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The “Close” in Close Corporation should be thought of as an abbreviation for “Closely Held Corporation.” Close Corporations are often operated by a single person or a small, tight-knit group, such as a family, and cannot have more than 30 shareholders.
The Delaware Close Corporation is an often-misunderstood entity type. Some people refer to it as a “Closed” Corporation, which is not accurate. Other people refer to it as a C Corporation, which it can be, but a General Corporation can also be a C Corporation. So what is the major difference between a General Corporation and a Close Corporation?
A General Corporation can have as many shareholders as it sees fit. With a Close Corporation, there are restrictions on the sale or transfer of stock. The sale or transfer of stock in a Close Corporation can be restricted by the Right of First Refusal clause. Let’s look at an example in order to clarify.
Johnny, Larry and Sally form a Close Corporation. They authorize 3,000 shares and distribute them amongst themselves, equally. After some time, Larry decides he wants to leave the company; in addition, he would like to sell his 1,000 shares to his friend Tony, who agrees to purchase them. The Right of First Refusal clause can explicitly state that Larry cannot sell his shares to Tony unless Johnny and Sally agree they do not want the shares; they must also be in agreement that Tony is permitted to purchase the shares. If either circumstance is not agreed upon by Johnny and Sally, then Tony cannot be issued the shares.
These types of situational agreements illustrate why it is typical for family-run businesses to form a Close Corporation. A General Corporation does not include a Right of First Refusal clause. In this same example, had it been a General Corporation the three friends had formed, Johnny and Sally would not have had a say in whether or not Tony could purchase the shares from Larry. If it were a General Corporation, Larry could have split up his shares and sold them to 1,000 different investors if he had wanted to do so.
In general, most clients who are looking to raise funds and attract investors will choose the General Corporation as their business entity type. However, when it comes to small, tight-knit groups, families or single-person businesses, the Close Corporation can often be the logical, strategic choice.
The Close Corporation, like the General Corporation, can elect to file for Subchapter S tax status by filing IRS Form 2553 in a timely manner (and if it has met all the other qualifications). The individual shareholders must be United States residents. This filing allows the Close Corporation to enjoy pass-through taxation, similar to that of an LLC.
When it comes to Delaware Franchise Taxes, General and Close Corporations are taxed in the same manner. Minimum stock General and Close Corporations pay $225 for the Franchise Tax and Report, while maximum stock General or Close Corporations pay a minimum of $400 for the Franchise Tax and Report, but this amount can increase based on the issued shares as well as the company’s gross assets.
Feel free to read more detailed information on Delaware Close Corporations here.
If you have additional questions on forming a Close Corporation, General Corporation, LLC or any other type of Delaware business entity, please call Harvard Business Services, Inc. at 1-800-345-2677 or email firstname.lastname@example.org.
How can you keep up with the competition if you don’t know what they’re doing? To compete in today’s marketplace, your business needs the competitive edge, and one way to do this is by gathering information about competitors in order to acquire an advantage, or to protect an existing one. It’s easy for new entrepreneurs to be so focused on the progress of their own company that they don’t take time to look up and around.
“Learning everything you can about your competition is time-consuming, but the return on investment is enormous," says Sally Wright, president of Alliance Consulting Group in New Brunswick, N.J. Knowing the strengths and weaknesses of competitors, as well as how they are viewed, what attracts customers to them, and how their quality of service compares to yours will help business owners know what they are up against.
One of the best ways to gather information from competitors is to visit their business and buy from them. If you perceive a weakness, capitalize on that by improving your own products and services. Keeping files on the competition can be beneficial in identifying habits and trends. Keep copies of promotional material to model their success, while adding your own creative strategies to put yourself in a better position. Always look for ways to differentiate yourself from others.
Visiting trade shows and using the internet are excellent ways to keep up with competition. The web is a wealth of information which can be used to your advantage. Monitoring all information, including job postings on a rival’s website or other industry job boards can help detect a company that is introducing a new initiative, and also find competitors looking to lure your talent away. Making phone calls on a regular basis with specific questions is an easy way to do research on the competition in order to learn what they are doing and what changes they are making. You can’t afford to be complacent in today’s marketplace, but keep in mind that the competition is probably checking on you also.
Welcome to the Successful Entrepreneurs Blog Series. In this monthly blog series, Harvard Business Services, Inc. will interview a variety of successful entrepreneurs whose company’s range from large to small and from local to international.
Disclaimer: Some of the featured companies will be clients of Harvard Business Services, Inc., and we will always disclose this information. If you have a suggestion for a Successful Entrepreneur Blog or would like your company to be featured in this series, send us an email.
Jamu Juice At-A-Glance
|Incorporation Date:||December 2, 2014|
|Type of Business Entity:||Public Benefit Corporation|
|Delaware Company?||Yes, via Harvard Business Services, Inc.|
|Products/Services Offered:||A variety of instant turmeric and ginger chai teas inspired by Indonesian traditions and Ayervedic medicine.|
A Public Benefit Corporation has a dual purpose—to profit shareholders and to benefit the public. In fact, every Public Benefit Corporation includes a proclamation that it will attempt to maximize shareholder value as well as provide a social benefit. It is an excellent option for entrepreneurs who want to form companies with clearly defined social contributions. Recently, we spoke with Jessica Filkins, founder of Jamu Juice, and her business advisor and brother, Walter Filkins to find out why Jessica decided to form a Public Benefit Corporation, how it is working for her and what is ahead for Jamu Juice.
What inspired you to start Jamu Juice?
I spent four years learning about health and healing. After several rounds of antibiotics, I had developed stomach problems and I wanted to heal myself. I traveled and I also went to the Institute for Integrative Nutrition. While traveling in Indonesia, I learned how to make a tea with significant anti-inflammatory properties. From it, I saw a positive healing response in my body. I wanted to share the anti-inflammatory tea that helped me with the rest of the world.
At the same time, I noticed that people in that area of Indonesia sold turtle eggs as a source of protein and I found it rather sad. One day, when I was swimming in the ocean, a small turtle swam with me and I got the idea for a business venture that would have a dual purpose— to bring a healing product to the rest of the world as well as make an impact on important social issues, particularly conservation or food security.
There is another part of the public benefit of Jamu Juice, too—the purpose of this tea is not just to taste good but also to maintain the medicinal qualities of the spices in the tea by using the highest quality and often the most expensive ingredients available. Being a PBC allows us to write this purpose into our mandate, and protect this purpose, even if down the road, we decide to sell the company.
Why did you choose the Public Benefit Corporation over a General Corporation or a Non-Profit Corporation?
The primary reason we incorporated as a Public Benefit Corporation was so that, in the future, if we do take on shareholders, our mission will continue to come first.
You operate out of Rhode Island; why did you choose to incorporate in Delaware?
We incorporated in Delaware because Delaware corporations simply have more clout. In my research, I found out that being a Delaware corporation will make it easier for another company to fund, or acquire a piece of, Jamu Juice.
Has owning a PBC helped you to raise mission-aligned capital? Has it helped you to attract the attention of venture capitalists or social investors?
We started a year ago, and until recently we have been focused on the beginning stages of the business. We have not sought out investors yet. We choose the PBC with the long-term in mind. However, being a business with a higher purpose did help us raise $5,000 through a crowdfunding campaign this past winter. The money we raised paid the first two month’s rent in our new space, which includes our own certified kitchen and dedicated office.
Do you have any resources or tools that you have relied upon that you would recommend to other entrepreneurs?
A lot of people have asked me, “How did you start this company with no business experience?” I can say that I relied on the fact that I do a lot of research and I am willing to talk to people and ask questions.
One of the biggest challenges I had when I first started was becoming certified in the state of Rhode Island to work with food products. In the beginning, it was like a scavenger hunt. It seems easier now, looking back, but there was no book or resource I could turn to at that time. Now, I do my best to help others who are just starting this process.
What I would say to entrepreneurs is to find others in your area who have done something similar to what you are doing and ask them questions.
How did the people at Harvard Business Services, Inc. help you get your start? They were extremely helpful and did a great job explaining the whole process of incorporating. It went very smoothly. They were easy to talk to and that was a big help to me, especially since I really did not have a lot of knowledge about this part of being a business owner.
What is next for Jamu Juice?
Right now, we are in over 30 different stores, including several co-ops, cafes, health food stores and yoga studios. Our products are available in anywhere from two to six farmer’s markets (depending on the time of year) and our online orders continue to increase each week.
We are looking into bottling our products; it is at that point at which we will start seeking investors. We are currently talking with Whole Foods. In the next month or so, Jamu Juice will be available in their barista bar in Rhode Island and, with some changes to our packaging, it may soon be on the shelves at Whole Foods as well. We are currently moving into our own office and production facility; in fact, we brought everything there today.
Harvard Business Services, Inc. would like to thank Jessica and Walter for taking the time to let us interview them. If you are interested in learning more about the Public Benefit Corporation or you are ready to form your company today, our friendly and experienced customer support staff is ready to assist via phone (1-800-345-2677), email (email@example.com), live chat from our website or Skype (Delawareinc).
If you are a United States citizen with a bank account in a foreign country, it is important you understand the differences between FBAR filing and FATCA reporting as well as the necessity of adhering to IRS stipulations of both.
FBAR, a Foreign Bank Account Report, provides data on the balances of foreign bank accounts. If a U.S. citizen has $10,000 or more in a foreign bank account, he/she must file a Foreign Bank Account Report, regardless of whether the $10,000 is stored in one foreign bank account or spread across multiple foreign bank accounts. This requirement mostly affects Expats who live overseas; however, it was also created for United States residents who keep money in offshore bank accounts. Remember, if you are an American citizen with $10,000 or more in any type of foreign bank account, it is imperative you file a Foreign Bank Account Report.
The FBAR is separate from an IRS tax return. It is sent to the United States Treasury Department using FinCEN Form 114, and it is due before June 30. If you don’t submit an FBAR, the penalty can be large—as high as $50,000—and there is no extension allowance.
A Foreign Account Tax Compliance Act (FATCA) is quite different from an FBAR. While the FBAR demonstrates a bank account reporting, a FATCA reveals the reporting of foreign assets including but not limited to foreign bank accounts. A FATCA report includes assets such as pensions, partnership interests and corporate stock as well as foreign financial accounts. Individually owned foreign real estate is not subject to FATCA reporting. According to the IRS, FATCA was created to “combat tax evasion by U.S. persons holding accounts and other financial assets offshore.” If you set up a new account with a foreign bank, financial institution or, in some cases, insurance company, expect to answer questions in regard to your citizenship so the entity can properly maintain its FATCA obligations.
The reporting requirement for FATCA is as follows for filers residing in the United States:
Single Filer: If you are a single (unmarried) filer residing in the U.S. and the value of your foreign financial assets is greater than $50,000 on the last day of the tax year or more than $75,000 at any point throughout the year, you must file IRS Form 8938 under FATCA.
Married Filer: If you are a married filer residing in the U.S. and the value of your foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time throughout the year, you file Form 8938 under FATCA.
For filers not residing in the United States, the requirements are:
Single Filer: If you are a single (unmarried) filer not residing in the U.S. and the value of your foreign assets is greater than $200,000 on the last day of the tax year or $300,000 at any time throughout the year, you must file Form 8938 under FATCA.
Married Filer: If you are a married filer not residing in the U.S. and the value of your foreign assets is greater than $400,000 on the last day of the tax year or $600,000 at any point throughout the year, you must file form 8938 under FATCA.
FATCA, unlike FBAR, is filed with your U.S. tax return, and is due when your income taxes are due. You can apply for an extension if you are also applying for an extension on your tax return.
If you do not have to file a U.S. tax return, then you do not have to file IRS Form 8938, regardless of the amount of your foreign assets; however, you may still be required to file an FBAR.
For more detailed information, visit the IRS’s Summary of the IRS FATCA Reporting for U.S. Taxpayers.
Harvard Business Services, Inc. can assist you with an FBAR filing. In order to make this filing, you will need to have a Federal Tax ID Number. If you do not have a Federal Tax ID Number, we can help you acquire one as well.
If you have additional questions about FBAR or FATCA, or if you would like assistance with filing an FBAR, please contact Harvard Business Services at firstname.lastname@example.org.
A plan to allow United States veterans eligible for GI Bill benefits to use the potential benefits as a source of capital to start a business was signed by President Barack Obama on Sept 9, 2015. The Veterans Entrepreneurial Act (Vet Act) of 2015 will allow eligible veterans to access GI Bill funding as seed money for new businesses as opposed to using it for college tuition. This will allow talented veterans with entrepreneurial spirits who may not want to go to college to pursue their business ideas by leveraging the GI Bill to help start their companies. The bill also waives the typical guarantee fee for those applying for a7(s) loans via the Small Business Administration; this will assist recently-discharged veterans to access funds more quickly.
The bill’s sponsor, Senator Jerry Moran, R-Kansas, said “After serving our nation, many veterans want to continue their service by giving back to their communities as small business owners and entrepreneurs," Moran said in a statement. "It's common sense to give them more flexibility and choice in their benefits to achieve their goals” (Military.com). Co-sponsor Senator John Tester, D-Montana, stated, “This bill will help veterans transition from the armed services to the private sector so they can succeed on Main Street.” Senators Moran and Tester stated that nearly 550 service members transition into civilian life from military life every day; they estimate one million service members will go through this transition within the next 3 to 5 years. (Military.com). If enacted, the bill would allow qualified veterans to use the skills learned and work ethic gained while serving our country in order to start a new business and further strengthen our communities nationwide.
Per the Vet Act, service members are encouraged to set up new businesses—or buy into existing ones—using GI Bill education benefits as collateral for loans. The SBA and the Department of Veterans Affairs will oversee the 3-year pilot program, enabling 250 veterans to begin their lives anew. According to Michael Helm, American Legion National Commander, “The fact that 62 percent of veteran-owned small businesses bootstrap their ventures with personal or family savings highlights the reality that access to capital remains an issue for the veterans’ community” (Military.com). Several high-ranking former officers now in administrative and/or political positions fully support the GI Bill, and hope to see it change the lives of service men and women.
The training, education and leadership skills that many of our veterans possess allow them a different perspective on the business world. Our veterans with advanced knowledge of technology can utilize these skills to introduce new products to the market. United States veterans tend to see things a little differently and problem solve uniquely in order to provide alternative solutions. As a veteran, I can’t think of a better way to honor these exceptional individuals than to allow them the benefits allotted to other veterans who choose to go to college. The previous GI Bill could only be used for attending school; approximately 50% of the eligible veterans do not use the current benefit, and I believe this opportunity will increase the percentage.
According to the plan, veterans would have to complete approved business training and develop a Small Business Administration-approved business plan. A local SBA office can assist with specific information regarding the business plan, and the Department of Veterans Affairs can provide information on the approved training programs. More information about the Vet Act can be found on the Veteran and Military Owned Business Association website www.vamboa.org. Other information useful to our veteran business owners can be found on the Veterans affairs webpage www.va.gov.
Gregory, Debbie. “President Signs Vet Entrepreneurship Act.” Veteran and Military Business Owners Association. VAMBOA.org. Sept. 9, 2015. Web. Oct. 1, 2015.
Sisk, Richard. “Bill to Let Vets Use GI Bill to Start a Business Passes Senate Hurdle.” Military.com. Military.com Network. July 30, 2015. Web. Oct. 1, 2015.