The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
There are many numbers that are used to identify ourselves and our corporations or LLCs, such as a Social Security number, driver's license number, passport number, DUNS number and EIN (Employer Identification Number).
Many business owners and employees wonder about the differences between the Federal Employer Tax ID number (EIN) and the individual taxpayer identification number (ITIN).
The Federal Tax ID Number, known as an EIN, is an identification number used by the IRS to administer tax laws. The Federal Tax ID Number is used to identify an entity to the IRS, banks and other businesses.
Think of this number as the social security number for a business. This number is typically needed to operate your business in the United States, do banking in the United States, hire employees and file taxes with the IRS.
The individual taxpayer identification number (ITIN) is a tax number only available to certain non-U.S. residents and resident aliens and their spouses and dependents who are not able to obtain a social security number (SSN). ITINs always start with a "9" and are typically formatted like a Social Security number: 9xx-xx-xxxx.
The ITIN is needed by many non-U.S. residents who form a Delaware corporation or LLC. If there is a tax filing requirement with the IRS, an ITIN is needed.
For example, if a company has U.S. source income and profits or losses that flow through to the member or shareholder, owners typically need to obtain an ITIN in order to complete a tax filing with the IRS.
ITINs are issued regardless of immigration status because both resident and non-resident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.
We are able to form a new Delaware entity and obtain a Tax ID number for both U.S. and non-U.S. clients quickly and easily.
We are unfortunately unable to obtain an ITIN for you. However, we are happy to refer you to Seaford Management LLC, which is a Certifying Acceptance Agent with the IRS. They can file your application to obtain in ITIN number.
If you have any quesitons about obtaining an ITIN, or if you would like to get an ITIN, you can email Seaford Management LLC or call them at (302) 990-9003. They offer services in both English and Spanish.
What Does It Mean to Be a Shareholder of a Delaware Corporation?
A shareholder can also be referred to interchangeably as a stockholder.
As an equity holder, a shareholder is a part-owner of a corporation and participates in the increase or decrease in the company’s value.
The bylaws may provide different classes of stock with different economic (and other) rights, and holders of preferred stock receive priority and preferred distributions over holders of common stock.
One of the key features of share ownership is limited liability. A corporate shareholder is not liable for the debts and obligations of the corporation.
Under certain circumstances, a court can look through a corporation and hold its shareholders responsible for certain debts and liabilities, most commonly in cases of fraud or other misconduct.
Such an action, referred to as “piercing the corporate veil,” is not common, as it undermines the general principal of limited shareholder liability, a fundamental feature of the corporate form.
Many terms related to shareholders’ rights can be set forth in a corporation’s Certificate of Incorporation or bylaws.
Corporate shareholders’ rights often vary, depending on the size of the corporation. For example, shareholders’ rights in a private corporation with only a few key holders will differ greatly from rights afforded a shareholder in a large, publicly-traded company.
In close corporations, shareholders’ rights will be set forth with specificity in a shareholder’s agreement among the holders. In larger corporations with a larger number of shareholders, the Certificate of Incorporation and the bylaws are the primary governing documents.
Delaware law sets forth default rules and rights that will govern in the event that a corporation’s governing documents are silent on an issue and, importantly, spells out certain limited rights that cannot be waived in such documents.
One of the primary rights of common shareholders of a Delaware corporation is the right to their pro-rata share of any dividend issued by the Board of Directors to the common shareholders.
Another basic right of all owners of shares of common stock in Delaware corporations is that they may vote one vote per share on all matters that common shareholders are allowed to vote on.
Under Delaware law, a shareholder has a to right to vote on any amendment to the corporation’s governing documents, whether such class of shares is entitled to vote or not under the governing documents, for actions that would (i) increase or decrease the number of authorized shares of such class; (ii) increase or decrease the par value of shares of such class; or (iii) adversely alter or change the powers, preferences, or special rights of the shares of such class.
Another key, unassailable right is a shareholder’s right to inspect the books and records of a corporation. This often-litigated right permits a shareholder to inspect corporate books and records for any “proper purpose,” which has been interpreted to mean a purpose reasonably related to a person’s interest as a shareholder.
For example, investigating suspected mismanagement would generally qualify as a proper purpose. A shareholder is permitted to review records that are “essential and sufficient” in order to achieve a proper purpose.
The number of authorized shares of each class of stock in a Delaware corporation is on file with the Delaware Division of Corporations; however, the names and addresses of the shareholders are not listed or recorded with the State government.
In fact, there is no public registry which lists shareholders of private Delaware corporations, and private Delaware corporations are not typically obligated to publically disclose their stock ownership records.
Corporations must hold a shareholder meeting at least once every thirteen months and must send a notice to all shareholders of the time and place of the meeting, inviting them to attend.
Shareholders who have the time should make an effort to attend a corporation’s shareholder meetings so they can stay abreast of the corporation’s activities, challenges and growth. They may also attend by conference telephone and may vote by proxy without attending if they desire.
According to a 2012 National Women’s Business Council census, since 2007, the number of companies owned by Asian women has grown by 44.3%; the number of companies owned by black women has increased by 67.5%; and the number of companies owned by Hispanic women has increased by 87.5%.
As champions of start-up companies, we are always looking for ways to help entrepreneurs, especially those who are underrepresented. We are pleased to share the following guide, our first (but not last) Business Resources for Minority Entrepreneurs.
The Minority Chamber of Commerce, Inc. is a non-profit organization in Florida whose “core mission includes business education, networking and facilitating trade and investment worldwide.” The main goal of MCC is to progress the “commercial, financial, industrial, educational, preservation and civic interest” of minorities in business.
BusinessUSA is a joint effort between 28 federal agencies to assist minority business owners in navigating the massive amount of online information that may be of help to them.
Lifeline Business Consulting Services helps minority entrepreneurs in Detroit, Michigan create business plans and connects them to funding resources. The organization also offers a 15-week course in entrepreneurship as well as consultations, workshops and networking events. In 2015, Dr. Nicole Farmer, the creator of LifeLine, helped 25 entrepreneurs access $1.1 million in funding.
Comcast Ventures has a minority-focused venture capital fund called the Catalyst Fund, which focuses on minority entrepreneurs at the seed stage with investments between $100,000 and $1 million. The Catalyst Fund wants to help minority entrepreneurs who typically don’t have access to much capital. The overall size of the fund, via Comcast, is 20 million dollars.
The Intel Capital Diversity Fund, which was launched in June of 2015, is a $125 million venture fund specifically aimed at investing in women and minorities.
J.P. Morgan Chase & Co. and the W.K. Kellogg Foundation joined forces to offer $6.5 million in lending funds to both minority-owned businesses and companies in Detroit that hire primarily minorities. The Entrepreneurs of Color Fund can cover both short- and long-term loans of anywhere between $50,000 and $150,000. Funds are also available for tech help, networking, marketing plans, business plan development and cash-flow management systems.
Illinois Governor Bruce Rauner created an investment program called Advancing the Development of Minority Entrepreneurs (known as ADME) in order to strengthen the state’s start-up and small business economies. The first three cities in which the program was rolled out in August of 2016 were Chicago, Peoria and Rockford.
ADME identifies minority entrepreneurs (African-Americans, Latinos, Asian-Americans, women and veterans) with high-potential and provides complete support so they can grow their businesses. Those selected get to participate in a Business Experience Boot Camp; are paired with a mentor and an advisor; and given access to capital.
Black Dot, located in Seattle’s historically black Central District, “is a culturally responsive community for black entrepreneurs [that] provide[s] space, knowledge and support for creatives to operate and grow their business.
Google’s Small Business Supplier Diversity Program “is designed to connect more minority-, women-, veteran-, persons with disabilities- and LGBT-owned small businesses to opportunities within Google while helping them grow on the web.” There are several excellent program benefits, such as access to the Digital Excellence Program at the Tuck School of Business at Dartmouth; $100 credit for Google Adwords; and inclusion in Google’s supplier database.
PowerMoves “takes a comprehensive approach by supporting entrepreneurs of color from the concept stage all the way through the process of growing a profitable business prepared for an acquisition.”
PowerMoves hosts a 6-week Early Stage Startup Bootcamp, an annual Accelerator for Maturing Companies, Growth Stage Company Showcases and the PowerMoves@ series of conferences, which have visited a variety of U.S. cities since 2014.
Práctico Innovation wants to pair business problems with innovative, realistic business solutions. It is a private company “structured to discover creative and practical innovative ideas often hidden in plain sight [of] communities of color.” Práctico Innovation invests in, offers strategic coaching and workshop training to and provides network introductions to minority-owned companies (with a focus on those that are created in Rhode Island) that aim to create a worthy business value that incorporates science and/or technology
Elevate is a program within the Grand Rapids Area Chamber of Commerce that “helps accelerate the growth and development of sizable minority-owned businesses in Western Michigan.
The Minority Business Development Agency is a federal agency that is part of the U.S. Department of Commerce and assists minority entrepreneurs with a variety of skills as well as networking. MBDA Centers endeavor to connect minority business owners with access to capital, contracting opportunities and exporting opportunities.
The Hidden Genius Project trains and mentors black male youths in entrepreneurship, leadership and tech.
Hack the Hood is a non-profit organization that trains low-income youth in a variety of tech careers, including SEO, website creation and coding.
Code2040 “creates access, awareness and opportunities” toward “educational, professional and entrepreneurial success in technology” for blacks and Latinas.
National Action Council for Minorities in Engineering is an organization that aims to expand the presence of minorities in the fields of science, technology, engineering and STEM education and careers. It offers scholarship programs, a career center, corporate support and partner institutions.
National Black Chamber of Commerce aims to financially empower and sustain African Americans via entrepreneurship.
The Office of Women’s Business Ownership is a division of the Small Business Administration.
The U.S. Pan Asian American Chamber of Commerce (USPAACC) is “the oldest and largest organization representing Asian American businesses in the United States.”
The U.S. Hispanic Chamber of Commerce is America’s largest Hispanic business organization, representing over 4.1 million Hispanic owned businesses.
If you are involved with an organization that assists minority entrepreneurs, please share the relevant information in the Comments section below.
Ask and you shall receive!
Many of our clients have asked us to have ACH (E-Check) as an option for making payments via our website.
Your request has been granted, and starting December 5, 2016 ACH (E-Check) will now be a payment option when you place any order via our website.
All you need to do when you reach our payment page is:
If you have any questions, we are available via phone at 1-800-345-2677, live chat or email.
We Are Moving from 4 Formation Packages to 3 Formation Packages with an Upsell
History shows that it is easier to choose from three options instead of four options, so with that in mind, we are officially eliminating our Premium Package. When you’re forming a new company through us you will now have the option to select from our Green, Basic or Standard Package.
All of the items included in each package remain the same. Our Standard Package is by far our most popular package.
However, we understand that time is of the essence in the business world. Some people need their documents faster than the normal turnaround time of two to three business days, so we are offering an Expedited Document Service.
For an additional $150, you can receive your approved documents the same business day, as long as the order is received before 1 PM ET (Monday through Friday).
All you need to do is simply check the box when you select your formation package choice.
Stay tuned for more announcements in 2017, as we will be launching our new responsive design website.
Sometimes, despite meticulous strategies, our business plans don’t come to fruition, and we have to accept that the start-up we have worked so hard to establish is just not succeeding the way we hoped it would.
If, unfortunately, you find yourself in this position, here are nine things you should consider before closing your company:
Review your LLC Operating Agreement or corporation bylaws; both should specifically state how your Delaware company should be closed, including how to handle outstanding debts, how to liquidate assets and how to notify the appropriate parties involved.
Speak with your accountant to see if your company needs to file federal and/or state tax returns for one final time.
Contact the IRS in order to terminate your company’s EIN (Federal Tax ID Number).
Evaluate all unresolved contracts, loans and obligations your LLC or corporation may owe.
Meet with your bank representative in order to close your business bank accounts.
File a Certificate of Cancellation (for an LLC) or a Certificate of Dissolution (corporation) with the Delaware Secretary of State. Your Registered Agent can assist with this filing.
Consider closing the company before the end of the calendar year to avoid additional Franchise Tax Fees imposed by the state.
If your LLC or corporation filed for Foreign Qualification in another state, then typically a Certificate of Withdrawal will need to be filed with that state.
Remember that once a company is officially closed, it can be expensive to re-activate it, if it is even feasible to do so. Also, keep in mind that your original company name may no longer be available.
It is also wise to consult with an attorney to review your company’s specific details, as this list is not comprehensive and every business situation is different.