The State of Delaware General Assembly recently approved legislation that affects some business entity laws. A notable piece of legislation is House Bill 127 that amends Title 8 Sections 502(a) and 312(b). One section of this law pertains to the annual franchise tax report that is required to be filed for all corporations on a yearly basis. The other section of law relates to the authorization of the renewal and revival of a Corporation. Both of these law sections are specifically related to Corporations, and not Limited Liability Companies/Limited Partnerships.
The highlight of this bill prohibits an incorporator from signing an annual franchise tax report after the initial filing. This means that an incorporator has the ability to sign the initial annual franchise tax report for an entity, but cannot sign any further annual reports.
For example, if an entity was formed at any time in 2013, then it will be required to file a 2013 annual franchise tax report by March 1, 2014. If the entity has not elected any directors or officers by the time the annual report must be filed, then the incorporator has the option to sign the initial annual report. However, moving forward, the entity will need to elect directors and officers and one of those individuals will have the ability to sign the following year’s annual reports.
In addition, only an initial annual report can be filed with the Secretary of State’s office listing ‘no directors’. All subsequent annual reports will be required to list directors. An exception to this rule would be the filing of annual reports in combination with certain types of dissolutions.
The legislation was enacted by the State of Delaware to discourage the use of “shelf” or “Shell” companies. These shell companies can sometimes be formed, maintained and renewed without listing any internal management or ownership details. The new law limits the powers of the entity’s incorporator for future filings in a couple of ways. First, as previously mentioned, the incorporator will only be able to sign an initial annual report for the entity. All future annual report filings must be signed by an actual officer or director of the entity. Second, any renewal or revival filed by an entity cannot be authorized by an incorporator. Instead, such renewal and revival certificates must be authorized by the entity’s directors or stockholders.
These specific legislative changes went into effect as of August 1, 2013.