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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

Authorizing Shares for Your Delaware Corporation
By Paul Sponaugle Monday, August 11, 2014

authorizing shares for your delaware corporation

A Primer on Authorized Shares

Back in February, our chairman wrote one of his first blog articles on shares of stock entitled "Demystifying Stock." In it, he defines stock and some of the terms commonly associated with stock, such as authorized shares. Reading his article should give you a better understanding of the definition of stock, but it may still leave you wondering, "How many shares of stock should I be authorizing for my corporation?" Some of you may also wonder, "At what par value do I authorize the stock for the corporation?" Just as a quick reminder, authorized shares are the total number of shares that a corporation may sell or trade, and are defined at the time of filing the Certificate of Incorporation. When authorizing shares, the corporation must define the quantity, the par value and the classes for the shares. 

Though it is not an exact science, here are some general guidelines to consider when authorizing shares for a Delaware corporation:

Quantity - When authorizing shares for a Delaware corporation, one should consider that the annual Delaware Franchise Taxes will be based on the number of shares; therefore, whenever possible, it is best to keep the number of shares low. A good rule of thumb is to authorize only what the corporation will need. Corporations with 5,000 or less authorized shares are considered minimum stock and will pay the minimum Delaware Franchise Tax each year. If you must exceed 5,000 authorized shares, your corporation will be classified as a maximum stock  and you will be afforded the opportunity to recalculate the company’s Franchise Tax using a complicated formula called the assumed par value capital method, which will consider the company’s gross assets and the number of issued shares at the end of the year.

Par Value and Share Valuation - If you decide you need more than 5,000 authorized shares for your corporation, the Delaware Franchise Tax calculation is no longer a matter of consequence, and now the focus shifts to the par value assigned to the shares. If you must exceed 5,000 shares, the next threshold for you to consider is a share valuation of $75,000. Share valuation is simply the number of authorized shares multiplied by the par value. Par value is only relative to the bottom value of the share, and has no bearing on the market value or stock price of the share.  As with the number of authorized shares, it is generally better to keep the par value as low as possible because the initial filing fees will be calculated based on the share valuation. Minimum stock corporations may consider a zero par value, but corporations in excess of 5,000 authorized shares will want to assign a par value to the shares to avoid additional filing fees levied by the Delaware Division of Corporations. Delaware law allows for a par value as small as $0.000001, thus making it very easy to manipulate your company’s share valuation to remain below the $75,000 threshold. For example, if you decide you need 1,000,000 authorized shares, you can assign a par value of $0.001, which will result in a share valuation (1,000,000 shares x $0.001 par value) of $1,000. Because the share valuation is less than $75,000, the corporation will not experience any additional filing fees at the time of incorporation.

Classes of Stock – Although classes of shares have no direct influence on the Delaware Franchise Tax, it is still important to mention. For most corporations, the share class will be common but the scope of authorized shares includes all classes (i.e., common and preferred). Therefore, it is important to remember that when you are considering the quantity of authorized shares or calculating the share valuation that the authorized shares are all shares combined, both common and preferred.

Want more information? Please visit our page on understanding your company's stock.

 

[Photo credit: William Creswell ]

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Convert a Delaware LLC to a Corporation or Vice Versa
By Devin Scott Tuesday, July 29, 2014

Clients often ask “Can I change the entity type of my Delaware company after it has already been formed?” The answer is yes. Sometimes, in the course of business, things change and for whatever reason it may be necessary to change your Delaware LLC to a corporation or your Delaware corporation to an LLC. It could be because your accountant advised you to, because a potential partner advised you to, or because maybe you would like to issue shares of stock but cannot do so with your LLC. Whatever the reason, Harvard Business Services, Inc. would be happy to help you change your business entity from one type to another.

This process is called a conversion. Our service includes the document preparation, the Delaware State fees, a new corporate kit as well as a new corporate seal. The corporate kit and seal will contain your new company name. For example, when converting ABC Realty, LLC to a corporation, the ending will change. The popular choice for a corporation is Inc., so the new company name would likely be ABC Realty, Inc. Some clients want to completely alter the name when filing this conversion; this is also acceptable. Harvard Busines Services, Inc. will check the new name before filing the conversion and as long as it is available with Delaware Division of Corporations, we are able to change the name at the same time of the conversion.

When you file a conversion, your company will maintain its original birth date. This may be important to some clients if their company has built up many years of history. Other people may opt to just form a brand new company with the entity type they prefer, and close the previous company. The latter is sometimes less expensive and simpler, although this may be different for every client. Keep in mind that the Franchise Tax must be paid for both entity types in the year the conversion is filed. After that year, clients will only pay the Franchise Tax of the new entity type. After the conversion process is initiated, you will receive documents for signature via fax or email. Once the documents are signed and returned to Harvard Business Services, Inc., it takes approximately three to five business days for the filing to be complete. The approved documents will be delivered to you by email.

We are happy to answer any additional questions about your options and the conversion process. Please call 1-800-345-2677 or email sales@delawareinc.com.

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How to Get a DUNS Number Fast
By Michael Bell Tuesday, July 29, 2014

DUNS numberIf you own a business, you may have heard of a DUNS number.  If you're unfamiliar with it, a DUNS number is a nine-digit identification number issued by Dun & Bradstreet (D&B) that verifies the existence of a company globally. It's typically obtained for a range of reasons, including doing contract work with a government organization, separating your personal credit from your business credit, and more.

Want to know how to get a DUNS number fast? Just visit D&B Credibility Corp's website! Their standard service can take up to 45 days, but the company offers an expedited service that will get you a DUNS number in five business days.

For more information on the number, what you need to apply, and why many business owners choose to obtain one, please visit our DUNS number informational page.

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Pros and Cons of a Delaware Series LLC
By Brett Melson Monday, July 28, 2014

pros and cons of a delaware series llc What is a Delaware series LLC? 

 

Under Delaware law, a limited liability company (LLC) may be composed of an individual series of membership interests. This type of entity is referred to as a Delaware series LLC.

 

Keep reading to learn about the pros and cons of a Delaware series LLC so you can determine if the benefits of a Delaware series LLC are right for your business.

 

 

Pros of the Delaware Series LLC:

 

  • It has a low start-up cost. Series LLC owners only need to form one LLC. They then have myriad  series internally, without any additional expenses for the creation of an individual series.

 

  • Series LLCs pay only a single Delaware Franchise Tax payment of $300, regardless of how many series are contained in the LLC.

 

  • There is just one Delaware Registered Agent Fee, regardless of the number of series in the LLC.

 

  • Each series is effectively treated as a separate entity, meaning the debts, liabilities, obligations and expenses of one series cannot be enforced against another series of the LLC or against the LLC as a whole.

 

  • Each series can hold its own assets, have its own members, conduct its own operations and pursue different business objectives yet remain insulated from claims of members, creditors or litigants pursuing the assets of or asserting claims against another series.

 

 

Cons of the Delaware Series LLC:

 

  • The legal separation of the assets and liabilities of each series in a Delaware series LLC has not been tested in court. Even if a Delaware series LLC were properly operated with distinct records relating to the assets and liabilities of each series, a court in another jurisdiction could determine not to recognize the legal separation afforded under Delaware law.

 

  • The U.S. federal tax treatment afforded to individual series is not certain. The IRS and Treasury Department have proposed regulations that would make it clear that each individual series, within the Delaware series LLC, could be considered a separate entity for the purposes concerning the federal taxation of the entity. With the proposal, each individual series can elect the tax classification that best suits that individual series' needs. One series could be taxed like that of a partnership if there were two or more members, while another series can be considered a disregarded entity.

 

  • Other states have not provided concrete guidance on the effect of the series' distinction for state tax purposes.

 

  • When operating as a foreign LLC in California, there is a Franchise Tax of $800 per series. Other states are considering charging annual fees for each series within the LLC when operating as a foreign LLC in their jurisdictions.

 

  • Banks are not familiar with the structure and have a hard time understanding that each series can open up a bank account.

 

  • Many attorneys and tax professionals are not familiar with the structure and cannot provide counsel or guidance.

 

Once the IRS & Treasury Department finalize the proposed regulations on the series LLC, the structure will gain popularity and become commonplace.

 

If, upon weighing the pros and cons of a Delaware series LLC, you've decided the benefits of a Delaware series LLC suit your company and you would like to form one, please visit our easy-to-use order page or call (800-345-2677), email or live chat with a friendly, helpful representative.

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Harvard Business Services Supports the BBB!
By Michael Bell Tuesday, July 22, 2014

The Better Business Bureau (BBB) provides a service that is used by hundreds of thousands of people every day. For businesses, a BBB accreditation lends extra prestige to your work, signaling to customers that you’re trustworthy.

Harvard Business Services is proud to say it has been an accredited business with the BBB of Delaware since 1998. We strive to provide the best customer support to our clients and take great pride in our BBB status.

To help show our support, we recently teamed up with BBB of Delaware to do a short radio ad. Click the button below to hear it!

 

 

It’s worth noting that the BBB offers a new feature that allows clients to give businesses a review. If you have enjoyed working with us and want to give us kudos, please write a review on our BBB page!

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