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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.

How to Make an Online INC Franchise Tax Payment
By Amy Fountain Monday, February 18, 2013

Harvard Business Services, Inc. offers a convenient, online Franchise Tax filing service for both corporations and LLC/LP business entities. This service is available to any Delaware company, regardless of whether or not Harvard is your current Registered Agent.

Below you will find a step-by-step tutorial for the process of filing your corporation's Franchise Tax Fee through Harvard Business Services, Inc. In order to get started, you will need the company name and the official state of Delaware file number. Once you have both of these details, visit our secure website

Ready to pay your Delaware Franchise Tax online? You will love how easy this is.

Step 1:  Enter your Delaware File Number (a seven digit number that typically begins with 0, 2, 3, 4 or 5) and exact company name. For example, if the name of the company is The Great Company Inc., please make sure to enter it exactly as it appears on your official paperwork, rather than just Great Company Inc.

Step 2:  You will need to provide us with some of your contact information, in case we need to ask you any questions. Enter your first and last name (in the specified boxes), telephone number and email address twice (for verification). Please note that none of these details are part of the public record and will not be sold, rented or given out to any third party.

You will then be asked if you are paying the Franchise Tax for an LLC/LP. This tutorial is specifically for the corporation Franchise Tax, so check the box "No" and continue to the next item.

Step 3:  Provide the Principal Place of Business, which is the physical street address where the company is located. This address can be anywhere in the world, but it cannot be a PO Box or the address of Harvard Business Services, Inc. Click “Continue to Next Page.”

Step 4:  The next section requires the Directors' information. You will need to provide the names and addresses of all of your corporation's current Directors. The address you list can be the business or personal address of each person. For each Director, simply enter the first and last name in the designated boxes and then the street address (again, you cannot use a PO Box or our address) and click “Add Director.” Then continue to enter each additional Director’s information until you have included everyone you'd like to include. The details you entered will be listed for your review; once you have verified all the information, click the “Continue to Next Page” button.

It's possible that the Directors of your company may not yet have been elected. In this situation, just check the box “If you do not have any Directors please check here” and you will automatically move on to the next page.

Step 5: Here you will need to provide the details of one (1) officer of your corporation. While your corporation may have several officers with different titles, you need only list one person. Decide which officer you would like to list and enter his/her full name and address. You also need to choose his/her appropriate title from the drop-down menu. Your options are President, Vice President, Secretary, Treasurer, CEO, or CFO. When this is completed, click the “Continue to Next Page” button.

In some cases, the officers of the company may not have yet been elected.  Again, just check the box “If you do not have any officers please check here” and you will automatically move on to the next page.

Step 6:  Depending on the type of stock structure your company has, you may be asked for additional information at this point. The majority of companies will automatically move on to the next page. However, a maximum stock company (any entity that has over 5,000 authorized shares) will need to enter the following details:

  1. Total issued shares
  2. Total gross assets
  3. Asset date (typically December 31)

After you have entered these details, click the “Recalculate Franchise Tax” button. The online system will automatically calculate your Franchise Tax Fee under both of the methods Delaware allows. You will be shown the amounts due under the two methods; however, you will only pay the lesser amount. Click “Continue to Next Page.”

Step 7:  On this page, you should review all the details you have entered thus far in order to ensure your information is correct. If you need to make any changes, click the “Edit” button next to the incorrect detail and you will be directed to the specific page so you can correctly re-enter the information. If all the information is accurate, click the “Save and Continue” button.

If you are a current client of Harvard Business Services, Inc., the due date of your pending Registered Agent bill will appear. If you wish to renew this service for another year, you can check the box. Otherwise, you will receive a bill for the Registered Agent service at a future date.

Step 8: Here is where you will need to make payment arrangements. You will see a breakdown of the total amount due for your Franchise Tax Fee and filing fees. You will need to enter your credit card details or, if you prefer to pay with your existing PayPal account, click the appropriate button.  You will then be re-directed to the PayPal website for further processing.

Before this process can be completed, the order needs to finalized by an Authorized Person, so an Authorized Person's name, title (choose from the drop-down menu) and address should be entered. Next, review the Terms and Conditions section, check the Agree box and click the “Submit Franchise Tax” button.

You are done! You will soon receive a separate email containing a summary of the information you submitted as well as a receipt for the services.  Harvard Business Services, Inc. will begin processing your documents with the state of Delaware. Once the Franchise Tax filing has been approved by the state of Delaware,we will send you an additional email confirmation indicating that everything has been completed.

If you have any questions as you are filling out the online form, please feel free to call us at 1-800-345-CORP.

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Benefits of Forming an LLC
By Michael Bell Tuesday, February 12, 2013

benefits of a delaware llcAs business formation experts over 30 years, we at Harvard Business Services, Inc. are often asked to explain the benefits of forming an LLC

If you examine LLCs from a statistical perspective, they have only been in existence for 22 years. On the other hand, the Delaware General Corporation (the gold standard in business entities), will celebrate its 114th anniversary this year. Yet the LLC is by far the most popular type of company formed in Delaware. In 2012, 73 percent of the 7,000 (+) companies that Harvard Business Services, Inc. filed in Delaware were LLCs. The Delaware Division of Corporations reports that over 121,000 LLCs were filed in 2014, and more Delaware LLCs are formed each year than any other entity.

Harvard Business Services, Inc. has compiled an excellent, updated list of the benefits of forming an LLC:

  • You can elect to be taxed as a partnership, S Corporation or Sole Proprietorship
  • You can have one owner or as many owners (members) as you would like, with different classes of members posessing separate rights and responsibilities
  • Both U.S. and Non-U.S. citizens can form and be members of a Delaware LLC
  • A Delaware LLC is easy to manage, because many of the corporate formalities, such as meetings and recording meetings, can be minimized
  • When taxed as a partnership or an S-corp, the profits and losses are passed through the entity to the owners/members; therefore the company does not pay United States federal income tax on its profits
  • The LLC legally exists as a separate entity from the owners/members, which protects the owners from being held responsible for the LLC’s debts and/or liabilities
  • All owner/member information in Delaware remains confidential and is not required to be disclosed on the annual Franchise Tax forms. A communications contact is required (it may be a third party)
  • The LLC Operating Agreement is a confidential agreement that allows you to manage your company however you see fit; this is called freedom of contract
  • If you don’t operate your LLC in Delaware, the state does not require you to file an annaul tax report. You simply pay a flat $300 Franchise Tax every year on June 1, regardless of your LLC's income for that year
  • The cost to maintain a Delaware LLC includes a $300 Delaware Franchise Tax and your Registered Agent’s Fee. If you select Harvard Business Services, Inc. as your Registered Agent, you pay only $50 per year for Registered Agent service, which is guaranteed to remain fixed at $50 for the life of your company (as long as it remains in good standing)

If you have more questions or want to speak to one of our knowledgeable specialists about the benefits of forming an LLC, we’re always happy to help. Our experienced business formation experts can answer all your questions regarding Delaware LLCs. Feel free to call us at 800-345-2677 to speak with one of our friendly specialists today, or email your questions to sales@delawareinc.com.

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Break Even Analysis
By Gregg Schoenberg Monday, February 11, 2013

When it’s time for a large corporation to evaluate the merits of bringing a new product or service to market they have a host of options available to test its financial viability. From marketing surveys to focus group studies to detailed analysis by the finance department, it can seem that the only limit to their tool kit is the size of their budget.

Of course entrepreneurs can’t usually afford these luxuries, so many of us fail to conduct any analysis at all, relying instead on our gut and intuition. But this creates unnecessary risk, and we can mitigate this risk by utilizing a basic tool of corporate finance: the break-even analysis.

The premise of the break-even analysis is quite simple, it tells us what level of sales we need to reach in order to avoid losses, and thus helps stop us from entering markets where we have no chance of making a profit. The sample analysis in the table below for the fictional ABC Company shows that their break-even point for a new product that would sell for $2 a unit is 1,000 units; if they cannot realistically expect to sell more than that, they should not bring the product to market.

 

Break-even Analysis for ABC Company's Potential New Product

Price Quantity Total Revenue Fixed Cost Per Unit Variable Cost Total Cost Profit (Loss)
(P) (Q)  (TR) (FC) Variable Cost (V) (VC) (TC) (P/L)

 $2

0

 $-

 $1,000

 $1

 $-

 $1,000

 $(1,000)

 $2

200

 $400

 $1,000

 $1

 $200

 $1,200

 $(800)

 $2

400

 $800

 $1,000

 $1

 $400

 $1,400

 $(600)

 $2

600

 $1,200

 $1,000

 $1

 $600

 $1,600

 $(400)

 $2

800

 $1,600

 $1,000

 $1

 $800

 $1,800

 $(200)

 $2

1000

 $2,000

 $1,000

 $1

 $1,000

 $2,000

 $-

 $2

1200

 $2,400

 $1,000

 $1

 $1,200

 $2,200

 $200

 $2

1400

 $2,800

 $1,000

 $1

 $1,400

 $2,400

 $400

 $2

1600

 $3,200

 $1,000

 $1

 $1,600

 $2,600

 $600

 $2

1800

 $3,600

 $1,000

 $1

 $1,800

 $2,800

 $800

 $2

2000

 $4,000

 $1,000

 $1

 $2,000

 $3,000

 $1,000

 

It’s quite easy to construct a break-even analysis like this in Excel, and it’s even easier to distill the break-even relationship into this simple equation: B=FC/P-V where B is equal to the break-even level of sales, FC equals the fixed cost associated with the product, P equals the sales price, and V equals the per unit variable cost (the amount required to produce one additional unit). In ABC’s case we see once again that FC of $1000 divided by P of $2 minus V of $1 results in B equaling 1,000 units (B=1,000/2-1 so B=1,000). For a review of the treatment of fixed and variable costs, see our piece on cost structure.

Break-even analysis can be used for more than just evaluating whether or not a new idea is likely to be a financially lucrative one. Once you have gone to market with a product, it can help you to see how changes in sales and fluctuations in costs affect your profitability.

For example, say ABC has gone live with its product and is now considering an advertising campaign to try and ramp up sales. If this ad campaign will add $0.25 per unit to variable costs, how many additional units of sales must the campaign generate in order to be worthwhile? Going back to our simple break-even equation B=FC/P-V we just have to plug in the additional $0.25 of V to see that B now equals $1000/$2 - $1.25 which means a new break-even point of 1,333 units. So if the ad campaign generates more than 333 additional sales it will pay for itself. Sales below this will result in a loss on the advertising dollars.

A final use for break-even analysis is to evaluate swapping variable costs and fixed costs, say by replacing labor with new equipment. Even if new equipment allows your firm to run more efficiently and decrease some of your variable costs, it will add to your fixed costs and thus may push up your break-even point, so be sure to analyze the impact carefully before making any large purchases.

Hopefully, you now have a good idea of what break-even analysis is and how it can help you to analyze several different scenarios that you are likely to face throughout the lifecycle of your company. For further reading and more detailed analysis, an introductory-level corporate finance textbook can be a great resource.

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Using Ad Retargeting to Convert Prospects
By Kathryn Hawkins Tuesday, February 5, 2013

If you invest in online advertising for your business, you’re probably already familiar with pay-per-click (PPC) keyword ads and traditional banner ads. But you may not have tried a newer form of online advertisement that could give a big boost to your marketing efforts: ad retargeting.

What is ad retargeting?

Ad retargeting is a way to display your ads to people who’ve previously taken an action that shows that they’re interested in your business. For instance, someone may have clicked on an ad for a pair of boots at your e-commerce store, but didn’t opt to make a purchase at that time. Through retargeting, you can display customized banner ads in their browser to draw them back to your website. Because the customer is already a prospect who’s demonstrated interest in your product, they are more likely to make a purchase than a new prospect seeing your ad for the first time.

How ad retargeting works

In order to retarget a user, you’ll need to place a JavaScript “cookie” in your website, which can collect data about each visitor, such as their ISP and type of browser used. Collecting that information enables your ad platform to determine whether the prospect has been to your website before.

When placing ads through an ad retargeting marketplace, your ad network will purchase unsold ad inventory all over the web to display your ads to the specific retargeted users you are appealing to. You can customize your creative message based on the user’s experience with your site: For instance, the woman who looked at a pair of boots may see ads for shoes; whereas an individual who looked at your store’s selection of scarves will see an ad for accessories.

Depending on the type of product you’re selling, you may want to retarget prospects according to different time tables. Someone looking at purchasing a small item such as a pair of shoes should be retargeted immediately, while the item is still top of mind. In contrast, someone who clicked on an ad for a car at your dealership needs more time to make a purchasing decision, and should be retargeted over a period of weeks or even months.

Why use retargeting?

Up to 90 percent of consumers who add an item to an online shopping cart don’t complete the purchase—and that’s not even counting the many other prospects who are interested in a product but haven’t yet made a decision to buy.

Without ad retargeting, some of the prospects who visited your website or started a shopping cart may return on their own accord—but many will forget about the product, or be lured in by a competitor’s offer instead.

Retargeting users who’ve been to your site or started a shopping cart can be highly effective. A comScore study found that individuals who’d been retargeted searched for the company name over 10 times more often than those who saw an ad with no previous exposure to a company.

If you decide to try this marketing approach, focus on developing high-quality offers for the customers you wish to retarget, based on their browsing history and interests. If they were interested in your product already, building a compelling retargeting campaign can help them pull the trigger on making a purchase.

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101: Capital Budgeting
By Gregg Schoenberg Monday, February 4, 2013

How do you as an entrepreneur decide whether or not to make big financial investments such as expanding your operations or upgrading your infrastructure? Do you rely on your business acumen and gut instincts, or perhaps consult with a trusted mentor? While these strategies may work if you’ve really got the Midas touch, you’ll probably do yourself—and your investors—a great service by understanding and employing some simple capital budgeting techniques.

Capital budgeting is the preferred means of making long-term investment decisions at large companies the world over, and fortunately it is pretty easy for even a solo entrepreneur to grasp the concept and employ some of the same techniques used in finance departments at multi-national companies.

We’re going to look at two methods for capital budgeting: net present value (NPV) and internal rate of return (IRR). Both of these techniques are what are known as discountedcash flow methods. That means that they account for the fact that while the cash outflow associated with an investment in your business must take place in the present, the inflows associated with that investment will not be realized until the future, and that the value of those inflows must be discountedback to the present day.

Both NPV and IRR are really easy to compute by using an online calculator, a financial calculator, or an Excel spreadsheet, so rather than get bogged down in the math just use one of those tools to follow along with our examples.

Let’s start with NPV. Say you have the opportunity to make a $100,000 investment in your business that it is estimated to result in an additional $40,000 in income a year for the next four years, and that your firm’s cost of capital (sometimes called the discount rate) is 8%. Should you make the investment?

If we input these figures into our handy online tool we see that this investment has a NPV of $32,485. When an investment’s NPV is positive (as in this case), that means that it more than pays for itself. In fact, the additional NPV actually increases the value of the firm, so by all means we should make the investment.

Now if we plug the same set of cash flows into our calculator and have it compute the internal rate of return, we see that this investment has an IRR of 21.86%. So according to this metric, should we make the investment?

The answer once again is “yes”, because the IRR of 21.86% is greater than our 8% cost of capital. Whenever an investment’s IRR exceeds the firm’s cost of capital, it adds value to the firm and is thus worth making.

IRR & NPV analysis can be particularly helpful when evaluating two mutually exclusive long-term investments in order to determine which one is the better choice for your business. You’ll want to compute both the IRR and the NPV for each and then compare the results. Oftentimes both metrics will be higher for one of the options and that will make it the obvious choice.

But for mathematical reasons that we won’t get into here, it is possible that one investment has a higher NPV and the other has a higher IRR. If you find yourself in this situation then the prudent decision to make is to go with the investment with the higher NPV, as NPV is based upon more conservative assumptions concerning how cash flows will be reinvested.

So hopefully you now have a basic understanding of what capital budgeting is and how to use it to evaluate investments in your business. What we’ve just gone through is an overview and not an exhaustive explanation, so if you’ve got additional questions before making real-world investments, make sure to consult with an accounting or investment professional.

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