The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
Updated August 9, 2016
People from all over the world form Delaware LLCs and Delaware corporations even though they operate their companies from their home state or country. Delaware has been recognized as having the strongest corporate law structure, and the advantages of forming your business in Delaware are extensive.
But what do you do if you have a company doing business in Florida as a foreign corporation?
If you are operating a Delaware corporation in Florida, your corporation will be domestic to Delaware but considered a foreign corporation doing business in Florida. People initially form a Delaware corporation and then register as a foreign entity in Florida (as the same business).
This process is called Foreign Qualification. This is the manner in which Florida grants you permission to operate your Delaware corporation there. It is a very important step that is sometimes forgotten, but if you fail to comply with Florida's local compliance regulations, you may be putting yourself and your company at risk.
Florida, like most states, has a specific set of requirements for Foreign Qualification: a state fee, an application process and a Certificate of Good Standing from Delaware. The Certificate of Good Standing can be no more than 90 days old.
Florida also requires that you have a Registered Agent; the Registered Agent will be required to sign the application. A Director or officer will also have to sign the application on behalf of the corporation. The document Florida returns to you is called a Certificate of Authority. This document is often used to obtain a business license, open a bank account or file a DBA in Florida.
Please keep in mind that applications and paperwork filed in Florida will be on the public record, unlike in Delaware. However, county filing and newspaper publication is not required, unless specifically mandated by the county of the Registered Agent.
Once your business is registered in Florida as a foreign corporation, you will be required to file an annual report. The cost of the annual report is $150, and is due by May 1 of the following year. Often, your Registered Agent will forward you the notice approximately 60 days before the due date. Please note that a Delaware corporation will still be responsible for Delaware Franchise Taxes as well, which are due by March 1.
Harvard Business Services, Inc. is a specialist in Foreign Qualification, and we register companies in Florida, as well as other states, every day. We can help you prepare the application, obtain a Certificate of Good Standing from Delaware and file all the necessary documents in Florida.
Generally, we can obtain your Certificate of Authority in about two business days. We are also able to act as your Registered Agent in Florida. For more information, or to register your Delaware corporation in Florida and start doing business in Florida, please call 1-800-345-2677, Ext. 6130.
In today’s competitive business world, any advantage that gives you an edge over the competition is worth researching and trying.
Here at Harvard Business Services, Inc., we routinely look for new software, products and services that can help us thrive in our industry.
The more efficient and productive each member of an organization can be, the higher the quality of service you are able to offer your customers.
In return, your customers will benefit from a more enjoyable experience and be more likely to use your service again or refer others to you. It’s a win-win situation.
We have started to use a fantastic online business payment tool called Freshbooks. Freshbooks is an online cloud-based accounting software that is great for setting up new accounts, invoicing, reporting and tracking payments.
Freshbooks provides a secure, protected online payment gateway platform from which you can receive payments. In the high-tech world in which we live, much of our personal information lives in cyberspace.
It is both Android- and IOS-friendly, and it allows you to create an invoice online that can be sent to your clients via email.
This is how it works:
Your clients can utilize the software on their PC, Mac, smartphone, iPhone, tablet or iPad, and securely make a payment from anywhere in the world.
Freshbooks also keeps track of unpaid invoices. This feature can be instrumental when you need to follow up with accounts. Freshbooks offers you four options for organizing your accounts:
With this excellent administrative mechanism within the online payment tool, you’ll be able to prevent new and existing client payments from slipping through the cracks.
HARVARD BUSINESS SERVICES, INC. IS NOT AFFILIATED WITH FRESHBOOKS.
As business entity formation experts, we are often asked to explain the advantages of incorporating a start-up in Delaware.
Our answer typically entails the fact that Delaware's corporate law structure and legal environment are advantageous to corporations and LLCs.
In fact, the tiny state of Delaware is famous as the home of more than 65 percent of Fortune 500 companies.
A significant reason for this fact is the phenomenon known as the corporate veil.
The corporate veil is not unique to Delaware. The corporate veil is a legal concept “that separates the personality of a corporation from the personalities of its shareholders, and protects them from being held personally liable for the company's debts and other obligations.”
The corporate veil is essentially the concept that maintains corporate law throughout the world. Without the ability to act as its own entity, how else could companies transact business? The idea of a corporation or LLC acting as a separate entity and limiting the liability of the shareholders is what allows the business world to function.
The importance of the corporate veil in Delaware cannot be understated. Delaware possesses stacks of legal doctrine stipulating the separation of a corporation from its shareholders. This distance between investors and the corporations in which they have invested is what permits investors—aka shareholders—to feel comfortable in investing.
Delaware courts have been very reluctant to allow the piercing of the corporate veil. If a corporation is sued, its shareholders typically will not be held liable.
Piercing the corporate veil is defined as a situation in which a court decision puts aside limited liability and hold a corporation's shareholders or Board of Directors personally liable for the corporation's actions or debts.
Any Delaware corporation that is qualified to do business in another jurisdiction (through Foreign Qualification) can fall back on Delaware law structure; that is, a Delaware company can rely on the world-famous case law of the Delaware Court of Chancery in the case of any litigation.
Foreign qualification can play an important role in piercing the corporate veil, as a court in a state with less stringent corporate case law may rule differently when it comes to piercing the corporate veil.
In 2014, Cornell Glasgow, LLC vs Nichols demonstrated the Delaware Court of Chancery’s position where the Court recognized that closely held entities, such as the defendant's Delaware LLC, are under the complete control of their owners, and emphasized "that's why people form closely held entities, to cabin their exposure under contracts."
If contracting parties do not avail themselves of the frequently-used contractual protections — personal guarantees, security agreements and the escrowing of assets — then they cannot expect the Court of Chancery to hold owners personally liable by seeking to pierce the corporate veil.
The concept of the corporate veil is quite significant in any jurisdiction, but since Delaware remains the destination for start-up corporations and LLCs in the United States due to the Court of Chancery’s extensive case law on the subject.
Harvard Business Services, Inc. wants to brighten your summer with a great August discount on business formation packages.
Summer will soon come to an end, but here at Harvard, we think it is a great time to start your business. We are offering a fantastic discount to help get your business start-up off the ground while the days are still sunny and hot.
For the entire month of August, all of our Delaware LLC, corporation and limited partnership formation packages come with a $40 discount. The discount will be available starting at 12:00 AM ET on August 1, 2016 and will expire at 11:59 PM ET on August 31, 2016.
To apply the $40 discount, simply enter the word “Inc2016” when filling out our easy-to-use online order form.
All of our formation packages include the following:
You can easily view and compare all of our business formation packages. Our business formation specialists are standing by, ready to assist you by phone (302)-645-7400 or toll-free at 800-345-2677, by email, by live chat or directly on our online business formation order form.
We are pleased to unveil the newest addition to our extensive list of helpful and informational tools. You can now determine the cost of the state of Delaware annual Franchise Tax fees using our Franchise Tax Calculator.
Our new Franchise Tax Calculator can compute the amount of Franchise Tax Fees due for all types of entities, including corporations, LLCs, LPs and exempt companies.
You can use the Franchise Tax Calculator to compare the amounts due between different entity types, or perhaps you are trying to figure out how much your Franchise Tax Fee will be based on the difference scenarios of stock your new company has authorized.
For example, what if you are trying to decide between forming an LLC or a minimum stock corporation (which has less than 5,000 authorized shares) and want to know the potential annual Franchise Tax Fee.
Using our new Franchise Tax Calculator, you would be able to see that the annual Franchise Tax Fee due for an LLC is $300 per year. You would also be able to see that a corporation with 4,000 authorized shares will owe $175 for its annual Franchise Tax Fee.
This cost differential may not be a deal breaker, but at least you can gauge what your annual Franchise Tax Fee will be for a particular entity.
Or, let’s say you currently own a minimum stock corporation and would like to increase the number of authorized shares. Perhaps you need to sell the stock to investors for capital, and you want to know the potential Franchise Tax liability with the increased number of authorized shares.
A corporation with less than 5,000 authorized shares will owe $175 in Franchise Tax. However, with potential investors, you company now needs 1,000,000 authorized shares at a $5.00 par value per share.
Since there are two methods to calculate the Delaware Franchise Fee due, you will need to provide some additional information to determine the correct amount due. If there are 500,000 issued shares and $50,000 gross assets, the Franchise Tax Calculator will indicate that the estimated amounts due are $1,750 or $7,675, depending on which method used on the annual report filing.
Quite the difference in the amounts due, but don’t stress. The state of Delaware will allow you to file the annual report using the lesser of the two methods.
While the calculator will provide the Franchise Tax amounts due for an endless variety of options, it is not an exact science. The actual amount payable to the state of Delaware is ultimately dependent on your company’s specific internal details.
For instance, if your company owes a past due Franchise Tax balance, obviously that is not factored into the general calculator. In addition, if your company filed any type of stock amendment, renewal or conversion, any of these filings will have an effect on the exact amount of Franchise Tax due.
The final calculations could also be influenced by corporations with multiple classes of stock. Don’t forget that corporations need to add a $50 annual report fee that is imposed by the state of Delaware.
We hope you find our new Franchise Tax Calculator convenient and helpful. If you have any questions about Delaware Franchise Tax, please feel free to email us.