Small Business Reading Room

Friday, March 14, 2003

Changes in Delaware Corporate Law

Changing Legislation and Policy at the Delaware Division of Corporations

House Bill 16 (HB 16), which will amend Sections 103, 391 and 9607 of the Delaware General Corporation Law, has been passed by both the House and the Senate and is awaiting the Governor's signature (see below for details).

Synopsis (from the Bill):

These Amendments clarify the general rule that the filing date of an instrument filed with the Secretary of State is the date and time of delivery of the instrument and the limited exceptions to this rule.

To further enhance service to Delaware corporations, the amendment to Section 391(h)(1) also enables the Secretary of State to offer a new "1-hour" expedited service to complement the Secretary of State's existing "2-hour" service offering.

Commentary (from Delaware Intercorp, Inc.):

There used to be a very cozy relationship between the filing agents like Delaware Intercorp, Inc., and the Secretary of State's office. We could routinely get errors fixed by pleading a good case for applying a prior date and time of filing. Most of the errors corrected, by the way, were the State's errors.

One of the agents, at the request of a client, abused this relationship and it came to light in Chancery Court. The court slapped the Secretary of State's office pretty hard in finding that they had not carried out the mission of the office when they allowed a prior filing date and time. This legislation takes away the Secretary's discretion in these matters and therefore makes errors, the State's, or ours much more difficult and in some cases impossible to correct.

The addition of a One Hour Service is a pure money grab. Prior to this proposal most Two Hour Service requests were processed within 15 minutes.

The effective date of the legislation will be sixty (60) days from the date it is signed into law

Read the text of HB 16 in PDF.

Wednesday, March 12, 2003

Welcome to Our Blog

Delaware Intercorp, Inc., is introducing a new feature. This weblog (blog for short) will contain articles by the staff at Delaware Intercorp, Inc., and by others whom we think you will find interesting.

We will cover a variety of topics – not all directly related to business.

Please check back often to see what's new in Delaware politics, corporations, taxes and the world at large.

Changing legislation

The Delaware Secretary of State, Harriet Smith Windsor, is proposing changes to the Delaware General Corporation Laws that will increase the fees for filing most any instrument in her office. The proposed legislation was outlined by the Secretary during a meeting attended by Delaware Intercorp, Inc.

The prices for filing have not been changed in almost a decade. The last major price overhaul was in 1991. The Governor proposes to raise approximately $144.5 million to help eliminate the current year budget deficit. 62% of the required "Revenue Enhancement" is to come from increased corporate and other entity fees.

Synopsis (from the proposed legislation):

  • Section 1. Increases the fee for entering information from each instrument into the Delaware Corporation Information System from $20 to $25 and eliminates the exception that provides a lower fee for entering such information for a certificate of incorporation.

  • Section 2. Increases the annual report fee for foreign corporations from $50 to $60 and increases the penalty for neglect, refusal, or failure to file the annual report from $50 to $100.

  • Section 3. Increases the fee for certifying copies from $20 to $30.

  • Section 4. Increases the fee for a short form certificate of good standing from $20 to $30 and increases the fee for a long form certificate of good standing from $100 to $125.

  • Section 5. Clarifies the fees for receiving, filing, indexing, copying and certifying an instrument filed with the Secretary of State to change the location of a corporation's registered office or to change a corporation's registered agent.

  • Section 6. Increases the annual franchise tax report fee from $20 to $25.

  • Section 7. Increases the fee for receiving and filing and/or indexing a certificate of conversion from a domestic corporation to another entity from $50 to $100.

  • Section 8. Increases the amount the Secretary of State may charge for each check received for payment of fees that is returned for insufficient funds or as the result of a stop payment order from $25 to $60.

  • Section 9. Increases the tax for neglect, refusal, or failure to file an annual franchise tax report from $50 to $100.

  • Section 10. Increases the rates for computation of the annual franchise tax.

  • Section 11. Increases the amount the Secretary of State may add to a corporation's franchise tax for each check received for payment of franchise taxes, penalties or interest that is returned for insufficient funds or as the result of a stop payment order from $25 to $60.
  • Section 12. Provides for an effective date as of January 1, 2003 for all tax changes and an effective date of August 1, 2003 for all other changes.

Our thoughts...

The proposed legislation will increase most fees for corporations incrementally and should not have been unexpected.

The surprise comes in the new rate structure for LLCs. Limited Liability Companies have become very popular due to the way they were structured in the law. They are flexible, cheap and easy to maintain. The State appears jealous of what they themselves created. They made Limited Liability Companies an attractive value and now they are doubling the price.

The annual fee for a Delaware Limited Liability Company will increase from $100.00 to $200.00 under this proposal. The filing fee to create a new LLC will increase from $50.00 to $90.00 and the penalty for non payment of franchise fees will double as along with the fee to restore an LLC to good standing. Heaven forbid if an LLC misses the filing deadline under this proposal. What used to cost $250.00 ($100 tax, $100 penalty and $50 to restore) will go up to $500.00 ($200 tax, $200 penalty and $100 to restore).

The State has increased expenditures from approximately $1.8 Billion in 1997 to approximately $2.4 Billion in 2002. While times were good the gravy train allowed politicians to spend money on most anything they wanted. Now the bill has come due and they want to pay it by taxing corporations. The 2003 budget still INCREASES spending and the Governor says she is very proud that she is not laying anyone off. It may be that corporations, LLCs and service companies will though.

The slap in the face of this whole proposal is in Section 12 and bears repeating: "Provides for an effective date as of January 1, 2003 for all tax changes and an effective date of August 1, 2003 for all other changes." This means organizers who create Limited Liability Companies THIS YEAR under a law that says they should pay $100.00 per year will have to pay $200.00 instead. Sounds like a bait and switch. Delaware Intercorp, Inc. along with some other concerned members of the filing community is fighting this provision. We are also objecting strongly to the increase in the late penalty for LLCs. We will continue our efforts to eliminate these onerous provisions from the final legislation that hits the Governors desk.

Check back here for updates regarding this important legislation.
Read the Bill in Microsoft Word format.

link to Atom Feed




Delaware Intercorp, Inc.
113 Barksdale Professional center
Newark, DE 19711-3258

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