Small Business Reading Room

Monday, July 12, 2004

Delaware Headquarters Management Corporations

On June 18th Delaware Governor Ruth Ann Minner signed the Headquarters Management Corporation Act (HMC).

This act creates Headquarters Management Corporations. These HMC's are fully taxable Delaware Corporations that make an election to be an HMC and are certified as such by the Director of the Delaware Division of Revenue.

The corporations activities must be limited to investment activities and/or the provision of headquarters services. ( Headquarters management services may include: accounts receivable and payable, employee benefit plan, insurance, legal, payroll, data processing, purchasing, financial and securities accounting, reporting, and compliance services, and the maintenance and management of intangible investments, such as stocks, bonds, patents, trademarks, and trade names, of other members of its affiliated group.)

An HMC then has a number of tax credits available to it that may significantly reduce its' tax liability. Adding five or more new employees and adding $350,000.00 of expenses may not sound like a way to save money, but in the tax world it can generate significant savings. The difference is that Delaware wants you to spend the money HERE instead of THERE.

The initial fee and minimum tax for these special entities will be $5000.00. So they are not meant for the little guy. This is Delaware's way of trying to further solidify the nexus of holding companies to defend against other states efforts to tax the profits of the holding companies. The new law offers tax credits and an alternative calculation of taxable income for job creation and economic development expenditures. (The credits and alternative calculation of taxable income are in lieu of other credits available in Chapter 20.)

Please be sure to have your accountant review the new law to see if there might be significant tax savings available to your corporation.

Text of the act.

posted by Larry at 3:21 PM - permalink 0 comments

Small Business Reading Room

Delaware Headquarters Management Corporations

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