
Nick Domings, spokesman for the Department of State, said a conservative average for new filings this year has been 1,000 each month. “If that holds true through December, we should end up somewhere north of 12,000,” he said.
Domings said that, according to the department’s businesses services team, there has been an increase in entities choosing a domestic limited liability company structure for their business.
“Approximately two-thirds of all new filings with our office this year to date have been domestic LLCs,” Domings said. “This may be because after reviewing the types of business structures, entities find that a domestic LLC offers the operating structure or tax obligations they feel work best for them.”
Business structures include advantages, such as being subject to a minimum corporate tax of $400 year, regardless of profit or loss, and limited liability for the LLC’s debts.
Secretary of State Nellie M. Gorbea said the reason for the record number of new business filings is an increased appetite for starting a business combined with modernization of the state’s business filing system. Gorbea said after she took office in 2015 the goal was to update an antiquated government system to be more friendly toward businesses.
“The system is easy to use,” she said, noting that the system was rolled out when the pandemic began. The Department of State unveiled its revamped filing system on March 12, 2020. “We’ve made it easier to incorporate, and figure out what is needed to do next. The proof is in the pudding.”
“What’s really exciting is that since January of 2020 we have had 20,000 new business filings and 98% of those are still active,” Gorbea added. “I think that bodes well for our state.”
Gorbea said the new website system was rolled out at the right time, and “took hold of people’s excitement about starting businesses, or going on a new path. If that website had not be active we would not have been able to capture that.”
Edward M. Mazze, a University of Rhode Island professor of business administration, agrees, and said the numbers are driven by a new, strong entrepreneurial spirit where people have reevaluated their lives and want to become masters of their own destiny.
“People are rethinking what they want to do with their careers,” said Mazze, who noted that people are either starting their own business or moving into another industry to earn higher wages.
Mazze said optimism about the economy mixed with Rhode Island becoming friendlier to business has opened the door to opportunities. Part of that includes Gov. Daniel J. McKee’s interest in aiding businesses, primarily small businesses, and the Department of State making it easier for businesses to incorporate, he said.
Despite the record number of filings, Mazze said most of the new businesses will not survive. “Only about 10% will succeed,” he said, noting that 75-90% will be out of business in four years.
Chip Leakas, the founder of Tinnitusdating.com, and a Newport-based corporate trainer on Linkedin, filed his articles of incorporation in September for his dating website using the state’s filing system. Leakas said that COVID-19 pandemic is the big catalyst in people starting their own businesses.
“It’s a catalyst, a big paradigm shift, driving people to assess their personal, goals, and objectives, dumping their life resources into pursuing a business venture,” Leakas said. “A record number of people are quitting jobs and leaving the workforce.”
Leakas, who suffers from tinnitus, a perpetual ringing in the ears, said that the push to incorporate was due in part to his affliction and because he was feeling the desire to pursue a business opportunity.
Leakas said the Department of State’s system was pretty straightforward and on par with the national average for filing systems. “It’s about average,” he said. “It’s not terribly sophisticated.”
Now, Leakas is trying to market his online dating site using social media platforms to promote it.
Gorbea said her department grew its online presence by upgrading its website, and promoting it on LinkedIn, and other social media sites.
“Communication is the key,” Gorbea said. “What’s really important is that the Department of State is showing that we’re an agency of government that’s here to help businesses, that we’ve eliminated the barriers to business ownership by changing the way that government works.”
Gorbea said her department has also built on relationships with the state’s chambers of commerce, and organizations like SCORE RI, so prospective business owners have the resources to start a business in the state.
Despite the record number of filings last year, amid the pandemic and its economic impact, the state also saw the largest number of business closures in its history in 2020, as 2,373 businesses dissolved, cancelled or withdrew their filings, an increase from 1,379 the year prior.
So far in 2021, there have been 2,036 entities that dissolved, cancelled, or withdrew their filings.
Gorbea said the state’s dissolution numbers are not out of the ordinary and indicative of the natural life cycle for businesses. Some dissolutions are due to real estate holdings entities that dissolve due to a sale, and a changing of hands, she said.
Gorbea, a Democrat, is running for governor in the upcoming 2022 election.
Gorbea said that she felt some Rhode Island’s state government has become antiquated, and lacking an open front door to its business owners and citizenry.
“Part of what’s holding us back in the state is our government,” Gorbea said. “We have to modernize government. That is what will make it easier for businesses to thrive here. That’s why I am going for the next job. It really is.”
“We can all talk about shiny new policy, but good ideas go to die in a bureaucracy that hasn’t been transformed,” said Gorbea, who said she hopes to run the state government the way she has run the Department of State.
Cassius Shuman is a PBN staff writer. Contact him at Shuman@PBN.com. You may also follow him on Twitter @CassiusShuman.