The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
If you have a Delaware corporation (not LLC), then you know the franchise tax fees are due by March 1 of every year. If your corporation also has over 5000 total shares of stock authorized, then you may have been surprised to have received a high Delaware corporation franchise tax bill from the state. This is because the amount due can range anywhere between $400 and $180,000. If you received one of these bills, don’t worry, we can help break down the situation for you.
The state of Delaware has two methods to calculate the franchise tax fees due. The first method, which is called the authorized shares method, assesses X dollars per X number of authorized shares. This method works on a graduated scale, so the amount will vary based on your specific entity details. This is how the state has figured your tax on the form we sent you.
The alternative method is known as the “assumed par value capital” method. Under this method, the state uses a formula that takes into account the relationship between the authorized shares, issued shares, par value and gross assets in order to calculate an adjusted amount due. In most cases, the amount of franchise tax due is significantly reduced when filing with this method.
The best part is that you get to pay the amount due that is the lessor of the two methods. So if the amount due via the authorized shares method is $7500, but the amount due via the alternative method is $400, you will only pay the $400. Quite the discount!
Since the franchise tax is an annual filing, this calculation process must be done each and every year in order to maintain the corporation’s existence. But what if you don’t want to go through this procedure every year? Well the state of Delaware imposes a flat rate of $225 for any corporation that has less than 5000 authorized shares. So in some situations, the option of filing a stock change amendment to reduce the number of authorized shares can be implemented.
While the stock change option may work for some corporations, make sure you are aware of the entire situation. You cannot retroactively file a stock change amendment to try and reduce a prior year’s franchise tax assessment. Therefore, if you are interested in going this direction, be mindful that the amendment will only affect future franchise tax filings.
When you are ready to proceed with your franchise tax filing, simply visit our website at: www.delawareinc.com/payft/. Our online system will automatically calculate the franchise tax fees due to the lowest amount for you. If you have any questions about potentially filing a stock amendment or refiguring your franchise tax, feel free to call us at 1-800-345-2677 to talk with a franchise tax specialist. Just keep in mind, the due date is March 1st. which is a Sunday. Our cut-off time to assist you in filing your Delaware franchise tax is Friday, Feb. 27 at 5 p.m. EST.
Many clients want to operate a business under a different name than what was originally named on the certificate filed with the state. The question we hear quite often is: "'Do I need a DBA' or 'doing business as' name with my company?" and "What is the process to do this?" Here is some information from business.gov that may help clarify this topic.
The legal name of a sole proprietorship is the name of the person or entity that owns it. If you are the sole owner of your sole proprietorship, its legal name is your full name. If your business is a partnership, the legal name is the name given in your partnership agreement or the last names of the partners. For limited liability companies (LLCs) and corporations, the business's legal name is the name in Article One of the certificate that was registered with the state government.
Your business' legal name is required on all government forms and applications, including your application for employer tax IDs, licenses and permits. However, if you want to open a shop or sell your products under a different name, then you may have to file a "fictitious name" registration form with your local government agency.
A fictitious name (or assumed name, trade name, or DBA name, short for "doing business as") is a business name that is different than your personal name, the names of your partners or the officially registered name of your LLC or corporation.
For example, let's say Mary Smith is a sole proprietor of a catering company she runs out of her house. Mary wants to name her business Seaside Catering instead of using her business's legal name, Mary Smith. In order to use Seaside Catering, Mary will need to register that name as a fictitious business name with a government agency. Which government agency, depends on where she lives. In some states, fictitious names are registered with the state government; in others, you register fictitious names with the county clerk's office; and in others, there are no laws requiring businesses to register a fictitious business names.
Beware! Filing a DBA does NOT protect you from personal liability the way incorporating does. When we file your LLC or corporation with the Delaware Division of Corporations, it creates a whole new entity, which is separate in most legal respects from its owners.
One thing that has been a major asset to Harvard Business Services, Inc. is using a live chat feature on our website. The feature is powered by LivePerson, an engagement platform that makes it easy to communicate with someone through instant messaging. Since we work with customers from all over the world, we have found it very helpful because it allows our staff to instantly give customers the answers they need for free, saving them money on a phone call.
When LivePerson was told about our success with their platform and what it is has done for our business, they came to our headquarters, interviewed us, and featured us as a customer success story with them. Follow the link to learn more about our experience with them!
Technology these days can be used in so many different ways and when you’re in the customer service industry, having a live chat feature on your site is both beneficial and important.
When you sign up with LivePerson, you'll receive a 15-day free trial with no strings attached. I don’t know what you’re waiting for but, if you don’t have a live chat feature on your site you’d be wise to invest in it today!
The Delaware state file number is the number that the state of Delaware issues to each new company at the time of formation. It is formatted with seven numbers; for example, 1234567.
Each new Delaware company will be one digit higher than the company before it. It is the number that you can use to identify your company when dealing with the Delaware Secretary of State.
Your Delaware state file number is used to identify your company in the Delaware Division of Corporations' database.
Delaware companies can change their names, they can change their Directors, they can change the number of shares and par value issued, they can change their Registered Agent and address, but they cannot change their Delaware state file number.
No, the Delaware state file number is not your Federal Tax ID number, often called an EIN. The Federal Tax ID number is the federal government's—not a state government's—identifying number.
The EIN is a nine-digit number formatted with a dash after the first two numbers. These first two numbers indicate the location where the company will do business and pay their federal tax.
Think of the federal tax ID number as the social security number (SSN) for the business. It is used to open U.S. bank accounts, hire U.S. employees and operate lawful business activities in the U.S.
The Delaware file number can be located in several different places. You can find it on the cover letter we send with your approved company documents and on your receipt. The state will stamp it in the margin of your filed Certificate of Formation or Certificate of Incorporation.
(See an example of a Certificate of Formation below):
You're ready to start a new business venture. Like many others, you’ve decided to form your new corporation or LLC in Delaware, which is recognized around the world as "The Incorporation State." The question is: "Where do I start?"
Traditionally, the first step in the process, and often the most difficult, is coming up with the name of the company. We all know how important the company name can be—it can make or break your business. There are several things to be considered when deciding on the name. You want it to be catchy and memorable, but also to be reflective of the type of business you will be conducting. One important aspect that is often overlooked is the domain name.
Today, we are living in the information age. Everything is available at our fingertips with just the click of a mouse. What better way to market a new business? Most businesses, at one point or another, will want to benefit from setting up a website for their new company. That being said, in many cases when the name is chosen for the business, the domain name is an afterthought.
If a website is in the cards for the new business, whether now or in the distant future, it's probably not a bad idea to secure your domain name prior to setting up the company. This will save you time and money in the long run.
Before securing the domain name, Harvard Business Services can check the company name for you in real-time by phone, email, live chat, or Skype (DelawareInc). We can tell you in a matter of seconds if the name is available or not. The name must be unique enough so that it does not match that of another Delaware company already in existence. There are certain words that do not count towards the name search criteria, for example, the words "the", "at", "a", "an", "to", "the", "and" (and the and symbol "&") will not count towards availability. Nor will capitalization, spacing, punctuation, etc. The company name will also need to include a corporation ending, which also does not count towards the name search criteria.
For LLCs, the options are:
Limited Liability Company
For corporations, the options are:
Company or Co.
Corporation or Corp.
Incorporated or Inc.
Limited or Ltd
Keep in mind that not all company names are a home-run at first. Take a look at the original names of some of these well-known companies, they may surprise you. If you don't love the name of your company, we can always file a name amendment with the state of Delaware.
If you have any questions about the name for your new Delaware corporation or LLC, reach out to Harvard Business Services today at 1-800-345-2677 ext. 6133 or firstname.lastname@example.org.