Small Business Reading Room

Saturday, November 20, 2004

The People's Republic of China Looks at Delaware Corporate Law

An entourage of eight visitors from the People's Republic of China took a tour of Delaware this week to learn more about Delaware's corporate law.

In addition to a visit with one of Delaware's Vice Chancellor's, the group had a chance to attend a presentation hosted by Delaware's Assistant Secretary of State.

It appears that Delaware's law will serve as a model for business law in China.

Thursday, November 18, 2004

A Separate and Perpetual Existence

Sole proprietorships, partnerships, corporations, limited liability companies: these are some of the different forms you can use for running your business. There are some benefits to each of the forms, and there are some detriments.

The first two I mentioned, sole proprietorships and partnerships, don't require you to fire legal documents creating those business organizations. You might need to file a trade name, doing business as (dba) name, or fictitious name (what Delaware calls a trade name) in the county, state, or other area that the laws require where you are conducting business. Often you would do that to try to keep other people from using the same name by giving them notice that you've claimed it. If you try to open a business bank account using your business name, a bank may want you to register the trade name, too.

For all of them, you probably do need to contact your area's taxing authority, and secure a business license, too.

If you create a corporation or a limited liability company, you likely also have to take the step of filing articles of incorporation or formation with an official office in the state or province where you are located. In Delaware, the office is the Division of Corporations of the Secretary of State of Delaware. You are also required to keep careful records about the activities of the business, hold directors' meetings and keep minutes of those meetings, and pay an annual registration fee known as a franchise tax.

Are all of the extra requirements of a corporation or a limited liability worth following?

They certainly can be. I'll explain a little about one of the benefits of incorporation today, and will be adding more in days to come.

One of the features of a corporation is that it can have perpetual existence.

A major reason why you "create" a corporation by filing articles of incorporation with the government is that you are creating a legal entity that has its very own existence. It's still tied to the owners, and it still has a requirement to act responsibly and within the law. But the owners of a corporation can change, and the corporation can continue to exist.

With a partnership, if one of the general partners loses interest, retires, or dies, the partnership could very likely dissolve and the assets of the partnership will be liquidated unless the remaining people involved agree to continue the business and work together to form a new partnership. In many situations, that can be very difficult to do.

While that situation can be prepared for ahead of time with very careful planning, a corporation starts off with the idea that if someone with ownership is no longer part of the business, for one reason or another, the corporation can continue to conduct business. If a shareholder dies, the shares can pass to his or her heirs.

Corporations can have an unlimited lifespan. Corporations can also end. The shareholders can vote to terminate a corporation, or the state may dissolve it by revoking its charter, or it may merge or consolidate with another business.

This separate and perpetual existence can be beneficial for nonprofit corporations, too. A nonprofit corporation can last beyond its founders, and provide the services and public assistance it was intended to perform as long as people will join and work with it. So organizations like the Red Cross, the Sierra Club, and others can continue their missions long after their founders are unable to.

The perpetual existence of a corporation also is seen when ownership of the corporation changes through the sale of some or all of the shares of the corporation. It isn't a new business performing the same services, or providing the same goods, or fulfilling the same mission. It's the same business with some new owners. If assets, licenses, permits, deeds, and contracts were purchased or created in the name of the business, it's possible that the ownership of those assets or the nature of those legal agreements will not have changed. That's something to look at carefully when purchasing a business - what will the transfer of ownership mean in terms of a businesses assets and relationships with other businesses and customers - even when a business is incorporated.

The separate and perpetual existence of a corporation could be very beneficial to your business plans. It's something to consider and keep in mind, and talk to your attorney and accountant about when you are planning the formation of a business or when considering buying a business from someone else.

For Those Who Hate to Wait in Line: a Tip to Avoid the Year End Filing Rush

So you want to avoid the processing backlog at the Division of Corporations this year?

If possible, try filing early and using a future effective date on your document.

Delaware Division of Corporations Administrator, Robert C. Mathers, has asked us all to give this technique some consideration this year. His staff works very hard to provide the best possible customer service to all filers during the very busy holiday season.

Our incorporators at Delaware Intercorp can assist you with the preparation and filing of your document now so you can avoid the long processing delays that are an unfortunate holiday tradition at the Delaware Division of Corporations. Contact us at or check out references in the Delaware code on future effective dates here:
8 DEL.C.§103(d), 6 DEL.C.§15105(h), §17201(b) and §18201(b).

- Russell Rozanski

Wednesday, November 17, 2004

Delaware in the News

Sleepy little Georgetown Delaware, a town of 4,751 in Sussex County is the scene of a mighty battle of the titans of corporate America.

The Story of the Walt Disney Company's 1995 hiring and 1996 firing of Michael Ovitz is one of loyalty, deceit and shifting allegences.

It also shows how tough it can be to resolve complicated issues in a corporation. The lawsuit that is playing out in the Delaware Chancery Court alleges that Mr. Ovitz should not have received his large severance package since he was fired for cause. The CEO of Disney is Michael Eisner and he is a member of the Board of Directors. He is also the one who hired and later fired Mr. Ovitz.

So Mr. Eisner must walk a fine line. He must justify his firing of the man, but he must not make it appear that it was "for cause" or he appears incompetent for not dissallowing the large severance package (~$140M).

This is the type of large scale, complicated matter that the Delaware Chancery Court deals with every day. Delaware entities have access to these highly competent, business knowledgable judges. See more about Delawares' Chancery Court here:

Delaware Headquarters Management Companies

The State of Delaware held a conference last week to outline how the new Delaware Headquarters Management Company will work to reduce the state tax burden on companies that do business in the United States of America.

This conference was sponsored by the Department of Finance – Division of Revenue, the Department of State – Office of the Secretary – and the Delaware Economic Development Office.

Delaware Headquarters Management Companies (HMCs) were created in order to counter the recent attacks, in Maryland, New York and other jurisdictions, on the previous vehicle for moving taxable income to Delaware – the Delaware Holding Company (DHC).

The legislation that enables the HMC is House Bill 403 and it amends Title 30 – Corporate Taxes – of the Delaware Code. The section on Delaware Headquarters Management Companies is available here:

In (very) general terms, an HMC is created by employing one to five (or more) new people in Delaware or increasing spending in Delaware to match certain guidelines. The HMC is then allowed a tax credit (a reduction in taxable income) of up to 99% (Limits apply).

The differences between an HMC and the older DHC is that the HMC is allowed, and indeed must, perform non-passive activities, The HMC pays taxes and has nexus in Delaware, and it enjoys substantial tax breaks of up to 99% off of taxable income.

We would be glad to refer you to a qualified Delaware tax attorney who could analyze your situation and advise you regarding the use of the Delaware Headquarters Management Company to reduce your corporate tax bill. Just give us a call or send us an email.

Tuesday, November 16, 2004

Where Do We Fit In?

Delaware Intercorp, Inc., recently sent two attendees to the 18th Annual Delaware Strategic Planning Conference. Other attendees included everyone from the biggest, most expensive providers to the smallest one-person law office.

While sitting in the presentation room at Rehoboth Beach, Delaware, I was thinking about how Delaware Intercorp, Inc., fit into the group.

Delaware Intercorp is one of approximately 14 fully online Delaware Registered agents. Being a mid-sized firm means Delaware Intercorp, Inc., maintains the highest level of cooperation and connection to the Delaware Division of Corporations. It also means we are small enough to provide personal service.

In other words, we are not a one-man show and not a huge impersonal

Delaware Intercorp, Inc., provides personal service to all of our clients who want or need it. That means you can pick up the phone (302.266.9367), send an email or order online with John (, Russell ( or Alan ( who will handle your incorporation needs efficiently, personally and reliably.

Monday, November 15, 2004

How Do You Change Registered Agents?

As companies get ready to close out 2004, and look forward to 2005, many companies look at their costs and areas to see where they can save some money. One of those areas is by changing registered agents to Delaware Intercorp ( We make it very easy to change registered agents.

Simply go to our home page look for the six globes in the middle of the page. Click on the link that asks you "Can I change my registered agent" About halfway down that page you will see a link to our change registered agent form ( Print that form out and fax it to our office at 302 266-9940.

We will even pay you (sort of) to switch registered agents. Delaware Intercorp will pay up to $74 of the filing fee to switch you from your current agent to Delaware Intercorp. That means LLC's can switch agents for just $125 and corporations cost just four dollars more ($129) Those prices are probably a lot less than what you are currently paying.

If you have any questions regarding changing your registered agent you can contact John or Russ at 302 266-9367 or toll free 888 324-1817.

The Holidays are Upon Us...

As 2004 starts to wind down we all need to be aware of the days the State of Delaware has set aside to allow their employees to enjoy some time off.


The Thanksgiving holiday is a two day affair for the State this year. Thursday, November 25 and Friday November 26 will be the days that the State takes off. Keep in mind as a result of the time off your filing may take an extra day or two to get back from the State. Delaware Intercorp will be closed these two days as well.


Christmas falls on a Saturday this year but the State will be taking off on Friday the 24th. As this is the official day the State has off keep in mind that a number of employees at the Division of Corporations take off around the end of the year and filings will generally take a little longer starting around the middle of December.

New Years

Last, but certainly not least, is New Years eve. The Division of Corporations will be staffed from 8am until 2pm. The State has listed the following cutoff times for work filed that day.

1 hour and 2 hour requests 12 noon
Same day and must approvals 11 am
24 hour and regulare filings 2 pm (when they are closed)

If you have any questions please contact us at

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

"For all the best reasons to incorporate,the best place
is Delaware and the best incorporator is
Delaware Intercorp!"

Call Monday - Friday 09:00 (am) - 17:00 (pm) Eastern Time (GMT-05:00)

Toll Free - USA only - 888.324.1817
International: (1) 302.266.9367
FAX: 302.266.9940