The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
Delaware has the strongest corporate law structure and the largest body of case law in America, and is recognized as possessing the most business-friendly environment in the country. This why over 64% of Fortune 500 companies and almost all new IPOs call the state of Delaware home.
Foreign Qualification is the process of registering your Delaware LLC or corporation, which is considered domestic to the state of Delaware and foreign to all other states, as a foreign entity in your company's home state.
If you plan to operate the business, open a bank account, hire employees or hold an asset in any state other than the state of incorporation, you may be required to file for Foreign Qualification. If you fail to do so, you may be jeopardizing your company.
Other states understand that Delaware’s corporate laws provide greater asset protection and more privacy and, because of this, many people choose to incorporate their companies in Delaware. A common misconception is that by incorporating in Delaware, people can avoid taxation and other financial obligations in their company's home state.
Generally, this is not true. In most cases, if a company generates revenue of any kind, there will be an inherent tax liability in their company's home state. States require that businesses operating within their jurisdictions are licensed, registered and pay taxes.
Filing for Foreign Qualification for your Delaware LLC or corporation in the states in which it operates will render it both legal and taxable.
Another common misconception is that if a company operates 100% online and there is no brick and mortar operation, Foreign Qualification isn't necessary. Again, in most cases, this is untrue. It may depend on where the servers are located and where the business banking is done (the latter is considered one of the primary activities of a company’s operations).
You’ve taken a positive first step by incorporating your company in Delaware, but make sure you meet all compliance obligations in your company's home state.
As Delaware business formation specialists, Harvard Business Services, Inc. is familiar with the Foreign Qualification process—the required documents, application, fees and time frames, which vary—for every state.
If you have any questions regarding the Foreign Qualification of your Delaware LLC or corporation, please contact us via live chat or phone at 800-345-2677).
Merchant services have become increasingly important for start-ups in the information age. In the past, start-ups would market their product or services in their local area and many accepted only cash or checks for payment.
Usually they were within driving distance of their mostly-local customer base so accepting payments using these methods was not an issue. Scammers and forgers seem to have been less insidious in those days.
The world of commerce has since undergone colossal changes, however, and the entrepreneurs of today understand their client base is now all over the world, with information at the touch of a button.
The days of clients coming into your place of business with a check or cash are gone.
Business owners need to be able to accept payments from a world-wide customer base quickly and efficiently. The safest and easiest way to accomplish this is called merchant services.
Merchant services is defined as a category of financial services in the United States authorized to accept credit card or bank debit card transactions online or via Point of Sales systems.
To utilize merchant services, a U.S.-based business must first obtain a merchant account in order to accept customers’ credit card and electronic payments through an e-commerce website. Providing your clients with this method of fast and easy payment using their credit card is easier than you may think, and there are a lot of options out there.
There are a number of choices regarding merchant services payment types and processing methods.
Some business owners require a merchant account provider as well as a Point of Sale system for their brick-and-mortar retail store while others need a mobile option that can be transported anywhere they may need to go.
Some business owners only need to accept payments electronically through their website while for those in the food service business, a restaurant POS system is essential.
All of these situations can be met by a variety of merchant services. Most service providers offer several different options in order to meet the needs of your company.
Here are some of the industry leaders in each category of merchant services:
If your start-up company is searching for a means with which to accept payment, you should go online, find a few different potential providers and do your research; any reputable merchant services company should have knowledgeable, patient sales representatives who are able to explain what may work best for your business.
The equipment needed may be purchased or leased, so examine the prices and see what is most cost-efficient for you in the long run.
Be sure to fully explain to a salesperson what type of payments you’ll need to accept; what kind of start-up and brand(s) you are managing; what you expect on the customer service level; and, of course, what you are looking to spend annually for merchant services.
A merchant service account is generally used in conjunction with your company’s bank account, which accepts your payments and transfers the fees due to the merchant services provider, so make sure whichever merchant services provider you choose is able to work in tandem with your bank.
The company seal is a tool used to stamp or emboss your company's important documents in order to show the document is certified by, and agreed upon by, the Board of Directors of the company.
The company seal contains the company’s name, its year of incorporation and the state in which the company was filed. Think of the corporate seal as the official signature of your company.
Some of the documents you might want to use a company seal on include:
Any company may adopt a company seal, change it as it sees fit and use it as needed by affixing, impressing or reproducing it onto documents. This decision is usually made in the organizational meeting called by the initial director of the company; this meeting is normally held as soon as possible after the company is incorporated.
Once this meeting is held and the proper documents are signed, sealed and placed in the minutes book, the corporation or LLC possesses the authority to conduct the day-to-day operations of the business.
One of the first orders of business in this meeting is the issuing of stock (for a corporation) or issuing of membership certificates (for an LLC). The company seal can be used to stamp the stock or membership certificates, in tandem with the signature of the president.
This is important because the certificates and the Board of Directors' resolution authorizing the issuance of the certificates are the evidence that prove ownership in the business entity.
Be sure the stock certificates are properly stamped and signed by the president, as this can make it harder for someone to claim ownership with fraudulent certificates, which does happen from time to time.
Do you need a company seal? It’s not legally required, but many companies have chosen to adopt and use a company seal. Harvard Business Services, Inc. offers a free digital seal to all new corporations and LLCs we formed on behalf of our clients. For more information on obtaining a company seal, or to order additional seals for you company, contact Harvard Business Services, Inc. via phone (800-345-2677) or live chat.
In a previous blog post, I described a corporation’s Certificate of Incorporation of as "the foundation upon which a corporation is built." If the Certificate of Incorporation (also known as a "charter") is the foundation of a corporation, the corporate bylaws are the structure built upon that base.
While the Certificate of Incorporation provides for the general features of a corporation (though the Certificate of Incorporation may vary in length and complexity) and is filed with the state, the corporation’s bylaws are not filed on the public record.
Corprate bylaws provide the granular detail into how the corporation will operate and what its governance mechanics will be. They also describe the relationship among its Board of Directors, its officers and its shareholders.
The contents of a corporation’s bylaws may vary, depending upon which provisions the initial Directors wish to include, and can be amended by a majority vote of both the Board of Directors and stockholders at any time in the future.
Delaware’s corporate law provides for this flexibility, stating:
"[A corporation's] bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees[.]" (delcode.delaware.gov)
Please feel free to utilize this free corporate bylaws template.
Bylaws and the Board of Directors:
A corporation's bylaws may often provide for terms governing the creation, structure and operation of its Board of Directors including, without limitation:
The scope of indemnification of Directors and advancement of expenses in the event of litigation (though many corporations supplement Directors’ rights of indemnification with separate contractual agreements).
Bylaws and Officer Positions
In addition, bylaws often set forth the titles of officers that will operate the day-to-day activities of the corporation (e.g., president, vice president, secretary).
These provisions may also provide a broad description of the officers’ respective responsibilities and the means by which an officer can be replaced or new classes of officers can be created.
In addition, among other things, the bylaws will detail the terms and conditions under which officers will be indemnified for actions taken in the role with the corporation.
Bylaws and Shareholder Matters
The bylaws often contain a number of provisions governing shareholder voting and activities, including, without limitation:
Amendment of the Bylaws
Unlike the amendments of a Certificate of Incorporation, which are subject to specific requirements under Delaware law, a corporation's bylaws may provide for amendment by the Board of Directors, by the shareholders or by both.
Corporate bylaws are extremely important in the ongoing operation of a corporation, but the precise provisions of corporate bylaws can vary. Delaware law seeks to provide a level of flexibility in the operations and internal organization of a corporation, within certain parameters.
One of the most important templates included in a Corporate Kit is the stock transfer ledger. With this corporate stock ledger, you can keep records of your company's stock transfers.
You are not required to file anything when you issue shares of stock; you don't have to inform your Registered Agent nor the Delaware Secretary of State.
Typically, people hand a stock certificate to a shareholder and then document the exchange in the company's stock transfer ledger, which is utilized to properly record the transfer.
Without this ledger, it may be hard to keep track of the company’s shares and the ownership of the shareholders. The following list outlines the information you should include when you make stock transfers.
The line items on the stock transfer ledger often include:
The stock transfer ledger is often used when shares are sold, transferred, surrendered or lost. Keep in mind that each certificate can be issued for more than one share of stock.
The stock transfer ledger, as well as the corporate seal and most of the company's other important documents, are often held by the corporation's secretary. This is to ensure the safekeeping of the ledger, which holds important ownership information for the company.
Feel free to contact Harvard Business Services, Inc. at any time to obtain more stock certificates.
We will ask what number certificate you would like us to start with for the new order, as each stock certificate is individually numbered. We can also provide you with a full Corporate Kit, corporate seal or customizable templates at any time. Just call 800--345-CORP.