Top 10 Terms When Forming a Corporation

When clients plan to form a new Delaware company, they might plan to go public and bring aboard investors to issue them shares of stock to show ownership.  Or perhaps, they may plan to attract venture capital funding.  If this is the case, here at Harvard Business Services, Inc. (HBS), we oftentimes see clients inquire about forming a new Delaware Corporation.

Similar to its counterpart, the Delaware LLC, it’s a fairly simple and straightforward process to form a Delaware Corporation with the difference being that for a Corporation formation, the Delaware Certificate of Incorporation will generally include the Corporation’s stock structure.  In our discussions with clients, specific questions or terms are often mentioned during the formation process. Below are the most popular corporate terms/phrases we hear when assisting clients with a Delaware Corporation formation.

-Certificate of Incorporation – The Delaware Certificate of Incorporation is the document that will be filed with the Delaware Secretary of State for approval.  This document will generally contain the name of the Corporation, the name and address of the Delaware based Registered Agent and the total number of Authorized shares of stock the Corporation will have along with the par value of the shares as well as additional details clients may want to provide.  This information is often referred to as the Articles of Incorporation for the Corporation.  Once the document is approved by the Delaware Secretary of State, the company will be considered an active Delaware Corporation.

-Shareholders – When referring to shareholders of the Delaware Corporation, the shareholders are considered the owners of the Corporation.  Shares of stock can be issued to shareholders internally as the Corporation sees fit as the Registered Agent and Delaware Division of Corporations will not require to know how many shares are issued to a specific shareholder.  And sometimes, a Corporation may be structured to have majority shareholders who own more of the shares and minority shareholders who will have less control of the company.

-Directors – When thinking of the Corporation’s Directors, think of the Directors as the engine of the Corporation.  The Directors are essentially the individuals who run the Corporation and make the important business decisions such as the issuing of the shares, completing the process of electing Officers and implementing the company’s management structure.  Directors can also be added or removed internally within the Corporation by the shareholders, if needed, throughout the life of the company.

-Officers – The Directors will elect the Officers of the Corporation and when referring to the Officers of a Corporation, think of a President, CEO, CFO, Vice President, Secretary, Treasurer or another title that the Board of Directors wishes to establish internally.  The Officers will essentially take care of the daily business of the Corporation. Officers can also be added or removed internally within a Corporation, if needed, in the future.

-Authorized Shares – When referring to shares of stock within a Delaware Corporation, the Certificate of Incorporation must reflect the total number of Authorized Shares the Corporation will have the authority to issue to show ownership.  Shares of stock, however, can be issued to shareholders internally within the Corporation.

-Par Value – In addition to providing the total number of Authorized Shares of Stock the Corporation will have, clients will also need to provide the par value of the shares.  The par value is simply the lowest limit a share can be sold for.  A share can be purchased or sold for any amount above the par value.

-Bylaws – The bylaws for a Delaware Corporation spells out the Corporation structure and can be customized and amended by the Board of Directors internally in the future.  The bylaws are not required to be filed with the Delaware Division of Corporations and generally specifies the rules and procedures for the company.

-Delaware Corporation Franchise Tax – All Delaware Corporations are required to pay the Delaware Franchise Tax for the right or privilege to own a Delaware company. The franchise tax fees for a Corporation are based on the number of shares the corporation has authorized.  A Corporation with 1-5,000 authorized shares is assessed a $225 franchise tax.  A Corporation with 5,001-10,000 authorized shares is assessed a $300 franchise tax and a Corporation with 10,001 shares or more will be assessed a minimum of $450 franchise tax. The fees include the Delaware Annual Report. The franchise tax is imposed by the state of Delaware and is due by March 1 of every year.

-Annual Report – When Delaware Corporations pay the annual Delaware Franchise Tax, an annual report is required to be submitted along with the Franchise Tax payment.  This report will include the principal address of the company, the names and addresses of all Directors and the name and address of one Officer.

-Public Benefit Corporation -  Clients sometimes may want to form a Delaware company to earn profit while contributing to the betterment of the community or environment.  This entity type also has stock and the Certificate of Incorporation that is filed will also include the benefit statement for the company.

These are just some of the more common corporate business terms/phrases that are typically mentioned in our discussions with clients when forming a Delaware Corporation. We’re always happy to assist with any further questions about corporation terminology that clients may have.

If you plan on forming a new Delaware Corporation and obtaining an EIN, or if you have any questions regarding the formation process, we can be reached at 1-302-645-7400 or 1-800-345-2677 ext. 6900 or via email at info@delawareinc.com. We can also be reached via skype at delawareinc.