The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
A member of an LLC, by definition, is an owner of an LLC with a vested interest in the company. Members can be people or entities from anywhere in the world.
Typically, the rights and responsibilities of members are listed and explained in the LLC’s Operating Agreement. It is not required that all members possess the same rights. The Operating Agreement may spell out different rights for specific members.
In addition, there may be different classes of members with specific rights for each class, as long as these classes are clearly delineated in the LLC's Operating Agreement.
Remember, once the Operating Agreement is finalized and ratified by all members, it cannot be changed without the unanimous vote of the members; if all members choose to amend, the amended Operating Agreement must then be signed by all the members of the LLC.
A member of an LLC may also function as a manager, but an LLC does not need to have a manager; members can run the company on their own. As for managing-member vs member classifications, it is simple: when a member is also a manager, he or she is usually referred to as a "managing-member."
A manager is an individual or entity chosen by the members of an LLC to manage the daily operations of the LLC. A manager can be, but does not have to be, a member. Typically, managers are in charge of overseeing day-to-day activities but don’t possess ownership interest in the company.
In some cases, when the LLC is 100% manager-managed, the manager is in charge of everything. The member-managed LLC Operating Agreement would state these responsibilities. We are happy to share this template of a member-managed LLC Operating Agreement with you.
Members of a Delaware LLC don’t own stock, like corporate shareholders do. Members usually split the company into percentages of ownership, or membership units.
Members are typically issued membership certificates rather than stock certificates, which indicate the percentage owned or the number of membership units they own.
If you are considering forming a Delaware LLC and have further questions about the role and responsibilities of members, or how to structure an LLC, you can call us at 800-345-2677, live chat with us or email us to speak with a specialist on these matters.
When people start thinking about incorporating a company outside of their home state, often the two most popular states considered for incorporation are Delaware and Nevada. Although many people believe Nevada is just as corporate-friendly as Delaware, that is simply not true.
The infographic below illustrates how much more supportive of corporate entities Delaware is, and reveals the myth of incorporating in Nevada.
You can read more about why so many companies incorporate in Delaware.
If you own a Delaware company, there are several important date-related business terms you should be familiar with so understand all your company’s documents and important dates.
Date of Formation – Date of Formation is the day when the Certificate of Formation, which includes the Articles of Organization, is filed with the Delaware Secretary of State as you form a Delaware LLC. Unless an alternate Effective Date is specified, this day is the official birthday of the LLC.
Date of Incorporation – Date of Incorporation is the day when the Certificate of Incorporation, including the Articles of Incorporation, is filed with the Delaware Secretary of State as you incorporate a Delaware Corporation. Unless an alternate Effective Date is specified, this day is the official birthday of the corporation.
Perpetual Existence – Traditionally, Delaware LLCs, LPs, and corporations are designed to continue indefinitely and continuously, regardless of any change of members, shareholders, officers, Directors or partners, unless a predetermined length of existence is otherwise specified, or the company is administratively or voluntarily cancelled or dissolved.
Effective Date/Time – A specific date and/or time can be chosen to be the Effective Date and/or Effective Time of the filing, whether it’s the original Certificate of Formation, an amendment or the Certificate of Cancellation/Dissolution. Business owners do this for a couple of different reasons; the most common reason to create an Effective Date is when a person files a company in December but chooses an effective date of January 1 of the following year. (This extends the Franchise Tax deadline by an additional year.) There are many other reasons company owners may opt for a specific effective date, such as a birthday, an anniversary or a lucky number.
Date of Dissolution – Date of Dissolution is the day the Certificate of Dissolution is filed with the Delaware Secretary of State in order to formally close a Delaware Corporation, unless a different Effective Date has been specified.
Date of Cancellation – Date of Cancellation is the day the Certificate of Cancellation is filed with the Delaware Secretary of State in order to formally cancel a Delaware LLC, unless a different Effective Date has been specified.
Date of Amendment – Date of Amendment is the day the Certificate of Amendment is filed with the Delaware Secretary of State when a Delaware corporation, LLC or LP files an amendment in order to update the company name, increase the number of shares or add preferred shares.
Fiscal Year-End/Closing Month –Fiscal Year-End, otherwise known as the end of the accounting year or the closing month, is the end of the actual business year. Some business owners follow the traditional calendar year, January 1 through December 31, while others choose an alternative business year, June 1 through May 31 of the following year, for example.
For a detailed explanation of some of the documents described above, please read Company Formation Documents, Defined.
The Securities and Exchange Commission (SEC) finally adopted exciting new rules that permit companies to raise money through crowdfunding.
As a result, companies will be able to raise up to $1 million in any 12-month period from a broad base of ordinary investors through the internet.
Persons contributing money will receive either an interest in the company (an equity stake) or a repayment of principal invested plus interest (through a debt instrument).
Unsurprisingly, the jurisdiction of choice for most crowdfunding campaigns to incorporate is Delaware, because the Delaware corporate law structure is the best in the world.
Previously, raising money through crowdfunding involved one party providing money to an individual or company in exchange for some tangible goods. For example, a band raising money for a new album would accept contributions from fans in exchange for future free copies of the new album or band-related goods like T-shirts, concert tickets or key chains.
These crowdfunding offerings—tokens of gratitude, in a way—were conducted through popular internet sites such as Kickstarter and Indiegogo. Now, however, crowdfunding investors can obtain a piece of the actual company or make a loan to the company instead of an investment. Soon there will be other new and innovative crowdfunding campaign platforms to capitalize on the new rules enacted by the SEC.
However, the new SEC rules impose a number of requirements upon companies seeking to raise money through crowdfunding:
With the arrival of the new Securities and Exchange Commission rules, the crowdfunding community now has clear definition on how to progress and how to further the potential of crowdfunding campaigns.
Please feel free to contact us with any questions or concerns about starting a Delaware entity for your crowdfunding campaign. We will be glad to assist you.
All Delaware LLCs and LPs must pay their annual Franchise Tax Fee on or before June 1. The state of Delaware currently issues its official LLC/LP Franchise Tax notices as a white, paper report. As your Delaware Registered Agent, Harvard Business Services, Inc., which represents over 39,000 Delaware LLCs and LPs, receives, sorts and mails all those paper notices to our clients.
By now you should have received the official notice; please note, however, it is possible you will receive your Franchise Tax notice after you have already paid online or over the telephone. If you’re unsure, please feel free to contact our Franchise Tax Department. The infographic below contains FAQs to further assist you.