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How (And When) to Pay Your Delaware Franchise Tax

Incorporating a business in Delaware has many advantages. Most articles on the web point to tax advantages, but there’s more to it than that. Companies appreciate the state’s effort to keep the “Delaware corporation statute modern and up-to-date” and the “quality of Delaware courts and judges.” As a result, the Delaware Secretary of State imposes an annual tax for the privilege of incorporating in the state. This tax is known as the Delaware Franchise Tax and it accounts for about a third of the state’s annual revenue. 

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Delaware Franchise Tax Basics

The Delaware Franchise Tax must be paid annually by any business legally incorporated in the state. Deadlines and calculated amounts differ by entity type: 

  • For Delaware corporations, the tax is due on March 1. The minimum tax amount is $175. The maximum tax amount is $200,000. The actual amount owed is determined by a company’s stock structure. The more shares a company is authorized to issue, the higher their calculated Delaware Franchise Tax. Delaware corporations must also submit an annual report at the expense of $50. 
  • For LLCs, LPs & General Partnerships, the Delaware Franchise Tax a flat tax of $300 is due on June 1 of each year. An annual report is not currently required.
  • For Foreign Corporations, which are defined as companies registered in any state but doing business in Delaware, a Delaware Franchise Tax of $50 plus an annual report is due on June 30.
  • For non-profit organizations registered in Delaware, the Delaware Franchise Tax is due on March 1 in the amount of $25. An annual report is required as well. 

Side note: the annual reports referenced above typically include the company’s address, phone number, general stock and financial information, the name and address of at least one officer and the names and addresses of all directors. 

How Do Companies Pay Their Delaware Franchise Tax? 

Taking care of headaches like paying the Delaware Franchise Tax is something we love doing for our clients. You can get started with our Franchise Tax Order Form, or, feel free to give us a call at 800-346-4646. /end-sales-pitch.

What Happens if you Forget to Pay Your Delaware Franchise Tax?

Businesses that forget to pay their Delaware Franchise Taxes can run afoul in a few different ways. Failing to file by your assigned deadline means your business falls out of good standing. The state will assess a $200 penalty. Interest at the rate 1.5% is accrued monthly, on the 6th of each month. If a business fails to file and pay their Delaware Franchise Tax for two consecutive years, they are declared void. They’ll incur more fees and be forced to pay an additional renewal filing to get back in good standing with the state. 

As always, the contents of this article should not be considered legal or financial advice. Have more questions about independent managers? We’re here to help.

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Registered Agent: Why Do I Need It?

In a world where budgeting and cutting costs is almost crucial for people to make ends meet, cutting the $40 cable bill and replacing it with the $11 Netflix bill is just one of the many ways people are revamping their budget to ensure they are not living paycheck to paycheck. Business owners are not alone and often have to make these types of decisions for their businesses. One question that frequents our office is, “Do I have to have a registered agent? ”

Why Do I Need a Registered Agent?

In short, if you do not have a physical presence in the state you are conducting business then you are required by law to have a registered agent in most states. The states need a way of contacting you for business matters such as tax notices, legal documents, and service of process (SOP). Although this is the most common reason to have a registered agent, it is not the only reason. Some companies require a registered agent due to the infrastructure set up. Other times companies will appoint an agent so that process servers are not showing up at the place of business to serve the company an official notice of a lawsuit. No matter the reason you have an agent, Incorporating Services is equipped to represent your company in all 50 states, the District of Columbia, and in most international locations.

What Does a Registered Agent Do?

A registered agent is an entity or individual named with the governing office to accept SOP, governmental mail, annual reports, and tax documents from the jurisdiction on behalf of the company. The latter are just some of the basic services a registered agent can provide. Incorporating Services offers enhanced services such as our Annual Report Filing Service (ARFS) where we proactively compile and maintain the necessary information to prepare, file, and make payments regarding your annual reports; Mail Forwarding, forwarding mail outside of what the registered agent typically sends out; and, Virtual Office, providing your business with a commercial business address and unique suite number so that you can conduct business from anywhere. These enhanced services help to keep your company in compliance and eliminates worries.

Why is Having a Registered Agent So Important?

The state needs to know that businesses have a contact person at a physical location (not a P.O. Box) to contact regarding any of the aforementioned notices/documents. If a registered agent is not appointed or maintained, state can take action to administratively dissolve or cancel your company for failure to appoint a registered agent. Once that action is taken, the result renders your company unable to legally conduct business until brought back into good standing. Additionally, time-sensitive material requires immediate attention. A professional registered agent allows you to focus on your clients while we handle the critical paperwork. Furthermore, having an agent separate from your business address protects your business’ image; being served notice of litigation at the business’ physical location can be detrimental to the client/business relationship.

Can I Be My Own Registered Agent?

In most states, so long as you have a physical address (not a P.O. Box) in that state, and are available during normal business hours (Monday through Friday), you can be your own registered agent. However, this leaves you solely responsible for obtaining and maintaining your company’s compliance. With Incorporating Services’ many locations, enhanced services, and dedication to you and your company, we are equipped to handle the formalities so you can focus on your customers.

Amanda Archambault, Registered Agent Associate

 

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What is a Public Benefit Corporation (PBC)?

While most people are familiar with Corporations and LLCs, and some are familiar with the alphabet soup of other entity types (LLP, LLLC, LLLP, PLLC), the newest kid on the block is the Public Benefit Corporation (or PBC).  This new entity is catching on fast in different states, and serves to fill a unique niche in the suite of entities.

Most entities (Corporations, LLC’s, etc) are managed by Directors (or managers) who are elected by the Shareholders (or ownership).  These Shareholders entrust the Directors to act in their interests; in the past the courts have defined shareholder interest as profit maximizing – Director decisions should be purely financial decisions.  If the Directors make decisions that are not in the financial interest of the ownership, the Directors may expose themselves to legal action by the ownership.

However, in the case of a PBC (and, more recently, the Public Benefit LLC), an entity can file as a PBC and explicitly state in their operating agreement some other corporate goal, outside of simply maximizing profit.  This gives the Directors cover to make decisions that serve some “public benefit” as defined in the operating agreement, rather than only looking at profit maximization.  Patagonia is an example of a corporation that sought the PBC structure.  Patagonia long wanted support issues around social and environmental causes, but had difficulty balancing this mission with retaining a Corporate status.  In January, 2012, Patagonia became the first company in California to file as a PBC.

Fast Facts about Public Benefit Corporation:

  • Maryland was the first state to adopt the PBC Legislation in October, 2010.  Within five years of this adoption, 31 other states passed legislation created PBC (each state with its own unique variation).
  • On February 1, 2017, Laurate Education, Inc was the first Public Benefit Corporation to be public traded.   Their stated public benefit is to “produce a positive effect for society and students by offering diverse education programs both online and from campuses around the globe.”  Click for reference article from Fast Company.
  • There is a distinction between a Public Benefit Corporation (PBC) and a B Corp.  The PBC generally refers to a company organized under a states existing Public Benefit Corporation statutes.  The B Corp is a certification conferred by a third  party “B Labs” for a corporation that adheres to higher standards of serving the public good. A B Corp is not necessarily a PBC, and a PBC is not necessarily a B Corp.  Likewise, click here for a discussion from B Labs on the differences.

Josh Twilley, President

This post is for informational purposes only.  Should not be construed as legal or financial advice.  Please consult with your attorney for legal advice or accountant for tax and financial advice.

 

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Holiday Closures

*UPDATE

Due to the end-of-year holidays, many jurisdictions will be closed and/or will have modified hours throughout December.   If you have questions regarding a specific jurisdiction, please contact us.

 

*Thursday, December 24th:

Incserv Offices – Closed
Delaware Secretary of State (DE SOS) – Closed

 

Friday, December 25th:

Incserv Offices – Closed
Delaware Secretary of State (DE SOS) – Closed

 

Thursday, December 31st:

Incserv Offices – Regular hours
Delaware Secretary of State (DE SOS) – Closing at 8:00 PM (ET)

All 30 Minute and One-Hour filings must be received by the DE SOS by 6:00 PM (ET). Two-Hour filings must be received by 5:00 PM (ET).  All other cut-off deadlines remain the same. To meet these deadlines, Incserv must receive all filings AT LEAST 15 MINUTES before the DE SOS corresponding cut-off times.

 

Friday, January 1, 2021:

Incserv Offices – Closed
Delaware Secretary of State (DE SOS) – Closed

 

If you have questions or concerns, please contact our office at 302.531.0855, 800.346.4646 or orders@incserv.com.

 

Have a Safe & Happy Holiday! 

 

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Pt 2 – Does your Company need a Certificate of Incumbency?

In the first blog, we discussed what an Incumbency Certificate is and the details it will contain.  Feel free to read: Click here.

Is your boat owned by a legal entity?  If so, have you been asked if you are the rightful owner of that boat?  Or, has your bank requested you to confirm you are an officer/director or member/manager of your company?  If so, Incserv has a solution that might work!

Below are two examples of how we have assisted with Incumbency requests:

The owner of a boat contacted Incserv needing quick, fast help.  His boat was stuck in Port with the authorities requesting additional documentation to show he was an officer of the Corporation (that owned the boat).  Incserv prepared a Certificate of Incumbency, including his name as officer of the Corporation.  The Incumbency was prepared with Apostille and shipped off to the client the same day.  The client confirmed 2 days later that he received the documents and was able to move through the Port.

Incserv assisted another client with preparation of an Incumbency Certificate – the client was pleased with the process and how quickly it was turned around.  Feedback from the client: “Very good experience. It was handled very professionally.”

If you have additional questions or need assistance with obtaining a Certificate of Incumbency, give us a call or email us. Please note – Incserv must be the Registered Agent of a company in order to prepare a Certificate of Incumbency. If you require a Certificate of Incumbency and we are not the Registered Agent, ask us about changing your Registered Agent.

 

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Delaware Secretary of State Employee Recognition Luncheon

On Friday, December 18, 2020Delaware Secretary of State – Division of Corporations will be closed between the hours of 1:00 PM and 3:00 PM (ET) for their employee recognition luncheon. State services have been altered.

All 30 Minute and One-Hour service filings must be received prior to 7:00 PM (ET) and Two-Hour service filings will need to be received prior to 6:00 PM (ET).  All other cut-off times will remain unchanged.

The DE Secretary of State will not be available between 1:00 PM and 3:00 PM (ET).  All 30 Minute, One-Hour and Two-Hour filings will not be processed during this time.  Filings which need filing prior to the event must be received by the DE Secretary of State before 12:00 noon.

We will be able to secure filing dates and times until 10:29 PM (ET).

To meet these deadlines, Incserv must receive all filings AT LEAST 15 MINUTES before the DE Secretary of State
corresponding cut-off times.

If you have questions or concerns, please contact our office at  302.531.0855, 800.346.4646 or orders@incserv.com.

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Multi-State Entity Registration ~ Certificate of Authority / Foreign Qualification

Has your business taken off and you are ready to expand into other states? Be sure to register as a foreign entity before beginning operations or you stand to get penalized. Tax and penalty assessments can range from the hundreds to thousands so it’s best to be proactive with your registrations. More importantly, registering sooner than later reduces personal liability exposure.

First, understand that ‘foreign’ does not mean overseas. ‘Foreign’ in this instance is a term used in the U.S. when an entity has filed its domestic registration in one state or country and then registers the same entity in one or more other states in order to transact business legally.

Not all states require foreign registration, it is based on if the entity will be transacting business in the other state or not. Will it have employees in the state? Will it have an office address in the state? Will entity business meetings be held in the state? – If you said yes to any of these questions, they are the easiest determination that you will be required to file.  If you are not sure, simply call the state’s Division of Revenue for guidance as to that state’s requirement. Each state is different therefore, if one says no, do not assume you do not have to register in others, most states now require foreign registration.

When you are ready to register your entity in other states we are here to take the stress off your shoulders and make the filing process seamless. We are familiar with most idiosyncrasies of the state forms nationwide so we will gather the pertinent entity details the other states typically require, complete the forms with the information provided, then send them to you for review and the appropriate required signature(s).

Almost all states require the entity to appoint a registered agent with a physical address in their state, we provide this service nationwide. Each state has unique filing fees, supporting document requirements, and processing times for registration. At your request, we will provide you an all-inclusive quote, with processing options for each state, so that you can proceed in a manner that suits your budget and needs

Note that foreign registration does not include entity registration with the taxation departments in those states! Such registrations must subsequently be set up by the entity’s CPA, accounting department, or authorized representative due to the nature of the questions these departments require to set up an account.

Please email orders@incserv.com for additional details or place an order via www.incserv.com.

Renée Kent, Senior Client Services Representative

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