The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
What Does Ownership In An LLC Mean?
The Delaware LLC is one of the most appealing, if not the most appealing, type of business entity for entrepreneurs worldwide. It is known for its unrivaled flexibility and ease of maintenance.
The state of Delaware is recognized around the world as the most corporate-friendly state in America; it is also known as The Incorporation Capital, due to its strong corporate law structure and the reputable Court of Chancery.
One of the key components of the Delaware LLC that makes it so popular is that the ownership, membership, management and operations of the LLC are all handled internally, via the LLC Operating Agreement.
This means you don’t have to report the financial details or membership information of your Delaware LLC, to the Delaware Secretary of State, such as:
Your Delaware LLC Operating Agreement is an internal document and does not need to be filed publicly—not with your Registered Agent nor with the Delaware Secretary of State.
Thus you are given the latitude to organize the membership, ownership and profits in your LLC however you see fit.
Traditionally, it has been common practice to utilize a percentage system in order to reflect the amount of ownership each member of a Delaware LLC controls.
Of course, if you own a single-member LLC and there will never be additional members, you—as the sole member—retain 100% ownership.
If there are two owners sharing 50/50 ownership, each member can hold 50%, and they will be equal partners.
However, if you have eight, 11 or 13 members, it can get more complicated. When you’re dealing with an odd number that doesn’t divide equally into 100, splitting and keeping track of membership rights can become tricky.
In addition, if you use a percentage, you only have a total of 100% to work with, and as you add or remove members, it can become increasingly difficult to shift the ownership around.
A way around this—and another option when dividing ownership in a Delaware LLC—is to issue units rather than percentages.
Utilizing units to quantify ownership may also offer further flexibility; this way, if you have seven members with equal interest, you can create 700 total ownership units, with each member holding 100 units.
This makes it easier to compute and keep track of the LLCs management.
You can even call your ownership units “shares” if you really want to, but don’t confuse these with actual stock; LLCs do not have stock, only corporations have stock.
The units held by members of your LLC can also be differentiated into different classes of ownership with different rights and privileges for the different classes if you specify and explain these classes in your Operating Agreement.
There is no other business entity that offers this level of structural flexibility, along with all the other advantages a Delaware LLC can offer business owners.
You can read more about how to create a Delaware LLC.
We are often asked, "If I incorporate a business that will be located in California and will be strictly online, with no principal office location, do I still have to register to do business in California?"
Anyone who has done business in California knows why someone may ask that question: taxes.
Before you even make your first sale, the California Franchise Tax board states that all corporations and LLCs are required to pay an $800 Franchise Tax if they:
Furthermore, business entities are required to pay the minimum Franchise Tax whether they are active, inactive or operating at a loss.
However, this still doesn't define "doing business in California." Through 2010, doing business in California was broadly defined as "actively engaging in any transaction for the purpose of financial gain or profit." It was a pretty vague definition, to say the least.
Since 2011, a business entity is considered to be doing business in California if it meets one of the following criteria:
Although the new definition was written to include the original definition of doing business, the added tests make it clear that if your company is a corporation or LLC generating income in California or maintaining tangible property in California, you are indeed doing business in California.
Therefore, you will indeed have to register a business and file for Foreign Qualification in California.
In general, when you hear about entrepreneurs starting a new business, people tend to think of a storefront, office space or even a warehouse.
Entrepreneurs usually rent a space and begin setting up shop for the sales or service that they provide. This is very common, but may not be cost efficient for some businesses.
Recent studies show that 59% of hospitality facilities fail in the first three years of business. High rents or mortgage payments to secure an office location can often be a strain on small businesses.
However, more and more entrepreneurs are forming Delaware LLCs or corporations in order to run mobile businesses. In the past, one of the most common examples of a mobile business was an ice cream truck. This simple idea has now expanded to include taco trucks, hot dog trucks, cotton candy trucks, dog grooming trucks and bra trucks. Yes, bra trucks.
A company called True & Co, which thrived as a mail-order lingerie company, has opened up a mobile lingerie service. The challenge they faced with their online business was that women typically want to try on their bras to ensure the perfect fit before purchase.
This made it tougher for True & Co. to compete online, since their clients were hesitant to choose a suggested size based on a chart. The owners, however, did not want the expense of forming a brick and mortar storefront in order to solve this problem, so they decided to launch a Try-On Truck.
The truck spent the winter driving throughout the state of California. Customers scheduled appointments online, and chose a location from the schedule posted on the website. The True & Co. truck is not set up for browsing but rather with each particular client’s sizes and interests laid out for a personal shopping experience.
Other companies are taking advantage of a mobile location as well. SoZo offers a mobile salon experience anywhere in the state of Delaware.
They provide all the services you would expect from a brick and mortar salon, but in a luxury RV that shows up at your door.
The owners typically expect at least five customers at your location in order to keep prices reasonable, and cater to weddings, proms, senior facilities and corporate offices.
Once on the RV, each client receives a personal experience without having to travel to a specific location, sit in a standard waiting room or interact with strangers.
The influx of food trucks in both small and large cities is also adding to this trend of personalized, convenient service geared toward busy customers. These days, just about every type of food can be purchased via food truck: pizza, po’boys, Jewish deli sandwiches, gelato, donuts, tacos, falafel and more.
With the mobile business industry increasing, it is important to realize that generally all businesses will still need to have an official business address. They will also still be responsible for maintaining local compliance in their state of operation, such as Franchise Tax; business licenses; foreign registrations; Department of Transportation registration; and vehicle insurance.
With food trucks, there are usually additional compliance matters, such as Department of Health Inspections. If you own a mobile business, don’t make the mistake of thinking local compliance matters do not apply, since your business does not have a physical address.
This theory is often incorrect and could cost you a lot of money in fines. It is always a good idea to check with your local jurisdiction directly in order to find out how to keep your company compliant and in good standing.
We would like to wish everyone a Happy 4th of July! In celebration of America’s Independence Day, we are offering a terrific discount on all our formation packages for the entire month of July.
As the summer unfolds and the days are long and sunny, now is a great time to start your own business. So why wait?
Starting July 1, 2016 at 12:00 AM EST through July 31, 2016 at 11:59PM EST, you can purchase any of our formation packages and receive $40 off.
To apply your discount, simply enter the word “summer” when you select your package.
All of our packages offer all-inclusive pricing and include the following:
You can find more information and compare all our formation packages on Our Services page.
Celebrate the birthday of the United States and the month of July in style by becoming your own boss. Ready to get started? Go to our easy-to-use online order form and we’ll take it from there.
Harvard Business Services, Inc. has created a wide array of mail forwarding services to suit every company's needs.
Some of our clients do not have physical addresses other than their home offices; other clients would like to establish a professional presence in the United States.
Our unique mail services provide you with a U.S. mailing address, and then we accept your business letter and/or courier mail.
Harvard Business Services, Inc.'s mail forwarding services are, to put it bluntly, the best in the business. Here's how it works: your incoming mail is addressed to your company's name at our Delaware mailing address (which does not include annoying add-ons like a suite number or a private mailbox number). Your address will like this:
Your Company's Name Here
16192 Coastal Highway
Lewes, DE 19958
Here are just some of the numerous advantages to utilizing our superior mail forwarding services:
We offer different levels of our Delaware Mail Forwarding Services:
There are so many benefits to our mail forwarding services that it's difficult to summarize them in a short blog. You can read a much more detailed explanation of our outstanding Mail Forwarding Solutions on our website.
In order to take advantage of this exceptional service, Harvard Business Services, Inc. must be your company's Registered Agent. Change your Registered Agent to Harvard Business Services, Inc. now.
If we are already your Registered Agent and you would like to subscribe to any of our mail services, please sign up using our mail forwarding service order form. You can also contact our Mail Center via phone at 800-345-2677, Ext. 6903 or contact the Director of Mailing Operations at 1-800-345-2677, Ext. 6137. You can also email us with any questions you may have. We look forward to hearing from you.