The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
One of the annual obligations a Delaware business entity must fulfill is filing and paying an annual Franchise Tax. For years, Harvard Business Services, Inc. has offered assistance to help our clients ensure their Franchise Tax filing is accurately completed with the state of Delaware. Each year, thousands of clients utilize our services to take care of their Franchise Tax filing. However, there are some clients who choose to file directly with the state of Delaware. What’s the difference? Which way should you file your Franchise Tax?
Consider these two scenarios:
Ike owns numerous Delaware business entities. He decides to file his Franchise Tax fees directly with the Division of Corporation’s Franchise Tax Department. He mails several different checks to cover the Franchise Tax fees for all his separate entities. Unfortunately, the transaction does not go smoothly. The state indicates there is a prior balance on some of his entities while other entities show a credit on the accounts. Ike is positive he paid Franchise Tax on all of his entities correctly, but that is not what is on record with the state’s Franchise Tax Department. The discrepancies can be traced back a couple of years, which means there is a lot of research to investigate. Now Ike has to spend his valuable time searching through cancelled checks, bank statements and entity records to figure out what happened. In the meantime, some of his business entities are imposed additional late penalties as well as interest fees. Now the situation is worse and Ike is even more frustrated.
Sam also owns several business entities registered in the state of Delaware. He doesn’t want to deal with the hassle of filing his Franchise Tax reports himself, so he lets Harvard Business Services, Inc. take care of everything for him. Sam receives email confirmations for all his Franchise Tax transactions, so he knows exactly when the process is complete. A few months later, during a routine audit for a specific entity, Sam is required to provide receipts for all his past Franchise Tax filings. He contacts Harvard Business Services, Inc. and instantly obtains all the necessary copies of the requested documentation. Sam doesn’t have to worry about searching through old records to find what he needs, nor does he have to waste any of his time. Harvard Business Services, Inc. is able to quickly do all the work for him, saving him time, aggravation and money.
The moral of this Franchise Tax story is: Don’t be like Ike. Let Harvard Business Services, Inc. take care of your business entity’s annual Franchise Tax filing so you can focus on more important business matters.
The 2015 Lawsuit Climate Survey “Ranking the States: A Survey of the Fairness and Reasonableness of State Liability Systems” from the U.S. Chamber Institute for Legal Reform is out, and for the tenth year in a row, the state of Delaware was voted number one.
The purpose of this survey, which has been conducted every other year since 2008 (from 2002 to 2008 it was conducted annually), is to outline how corporate lawyers assess the state governmental systems in which they work and interact.
They are asked to evaluate their opinions of each state’s liability procedure, using a 1-50 ranking of significant elements. Those surveyed were part of a “national sample of 1,203 in-house general counsel, senior litigators or attorneys, and other senior executives at companies with at least $100 million in annual revenues who indicated they: (1) are knowledgeable about litigation matters; and (2) have recent litigation experience in each state they evaluate” (“Ranking the States”).
Although attorneys were asked to comment on states in general, they did have an opportunity to comment on local jurisdictions with the least fair or reasonable lawsuit environments, and the bottom five on this list are:
In terms of overall state rankings, after Delaware at number one, Vermont is in the number two spot; next is Nebraska, then Iowa, New Hampshire, Idaho and North Carolina. Wyoming fell five spots from 2012; it now ranks number eight, followed by South Dakota at nine and Utah at number ten.
Wondering where the supposedly-corporate-friendly Nevada ranks? Number 35, below Alaska, Kansas, Ohio and Oklahoma. New York ranks 21, despite Governor Andrew’s Cuomo impressive efforts to attract businesses to the state through his $35 million Global NY Development Fund and a $140 million advertising campaign called “New York State Open for Business.”
New York fell three spots from the 2012 survey. One of Cuomo’s top officials, Howard Glaser, told the New York Times last June, in reference to the “Open for Business” campaign, that “Connecticut is spending $27 million promoting its state, Michigan $25 million, New Jersey ran a campaign to recruit businesses featuring its governor.
California spent $50 million on a campaign to promote its state. We have to compete.” In addition, in 2014, Governor Cuomo created Start-Up NY, a tax-free zones program focused primarily on upstate New York, which aimed to lure new businesses to New York with zero income tax and zero business tax for ten years. At the time, he stated, “It makes New York the least expensive place in the United States to locate a business” (Poughkeepsie Journal).
In 2015, Cuomo also proposed a significant tax cut for small businesses that file corporate Franchise Tax, but even with the cuts, New York’s Franchise Tax cannot compare to Delaware’s low Franchise Tax, which is fixed at $300 for any Delaware LLC.
Delaware ranks number one in the majority of the categories in which survey participants were asked to give states a grade of A – F. The ten categories are:
Of these, Delaware ranks number one in overall treatment of tort and contract litigation; having and enforcing meaningful venue requirements; treatment of class action suits and mass consolidation suits; damages; timeliness of summary judgment or dismissal; and judges’ competence. Delaware ranks number two, behind Vermont, in discovery; scientific and technical evidence; judges’ impartiality; and juries’ fairness.
It is interesting to note that neither Wyoming nor Nevada, the two states most often incorrectly compared to Delaware in terms of corporate-friendly environment, fared well in the survey. Wyoming ranked eighth overall and Nevada ranked 35th overall.
In the distinct categories, Wyoming’s highest ranking was five (in Treatment of class action suits and mass consolidation suits as well as Timeliness of summary judgement or dismissal) while its lowest was eighteen (in Scientific and technical evidence).
Nevada, however, failed to crack the Top 20 in any category. Its highest category ranking was twenty-five (in Scientific and technical evidence) and its lowest was forty-one (in Damages).
Wyoming’s mediocre performance and Nevada’s poor performance should finally put to rest the notion that those states are in any way comparable to the truly corporate-friendly Delaware, the highest-ranked state for the tenth year in a row, in the U.S. Chamber Institute for Legal Reform 2015 Lawsuit Climate Survey “Ranking the States: A Survey of the Fairness and Reasonableness of State Liability Systems.”
What are the benefits of a Delaware LLC, and what makes a Delaware LLC so easy to manage and operate?
There are a number of reasons a Delaware LLC is uncomplicated to form and maintain.
The Delaware LLC is well-known for its unmatched flexibility and low maintenance requirements.
First, creating an LLC is simple and straightforward; all you have to provide is your company name, your contact information and the names of the members of the LLC.
The state of Delaware does not require the names of the members to be listed on the Certificate of Formation where it would be available on public record.
Once your LLC is up and running, eventual changes in ownership or membership are easy to facilitate. You can add or remove members of the LLC via your LLC Operating Agreement. The LLC Operating Agreement is a written agreement between the LLC’s members that addresses the ownership, management and responsibilities of all the members and managers of the LLC.
The LLC Operating Agreement is an internal matter and is not required to be filed publicly.
The annual reporting requirements for a Delaware LLC are simple and direct.
All you have to do is submit a $300 Franchise Tax (the Franchise Tax amount is the same for all Delaware LLCs), which is due on or before June 1st of each year, regardless of the amount of income your LLC generates.
There is no annual report required when filing the Franchise Tax for a Delaware LLC. This is much different than the annual requirements for a corporation—all Delaware corporations must file an annual report consisting of an updated list of the names and addresses of all officers and directors, updated shareholder information, updated gross assets and updated issued shares.
As you can see, when compared to a corporation, the Delaware LLC is significantly easier to maintain, with much less paperwork and, therefore, much less stress.
In addition, Delaware LLCs include asset protection against liability and creditors. They also carry a distinct tax advantage in that owners can decide, upon formation, how they want the LLC to be taxed by the IRS—as a partnership, an S corporation, a C corporation or a sole proprietorship.
Delaware LLCs are, in a word, extraordinary; when you compare them to other business entities, none of which include the level of privacy, flexibility or cost-efficiency, it is easy to see why two-thirds of all companies formed in the state of Delaware are LLCs.
If you have any questions about forming a new Delaware LLC, feel free to contact us 800-345-2677, Ext 6133 or email me at email@example.com.
It is becoming more and more common for boat owners to form a Delaware LLC in order to protect themselves as well as their boat. Oftentimes, people who own a yacht or boat charter it out for a fee. Their boat may be in one city while they are in another, and their boat is often being operated by a person they have never met. The liability concerns here are easy to see. A Delaware LLC can protect the boat owner from personal liability that may stem from any damage that can possibly occur, whether the fault of their boat or the operators of their boat at the time.
Sheltering a boat under a Delaware LLC also allows the owner to maintain his/her privacy. In Delaware, information about the members of an LLC is not required to be filed with the state, and is not on the public record. The members of the LLC are shielded from any debts and obligations of the LLC as well. There can also be tax benefits associated with a Delaware LLC that holds an asset such as a boat. If this interests you, we encourage you to speak with a tax professional for the specifics on LLC tax benefits.
After the LLC is formed, The Delaware Department of Natural Resources and Environmental Control can be a good source of information on how to register your boat in Delaware. The DDNREC requires a bill of sale, a certificate of origination from the manufacturer, the boat type and length and the year the boat was constructed. You can contact the DDNREC office directly for the specifics.
To maintain a Delaware registration, there is a minimum amount of days the boat must be kept in the state of Delaware. DDNREC officers have ways of verifying this information, so it is important to stay in compliance. Those who are not in compliance may receive fines or have their Delaware registration rescinded.
If you would like to protect your boat in an LLC, Harvard Business Services, Inc. can help, and we will not need any of your boat’s information. In fact, some of our clients even form a Delaware LLC before purchasing a boat. The only questions we will need to ask are:
Please feel free to contact us with any questions about protecting your boat in an LLC. You can call Harvard Business Services, Inc. at 800-345-2677 for assistance.
Are you an entrepreneur with a million dollar idea but a ten dollar budget?
Crowdfunding is a way of raising money for a project or business venture by attracting investors online. There are a few different services you can utilize to start your crowdfunding campaign, such as Kickstarter, Indiegogo and Crowdfunder.
Typically, you set up your public campaign using the crowdfunding platform of your choice, and then the service allows you to advertise your idea, along with the details, for a certain period of time (using social media to spread the word is an excellent idea); the goal is for you to reach your target goal (in terms of money raised) within that time period.
Your donations are for a specific amount, and you offer different rewards for different levels of monetary donations as part of your crowdfunding campaign. Since competition on crowdfunding platforms has increased, your rewards should be of some intrinsic and/or emotional value, such as T-shirts, limited edition photographs, early access to the product/service, autographed materials or invites to a private launch party.
Crowdfunding has gained mainstream appeal by affording charitable and educational projects the opportunity to reach a much wider and younger audience. Many people have also used crowdfunding platforms to fund films or finance the development of products and services.
If you think crowdfunding is a viable option for your idea, be sure to investigate each of the services to determine which will work best for you. Kickstarter focuses more on creative projects while others may focus on start-ups and raising investment capital.
Crowdfunding can be an ideal way to increase investment capital while also allowing you to market your new idea. If your crowdfunding campaign is successful, it likely illustrates a proven market for your new venture.
It also allows for extra promotion of your new product or service. As we all know, getting the product in front of the public is not always an easy thing to accomplish; crowdfunding permits access to potential customer information, since the people who donate to your campaign already like your product or service, and they are often happy to share constructive criticism and helpful ideas.
Imagine possessing the contact information for a customer base that has already expressed interest in your product or service—that’s an invaluable resource!
You can also use your crowdfunding campaign in order to attract other, more traditional investors. Angel investors who see your campaign may be impressed, and banks may be able to apply the success of your campaign in a loan evaluation.
You may even use your crowdfunding campaign to convince the investors on Shark Tank that your idea is both viable and profitable.
There are many opportunities to fund any number of projects on a crowdfunding platform. Whether you’re looking to fund the development of a new video game, iOS app, dog toy or an independent film, there are online opportunities to reach potential investors and turn that million dollar idea into an actual million dollars.