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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.

Engage Your Employees
By Carleigh Lowe Monday, May 3, 2010

During times of uncertainty, it can be difficult to figure out how to engage your employees when morale is down. The article "Wanted: Fully Engaged Employees" on entrepreneur.com offers a few tips to get things back on track. Below is an excerpt:

The cost-cutting actions employers have made to deal with the economic crisis have left businesses with fractured teams of disengaged employees. Studies show that employee engagement levels have dropped significantly since 2008. According to Gallup, more than two-thirds of American workers are "not engaged" or "disengaged" in their workplaces in response to the brutal economic and workplace changes over the past two years.

"People are disillusioned with the economy and the fact that many of them are having to do more work with fewer people, thanks to layoffs," says Dianne Durkin, president of Loyalty Factor LLC, which consults with businesses on change management, employee loyalty and customer loyalty programs. "You would think employees would be more engaged because of the economy, but I don't think anybody is."

And a lack of engagement among employees is costly for small business, leading to high turnover rates, shaky leadership and a dearth of good ideas. "What happens is you don't get the creativity and the innovation," Durkin says. "People [who are unengaged] aren't going to speak up about issues they encounter, they're not going to bring new ideas, and productivity really suffers."

 

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Form an S-Corp with Harvard Business Services, Inc
By Paul Sponaugle Wednesday, April 28, 2010

Entities are formed every day with intentions of becoming S-Corps, but often the applications never get completed. If you’re thinking about starting a new S-Corp or forgot to apply for the status for your existing entity, why not let the professionals at Harvard Business Services, Inc. help your company become an S-Corp?

General qualifications for S-Corp status include:

  • The entity must be a domestic corporation.  (Other entities, including LLCs, may become eligible by filing form 8832.)
  • The entity has no more than 100 shareholders
  • The entity’s only shareholders are U.S. individuals or estates
  • The entity has no nonresident alien shareholders
  • The entity offers only one class of stock
  • Each shareholder consents to the election

If your entity meets, or will meet, these qualifications, Harvard Business Services, Inc. can help your corporation complete the election so it can receive the benefits of pass-through tax treatment. Our service includes completion of IRS Form 2553: Election by a Small Business Corporation; a pre-addressed envelope with IRS regional office address; and instructions for filing. All you and the other shareholders need to do is sign the form and mail it, with absolutely no guess work or worry. Harvard Business Services, Inc. makes the process simple and straightforward for you. If you’re forming a brand new Delaware corporation, simply go to www.delawareinc.com/order/ and you can add the Federal Tax ID and the S-Corp Election services online while completing your order. If your company has already been formed and would like to become the S-Corp election, call 800-345-2677 and have Harvard Business Services, Inc. prepare your paper work today.

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Court of Chancery
By Brett Melson Tuesday, April 20, 2010

Delaware has a unique court, the Court of Chancery, which is world-renowned for its jurisdiction in corporate matters. This court is a main reason for Delaware’s preeminence in the field of corporate law. Because of the speed and predictability that comes from experience, as well as a wealth of published judicial decisions, Delaware has emerged as the nation’s “corporate capital.”

Competition from other states is rising, however, as they observe the revenue produced for the state from its status as a top legal venue for corporate law. Over the decades, Delaware has carefully cultivated corporate statutes to make them more attractive to corporations than those of other states. In an effort to continue this, Delaware’s Court of Chancery has developed a system that could allow for binding arbitration. This will allow companies to present arguments privately to a judge from the court and get a decision in a timely manner, instead of the lengthy process of going to trial. The arbitration process is confidential and not available for public record; this is especially important when dealing with proprietary information such as technology and patents.

Eric Ruth of The News Journal writes, “Under the new rules, the rivals can choose to sit down privately with a judge from the court -- or, as they are called, a chancellor -- present their arguments, and let the arbitrator decide the outcome. The goal is to resolve the matter in 90 days -- Chancery Court cases have been known to last a year or two before even reaching trial.”

Delaware’s efforts to broaden the scope of Chancery Court and make the arbitration process confidential, timely, and affordable, will keep the state on the cutting edge as the nation’s “corporate capital.”

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Delaware: Small but Strong
By Brett Melson Tuesday, April 20, 2010

Overview of Delaware Division of Corporations 2009 Annual Report

When it comes to incorporation services Delaware has the complete package, wrapped up with efficiency and excellence! Beginning 215 years ago, Delaware’s Court of Chancery has written most of modern U.S. corporation case law, and the Delaware General Corporation Law is known as the most usable and advanced business formation statute in the nation. And to top it off, the state government’s Division of Corporations is known for its state-of-the-art service to clients, attorneys, registered agents, and others. The Division’s 2009 Annual Report reviews continuing progress, new developments, and remarkable marketing efforts:

  • Delaware is the home of 63% of Fortune 500 companies
  • 102,029 new entities were formed
  • 73% of all new Initial Public Offerings were domiciled in Delaware
  • Incorporations revenue accounted for 25% of the State’s general fund
  • Division operating expenses were fully covered by expedited service fees
  • Website transaction use was up 15% from the prior year, and new services are being launched
  • Worldwide marketing efforts are expanding, with delegations visiting Brazil, Canada, Israel, and Spain to promote Delaware as the premier legal home
  • Visiting delegations were hosted from Australia, China, Japan, and Taiwan

Quality management systems are continually monitored in order to ensure systematic control to meet the needs of clients from the U.S. and around the world.

According to Jeffrey Bullock, Secretary of State, “The Division of Corporations has earned well-deserved praise for its professionalism, efficiency, and dedication to quality. As a supplier to world-class companies, we continue to strive for world-class performance and service.”

To view the complete report go to http://corp.delaware.gov/2009ar.pdf

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Estate Planning with a Delaware LLC
By Brett Melson Wednesday, April 14, 2010

In an LLC, the members are free to organize the LLC in whatever manner they choose, with near-total freedom to define the relationship among the members and the terms governing the operation of the entity. The fundamental terms of an LLC’s ownership, operation and management are set forth in its LLC agreement. The LLC agreement has been a popular topic in many other blog postings. This posting will focus on the LLC’s potential as an estate planning tool, highlighting just how flexible the Delaware LLC can be!!!

The LLC agreement not only governs terms such as sharing of income and liabilities, it also sets forth the terms governing the liquidation of the entity and the replacement of members.  An LLC does not have a fixed life term, and can remain in existence, even after the death of one or more members. A carefully drafted LLC Agreement can help to ensure a smooth transition of control after the death of a key member, making the LLC an attractive vehicle for family estate planning. The LLC agreement will allow control over the LLC, its assets and/or its business to be passed along to surviving family members.

Here is how it works.

-The initial members, which are often the grandparents, will form and file the LLC and appoint themselves as Class A member internally within the LLC agreement. These Class A members have all the rights and responsibility to manage the assets of the LLC.

-The Class B members are often the offspring of the grandparents; these family members initially have no responsibility or rights in the LLC.  When all the Class A Members have passed, these Class B members will become the Class A members, granting them all the rights and privileges associated with the Class A member status.

-The Class C members , which are typically the grandchildren, are a dormant class  Class C members have no responsibility or rights in the LLC until the passing of both the Class A and Class B members. New classes of member interests can be established at any time, so the Class B or Class C members can, when they ultimately obtain control over the LLC, create additional classes to continue the chain of ownership and control over the LLC to even more distant generations.

It is important to remember that an LLC Agreement is not filed or otherwise provided to the state of Delaware, and is not available for public inspection or part of the public record.  Thus, the confidentiality of family affairs is maintained.

Structures such as these can be used for holding of real estate, passing along of a family business or any large asset. The structure allows the family business/asset to be transferred from one generation to another, in theory, forever!!!  The long and costly procedures associated with probate and interpretation and implementation of wills can be avoided, allowing for a quick and seamless transition in the event of a passing.


This structure is an example of how flexible the Delaware LLC can be while providing the members’ freedom of contract with one another upon whatever terms they deem best suited to their circumstances and goals.

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