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Delaware Annual Report & Franchise Tax – Help! Part One

Last week when we discussed Annual Report Services (click here to read that blog), we mentioned most jurisdictions have annual filing Delaware Annual Report & Franchise Taxand/or tax requirements. Delaware is one of those jurisdictions that requires annual report filings and franchise tax payments. Depending on the entity type, both may be required or just one…but, we’ll get into those details later.  Since Delaware also happens to be the jurisdiction we seem to get the most questions about, we decided to tackle the subject in a series of blogs. Today we’ll start by answering just a few basic questions…

What is a Delaware Annual Report? This is a document filed annually with the State of Delaware Division of Corporations detailing pertinent company details. Information such as the Principal Place of Business, Officer and Director details, and stock information are included on the annual report. The stock information provided helps to determine the annual franchise tax due. Not all entities are required to file an annual report.

What is franchise tax? Franchise taxes are an annual fee paid to the State of Delaware Division of Corporations for your entity. For corporations, the franchise tax fee is based on authorized shares. For alternative entities, such as LLCs, the fee is a flat rate. Most entities are required to pay a franchise tax.

What entity types file an annual report and/or pay franchise taxes? When are they due?

Entity Type Annual Report Franchise Tax Due Date
Domestic Corporations Yes Yes March 1st
Exempt Domestic Corporations Yes No March 1st
Domestic Limited Liability Companies No Yes June 1st
Domestic Limited Partnerships No Yes June 1st
Foreign Corporations Yes Yes June 30th
Foreign Limited Liability Companies No Yes June 1st
Foreign Limited Partnerships No Yes June 1st
Delaware Statutory Trusts No No N/A
As mentioned above, these are just the basics. Over the next few weeks, we will continue to discuss Delaware annual reports and franchise taxes in more detail. Be sure to check back weekly or subscribe to the blog so you don’t miss out! Of course, if you have a question in the meantime, feel free to reach out to us. We’d be happy to help you out!

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Tell Me More About Annual Report Services

Annual Report Services are one of the truly invaluable ancillary services we offer our registered agent clients.

Most jurisdictions have annual filing and/or tax requirements. In order to stay in good annual report servicesstanding and maintain any legal protections your entity may provide, it’s important these obligations are fulfilled.

Why are Annual Report Services so invaluable?

For reasons we mentioned above, it’s important for your entity to remain active and in good standing. Failure to do so may result in penalty fees, a loss of good standing, and could ultimately find your entity involuntarily dissolved or its authority revoked. While it is usually possible to recover from these situations, it can be a major headache and the costs can really add up. So, why chance it? Annual Report Services are often compared to insurance, as they help insure you don’t miss these crucial deadlines.

To assist with remaining compliant, we offer two options for Annual Report Services:

Option One – Annual Report Monitoring Service (ARMS)

Annual Report Monitoring Service is a reminder service for those do-it-yourselfers who just want a friendly reminder when obligations are due for their entities. With ARMS, we will remind you 60 days ahead of the due date and again 30 days prior. When you get the reminder, you can either fulfill the obligation on your own or tell us you’d like us to handle it for you.

Option Two – Annual Report Filing Service (ARFS)

Annual Report Filing Service is an automated service for those of you who don’t want to worry about it. Think of it as the “auto-pay” feature for your credit card or electric bill. With ARFS, we proactively gather the information we will need to complete any annual filing requirements. When the due date(s) roll around, we prepare and file any reports and/or make annual payments, as well as send you proof of compliance and upload it to your Snapshot account (as available).

If you have any additional questions about or need assistance signing up for one of our Annual Report Services, feel free to reach out to us. We’re here to help make your life easier!

Amanda No Comments

What is a Registered Agent and Why Are They Important?

A registered agent is the company or person you designate to receive legal and tax notices for your company. Most jurisdictions legally require entitiesWhat is a registered agent and why are they important? such as corporations and limited liability companies (LLCs) to list a company or individual physically located within the jurisdiction and available normal business hours to serve as this point of contact. Resident agent, statutory agent, and statutory representation are some of the additional titles a registered agent may go by.

So, why is a registered agent important? Well, aside from the legal requirement telling you that you have to have one (which in my book makes them kind of important), a registered agent helps you sustain your business by providing important documents and notices to keep you compliant in the jurisdictions you formed or qualified to do business in. Since these documents and notices usually require an action within a limited amount of time, it’s imperative your agent always has up-to-date contact information for you.

As mentioned earlier, the registered agent will receive and forward important legal and governmental documents and notices. In the case of legal documents such as Service of Process (SOP), you may have only a few days to respond to a summons. If your agent doesn’t have your current contact information, important response dates could be missed, resulting in significant legal repercussions. The same holds true for annual report and franchise tax notices. Invalid contact information may equate to a missed filing date and major headache, with late fees, penalties, and interest continually accruing.

Not only is keeping your registered agent up-to-date with current contact information for your entity important, but so is ensuring your annual registered agent fees are paid. Failure to maintain a registered agent may result in your agent resigning. When an agent resigns, the company is no longer considered to be in good standing with the jurisdiction and you risk losing the legal protections your entity may provide you. Returning to good standing with the jurisdiction then usually requires additional fees and may even involve filing new documents. So, why risk it?

If you have any questions or need assistance with Registered Agent Services, feel free to reach out to us. We’re always happy to help!

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Delaware House Bill 175 Passed

Delaware House Bill 175, passed on July 2nd, alters various fees assessed by the Delaware Secretary of State.  The Bill Synopsis is as follows:

“This Act alters various fees assessed by the Delaware Secretary of State. The Act provides that most changes to the fees and taxes assessed will take effect on August 1, 2017; however increases to the maximum franchise tax and the late penalty for the filing of an annual franchise tax report shall take effect for the tax year beginning January 1, 2017, and the increase of the assumed par value multiplier for calculation of the corporate franchise tax and the authorized shares multiplier for corporations with greater than 10,000 authorized shares for calculation of the corporate franchise tax shall take effect for the tax year beginning on January 1, 2018.”

Click here to read Delaware House Bill 175 in detail.

If you have any questions or need assistance with annual reports or franchise taxes, please do not hesitate to contact us.

Amanda No Comments

Business Law Changes in Vermont & Connecticut – Effective July 1st

Incorporating Services, Ltd. (Incserv) is an active member of the National Public Records Research Association (NPRRA).  One of the many benefits of this membership is the continuous flow of information from other members regarding changes in policy, law and processing of public records searching and filing across the US. We received the below information from the NPRRA.

Please see below for details about the business law changes in Vermont and Connecticut that will take effect on July 1, 2017.

Vermont House Bill 868, Laws of 2016, effective July 1, 2017, has amended the Business Corporation Act as follows:

 

  • Authorizes domestic corporations to convert to a wide variety of domestic entities, and such domestic and foreign entity types to convert to a domestic corporation.
  • Expands the types of entities with which domestic corporations are authorized to merge.
  • Authorizes domestic corporations to domesticate to a foreign corporation, and a foreign corporation to domesticate to domestic corporation.
  • Omits specific reference to parent/subsidiary (short form) mergers.

The Bill may be accessed at:  http://legislature.vermont.gov/assets/Documents/2016/Docs/BILLS/H-0868/H-0868%20As%20Passed%20by%20Both%20House%20and%20Senate%20Official.pdf (see Sections E.1. & E.2. of the Bill)

 

Connecticut House Bill 5259, Laws of 2016, as further amended by House Bill 7311, Laws of 2017, has enacted a new LLC law, effective July 1, 2017.  The new law repeals the old law as of the effective date so the new law applies to all LLCs as of that date.  The following sets forth changes as affecting our services and materials:

 

Name

  • Expands protection of name to all entity types on record (formerly, just corporations, LLCs & LPs).
  • Removes protection of administratively dissolved entity names.
  • Provides that entity indicators (e.g. Corp.) are not to be considered by the Secretary of State as a sufficiently distinguishing element between names.
  • Does not provide for renewability of name reservations.
  • Authorizes foreign LLC name registration for renewable one-year periods.

Annual Report

  • Changes the Annual Report due date to April 1 for all LLCs (formerly, the anniversary month of formation or registration).  The State advised that filing in 2017 will proceed under the current requirement.  Accordingly, the first returns and payments to which the new requirement applies will be those due on or before April 1, 2018.

Domestic Amendment

  • Requires a domestic amendment filing where a manager or member knows that any information in the Certificate of Organization is inaccurate.

Foreign LLCs

  • Institutes mandatory foreign amendment triggering events for change of name and home state.
  • Revises post-merger filing by requiring the filing of an Application for Transfer of Registration upon merger of a registered foreign LLC into an unregistered foreign entity (formerly, withdrawal and registration of the surviving entity was required).
  • Provides for a $120 filing fee for Foreign Withdrawal (formerly, no fee).
  • Requires a Statement of Withdrawal to be filed for Foreign Withdrawal (formerly, Certificate of Cancellation).

Miscellaneous

  • Generally requires LLC filings to be signed by an authorized person (formerly, by a member or manager).
  • Authorizes delayed effective dates up to 90 days after filing except for formation and foreign registration filings.
  • Authorizes withdrawal of filings made with the Secretary of State before the filing has become effective.
  • Authorizes correction filings.
  • Revises prescribed contents of a Certificate of Organization (no purposes or statement of management) and Certificate of Registration (no purposes).
  • Revises prescribed contents of Annual Reports and status certificates issued by the Secretary of State.

The Bill can be accessed through the following the following link: https://www.cga.ct.gov/2016/ACT/pa/pdf/2016PA-00097-R00HB-05259-PA.pdf .

Gennine No Comments

Biennial Reports and Trade Name Renewals Washington, DC – Due April 1st

April 1st is the deadline for biennial reports to be filed in the District of Columbia. All entity types are required to file a report; a $100 late fee is assessed for failing to do so timely. An entity’s first biennial report shall be delivered for filing by April 1 of the year following the calendar year in which the domestic filing entity was formed or the foreign filing entity registered to do business in the District. Reports are due biennially (every two years) after that.  Additionally, any trade name due to expire this year, must be renewed by April 1st to avoid cancellation.

There is no need to worry about providing original copies; the DC Department of Consumer and Regulatory Affairs (DCRA) will accept copies for filing.

As always, if you have any questions about biennial reports or need assistance with filing, we are more than happy to help. Simply e-mail us at dcorders@incserv.com or call us at 202.386.7575 or 877.531.1131.

Gennine No Comments

Succeeding at Biz: 4 Easy Rules That Will Keep Your Delaware Corporation Alive.

Incorporating Services, Ltd. (Incserv) is very fortunate to repost a wonderful article originally published online at Daily-Journal.com, The Kankakee Valley, Illinois. The author is Mr. Cliff Ennico of The Law Offices of Clifford R. Ennico located at 2490 Black Rock Turnpike, # 354 Fairfield, Connecticut 06825.

The article can be read below in its entirety.

Some friends and I started a high-tech business a couple of years ago and formed a Delaware corporation to run the business. We live and work in another state but were told that Delaware was the place to be for tech startups (it might have been one of your columns, actually).

We formed the corporation online to save money, and it seemed like everything was OK.

A couple of weeks ago, we signed a letter of intent with an angel investor who wants to put $3 million into our company. Needless to say, we were very excited.

But when the investor’s lawyer looked into our company, he made some horrifying discoveries. It seems Delaware killed off our corporation two years ago because we didn’t pay a “franchise tax,” whatever that is. Because our corporation was no longer active, somebody else grabbed our name in Delaware and is now trying to register it as a trademark. If that person succeeds in doing that, we will have to hand over our website domain name even though we’ve spent a fortune building a website around it.

The lawyer also told us that because we never registered in the state where we are actually doing business, we owe tons of money in penalties even though we’ve paid taxes here every year. Now the investor is not so excited about doing business with us. While we are embarrassed as hell, shouldn’t someone have told us we had to do this stuff?

While it could be true that I once wrote a column about the benefits of tech startups incorporating in Delaware, let’s be clear: I never, ever advised someone to form a corporation or limited liability company (LLC) online, and this is one of the reasons. While the online services can get you up and running quickly and cheaply, they don’t help you with the things you need to do on an ongoing basis to keep your corporation or LLC alive. This email is a perfect example of what can happen when you don’t stay on top of things compliance wise.

Having wagged my finger at this reader, I have to say I’m sympathetic to her plight. When you are building a fast-growing tech company, you are working 24/7 365 days per year, living on Red Bull, ramen noodles and three hours of sleep per week. Nobody is thinking about legal compliance. Yet failing to keep on top of things can kill your startup, as this reader’s email attests.

Here are four easy rules that will help keep your corporation or LLC on life support.

Rule No. 1: Hire a lawyer and an accountant, and listen to them! It is impossible to run a tech startup in the United States without a good lawyer and a good accountant. You need both, especially if you are too busy to deal with government paperwork. Whenever your lawyer or accountant tells you something needs to be done, do it immediately! They are not just trying to run up a bill. They are trying to save your butt.

Rule No. 2: Watch your mailbox and inbox. I am certain that the state of Delaware or the corporation’s registered agent sent this reader both emails and snail-mail reminders telling her when annual reports, franchise tax reports and other compliance paperwork were due. She probably threw them away thinking they were junk mail or spam.

This point is so important that I need to scream: WHEN YOU HAVE A CORPORATION OR LLC AND YOU GET MAIL FROM A STATE OR GOVERNMENT AGENCY ADDRESSED TO THE COMPANY, IT IS NEVER, EVER TO BE TREATED AS JUNK MAIL! If you are too busy to deal with it, you should forward the email, or scan and email the paper correspondence to your lawyer and accountant IMMEDIATELY. Let them tell you whether it’s important or not. If they say it’s important, follow Rule No. 1.

Rule No. 3: Pay your registered agent. If you are incorporated in Delaware or a state other than where you are actually located, your online service hired a registered agent in that state to act as your local presence. That company will send you a bill each year for its services. Pay it promptly. If it doesn’t get paid, it will withdraw as your registered agent, and the state will dissolve your corporation or LLC.

Rule No. 4: Register in your home state. Forming a Delaware corporation does not allow you to operate legally in your home state. For that, you need to register as a foreign corporation with your state’s secretary of state and pay taxes to the state tax authority. You have to do both. Failing to register with the secretary of state can lead to heavy penalties and bar you from your state courts if you ever have to sue someone.

Yes, doing these things costs money. But it’s money well-spent. Find the money, and get them done.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.” This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.

Special thanks to Mr. Ennico for his insight on properly forming and maintaining your corporate entity. Incserv is here to help, contact us for more information.

 

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Delaware Corporations

delaware

Just a reminder… Tuesday, March 1st was the last day to file annual reports and make franchise tax payments for Delaware corporations without receiving interest or a penalty.  Missed the deadline?  Don’t worry…  While there is a penalty to pay now, it’s not too late to file and make payment.  But be sure to do so quickly, as interest will begin accruing on the 6th of this month and each month thereafter.  Wait too long and you risk going “Void”.  If you have any questions about filing, making payment or what to do next, feel free to reach out to us.  We’re here to help.

Thanks for reading,

Phyllis

Phyllis Brown is a Registered Agent Associate in our Dover, Delaware office.