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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 Because our corporation was no longer active, somebody else grabbed our name in Delaware and is now trying to register it as a trademark.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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What is Registered Agent Resignation?

Karen Elliott, Assistant Vice President of Incorporating Services, Ltd. shares with us her insight about registered agent resignations.

When forming a legal entity most states require the appointment of a registered agent.  The registered agent is responsible for sending state/government mail and accepting service of process (legal documents).  It is the entity’s responsibility to maintain the registered agent by paying the agent’s annual fee.  If the registered agent is not maintained, the agent has the right to resign as agent, per state statute.

What does resignation of agent mean for your entity?  Once the registered agent resigns your entity is put into an administrative status.  The name of the entity also becomes available for use.  Resignation of agent can cause legal implications for your business, as the right to transact business in the state has been compromised.  It can also result in additional fees, as the entity will need to reappoint the agent.

Quick tips to maintaining a relationship with your registered agent:

  • Reach out to the agent of record, understand their role, form the relationship so you know who to contact with questions, set the agent renewal date based on what works best for your business.
  • Make sure the registered agent has the correct contact information in their system, as this information is used for sending the annual invoices, state/government mail to possibly include annual report notices and the most important, service of process.
  • Set your billing cycle for what works best for your company.  Many clients choose a January – January billing cycle but, Incserv can set this to what works best for you.
  • Pay the registered agent invoice based on the payment terms.

If you have any questions about Incserv’s registered agent services, please feel free to reach out to me via email to info@incserv.com or by calling 302.531.0855.

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Nevada Commerce Tax

In 2015, Nevada Legislature passed an annual Commerce Tax that has been activated this year.

According to the State of Nevada Department of Taxation (NV DOT): “The tax is imposed on businesses with a Nevada gross revenue exceeding $4,000,000 in the taxable year. All businesses are required to file a Commerce Tax return, regardless of liability.  The Commerce Tax return is due 45 days following the end of the fiscal year ending June 30. This year, the first return is due August 15, 2016.”

There has been some confusion this year, as the NV DOT did not include a copy of the tax return with the introduction letters that were mailed to companies. The due date for these is just around the corner.  If you require an extension in filing, please contact the Nevada Department of Taxation at 866-962-3707 or their web site at http://tax.nv.gov.

The NV DOT has provided FAQs and video training that may be accessed here: http://tax.nv.gov/welcometocom/

If you are a Nevada Incserv registered agent client and you need a copy of your pre-printed form, the introduction letter or if you have any additional questions, please contact us at info@incserv.com.

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Nevada Commerce Tax

Nevada Commerce Tax

In 2015, Nevada Legislature passed an annual Commerce Tax that has been activated this year.

According to the State of Nevada Department of Taxation (NV DOT): “The tax is imposed on businesses with a Nevada gross revenue exceeding $4,000,000 in the taxable year. All businesses are required to file a Commerce Tax return, regardless of liability.  The Commerce Tax return is due 45 days following the end of the fiscal year ending June 30. This year, the first return is due August 15, 2016.”

There has been some confusion this year, as the NV DOT did not include a copy of the tax return with the introduction letters that were mailed to companies. The due date for these is just around the corner.  If you require an extension in filing, please contact the Nevada Department of Taxation at 866-962-3707 or their web site at http://tax.nv.gov.

The NV DOT has provided FAQs and video training that may be accessed here: http://tax.nv.gov/welcometocom/

If you are a Nevada Incserv registered agent client and you need a copy of your pre-printed form, the introduction letter or if you have any additional questions, please contact us at info@incserv.com.

admin No Comments

Delaware Statutory Trust

Joshua M. Twilley, President of Incorporating Services, Ltd. shares with us his insight on the Delaware Statutory Trusts.

Delaware is long known to be a leader in corporate law, but Delaware is also a trailblazer in trust law.  In 1988, Delaware was the first state to adopt a legal framework governing trust law, with the passage of the Delaware Business Trust Act, which governs the Delaware Statutory Trust (DST).  While other states have adopted similar legislation, the Delaware version has evolved over the years.  Today, the DST is considered the preferred vehicle for trust activities that involve financial transactions.

What is a Delaware Statutory Trust?

In an ordinary trust relationship, a fiduciary would hold legal title on a property on behalf of another, who held the equity title.  These trusts are governed by a Common Law framework.  The Delaware Business Trust Law allows for the creation of a Delaware Statutory Trust (DST).  The DST is considered a separate entity which can in many ways behave like a corporate entity, with a body of trustees and a group of beneficial owners.

What makes a Delaware Statutory Trust a preferred vehicle?

This structure offers a number of advantages.  The trust can have multiple trustees and beneficial owners, who receive the same liability protection afforded to stockholders of a Delaware corporation.  As an independent entity, the DST can enter into contracts while still protecting beneficial owners, and even provides beneficial owners protection in the event of bankruptcy.  Finally, the Delaware Court of Chancery, widely considered one of the best corporate and trust courts in the world, has jurisdiction over the DST.

How is a Delaware Statutory Trust formed and maintained?

Forming a DST is an easy process, requiring a certificate of trust to be filed with the Delaware Secretary of State, along with the Trust Agreement.  There are no annual maintenance requirements (franchise tax or annual report) for a DST.  A Delaware resident must be named as a trustee.

Incserv can assist in all aspects of filing the Delaware Statutory Trust and can provide a Delaware resident as a trustee.  Contact us for more information.

The information within this post is intended for general information purposes only. Incserv and its employees cannot offer legal or financial advice. Please consult with your legal counsel for assistance in how this information may or may not affect you and your business prior to making any decisions. The above information (and any attachments) should be judged accordingly.