Corporate Transactions and Compliance Blog

Massachusetts Annual Report Tips for Limited Liability Companies [Infographic]

Posted by Terri Lennon on Thu, Feb 16, 2017

Review our helpful tips for filing Massachusetts annual reports for LLCs and avoid the most common reasons for rejection. [Infographic]

MA_LLC_InfoG_Final.jpg

To verify the exact, correct name of the LLC on the Massachusetts website, go to: http://corp.sec.state.ma.us/corpweb/CorpSearch/CorpSearch.aspx.

Don’t forget to check out our Massachusetts corporate annual report tips infographic!

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: LLC Compliance, Annual Reports, infographics

Northward Bound: Registering a U.S. Company To Do Business in Canada

Posted by Teri Mayor on Thu, Feb 16, 2017

By Teri Mayor, National Corporate Research Ltd.Registering a US Company in Canada-2.jpg

As companies look to expand their markets outside the U.S., many are choosing to expand into Canada. An educated work force, the lack of a language barrier and similar governmental and economic systems all combine to make Canada an attractive choice for a company looking to expand outside the U.S.

When deciding to operate in Canada, a U.S.corporation or LLC has several options:

  • Federal incorporation – often used for domestic corporations who wish to operate in multiple provinces, a federal corporation registers with Corporations Canada.  (Learn more about registering federal corporations in Canada)
  • Provincial incorporation – forming a domestic entity in a province
  • Extra-provincial registration – similar to the qualification process in the U.S.

There are a large number of factors that go into this decision, including tax implications and laws governing employment, which are beyond the scope of this article. We will now look at the next steps required if, after considering all the options, a U.S.company decides to register extra-provincially.

Rules Governing Corporate or Business Entity Name for Extra-Provincial Registrations
The first step is to verify the company’s ability to use its name in the chosen province and file the appropriate registration documents. This process is similar to, but not the same as, registering a company to do business in another U.S. state. Additionally, as is true of the states in the U.S., each province has its own quirks and requirements to register and maintain a company doing business there.  

As in the U.S., Canadian provinces prohibit words that are considered misleading, such as words that would imply the company is another type of entity, a government agency or a company already in existence. Generally speaking, however, Canadian rules regarding name usage and  availability are more stringent than those found in the U.S. Below are some key differences: 

  • Names of dissolved companies are deemed to conflict, even after years have passed since the company became inactive. In most U.S. states, inactive company names are considered to conflict only under certain conditions (such as the company was administratively dissolved) and for a much shorter period (months, rather than years). In Alberta, however, the name cannot be identical to the name of another company unless that company has been dissolved for more than six years. Saskatchewan has a similar provision for identical names, but looks at dissolved companies going back ten years.

  • Consent: In the U.S., in the case of a similar name, it is often possible to obtain consent to use the similar name from the entity that holds it. This can be very convenient in the case of related companies with names that are considered too similar according to the regulations of a particular state. In Canada, a provision allowing for consent is often not included in the statute at all. When you do find allowance for consent, the consenting company must agree to change its name or dissolve within a given period of time, thus removing the conflict. This is true in Alberta, where the consenting entity must agree that it will change its name, dissolve or withdraw within six months of the new company’s registration.

  • Name Generally Must Reflect Purpose: In some provinces, the company may come up against requirements to ensure the name is not too general – that the purpose of the company is clear from the name.  While this is a strict requirement for domestic Canadian entities, and not generally used for extra-provincial entities, there are provinces, like Saskatchewan, with statutes that allow the provincial corporate administrator to decide that the name is not descriptive enough.

  • In Quebec, you will run into French language requirements. Not only are all the forms and search results in French, in accordance with the Charter on French Language, the company name must also be in French. A company may also use the English version, but is required to use the French version when registering and anywhere the name is displayed in Quebec. Certain exceptions do get made – geographical and personal names do not have to be translated and exceptions can be made for certain expressions. For example, Toys “R” Us was not required to translate its name, but is registered in Quebec as Toys “R” Us, (Canada) Ltee. (“Ltee” is the French equivalent of “Ltd.”)

Registering a Limited Liability Company (LLC) to Do Business in Canada
When the U.S. company looking to do business in Canada is an LLC, it can add a wrinkle to the registration process. The provinces of Canada do not currently have limited liability company statutes and how they handle the registration of U.S. LLCs varies a great deal from province to province. The differences can range from treating them just like corporations to registering them under a different statute altogether. Below is a sampling of how different provinces handle LLCs wanting to register:

Alberta:  When a U.S. LLC wishes to register under Alberta’s statute governing extra-provincial corporations, the application for registration must be accompanied by a legal opinion issued by the company’s attorneys that attest that the LLC is a body corporate under the laws of its home jurisdiction, rather than a partnership or unincorporated association, and that it has the various attributes of a corporation, including limited liability for its members along with the ability to sue and be sued, make contracts, hold property, etc. in its own name. 

British Columbia:  British Columbia specifically includes limited liability companies in the Business Corporation Act. It refers to “foreign entities” rather than foreign corporations and specifically refers to the structure of limited liability companies in its definitions, indicating that the term “director” refers to a manager and “shareholder” refers to member when used in relation to a foreign LLC.

OntarioIn Ontario, extra-provincial LLCs do not register under the Ontario Business Corporations Act, but under the Ontario Business Names Act, as would a Limited Liability Partnership. Extra-provincial LLCs are not required to maintain an attorney for service or a registered agent, as an extra-provincial corporation would.  Instead, they must provide their place of business either in Ontario, if such exists, or in their home jurisdiction if they do not have an Ontario place of business.

Quebec:  Extra-provincial entities of all types register under the “Act Respecting the Legal Publicity of Enterprises” (Loi sur la publicité légale des entreprises) and not the Business Corporations Act. U.S. LLCs are handled the same way as corporations for registration purposes.

Saskatchewan: While The Business Corporations Act of Saskatchewan refers only to corporations when speaking of extra-provincial registrations, in practice, U.S. limited liability companies register under that act in the same way corporations do.

Registration is Only One Step in the Process
While registering as an extra-provincial entity is not a complex filing, there are a number of ways each province differs from the U.S. and from each other. Knowing and being prepared for these differences can help make the process smoother, minimizing delays and problems. The registration process is only one step for a U.S. company desiring to conduct business in Canada, paving the way for other tax and license registrations that may be required. To avoid issues and ensure that all the bases are covered, reviewing all requirements with an attorney versed in Canadian law is highly recommended.

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Tags: International Transactions, Canada

Massachusetts Annual Report Tips for Corporations [infographic]

Posted by Terri Lennon on Wed, Feb 15, 2017

Review our helpful tips for filing Massachusetts annual reports for corporations and avoid the most common reasons for rejection. [infographic]

MA_CORP_InfoG_Final.jpg

To verify the exact, correct name of the corporation on the Massachusetts website, go to: http://corp.sec.state.ma.us/corpweb/CorpSearch/CorpSearch.aspx

Check out our Massachusetts LLC annual report tips infographic!

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Corporate Compliance, Annual Reports, infographics

Appointing a Process Agent in Registration Statements Filed with the SEC

Posted by Colleen DeVries on Wed, Feb 15, 2017

By Colleen A. DeVries, National Corporate Research, Ltd.

Agent_for_Service_of_Process-resized-600.jpg

As the economies and business conditions in emerging markets go through inevitable ups and downs, the demand for global stock offerings rises and falls. During times of growth and favorable conditions, foreign companies attracted by flexible exchange rules and liquid stock exchanges frequently turn to the U.S. as a source of raising capital. For example, a recent Bloomberg article reports an increase in public offerings in the U.S. by companies in Brazil after a recession-induced lull.

A number of legal transactions, either by statute or contract, require the naming of an agent for service of process (also referred to as process agent or contract agent). This is one of the requirements for foreign companies seeking a public offering in the U.S. In this type of securities offering, the process agent serves as the point of contact upon which legal process may be served in any action arising out of the securities offering against the foreign issuer. Our blog post, “Appointing a Process Agent in Multijurisdictional Cross-Border Transactions,” discussed naming a process agent as a contractual requirement within an international commercial agreement. In this article, we examine the appointment of a process agent by foreign private issuers of securities in the U.S. market, as required pursuant to the regulations of the Securities Act of 1933, as amended (“Securities Act”), and the Securities Exchange Act of 1934, as amended (“Exchange Act”).

Securities Act and Exchange Act Disclosure Requirements
Generally, the Securities Act requires companies wishing to offer and sell securities in the United States to register the issuance with the SEC by filing one of a series of registrations statements or to comply with the requirements to deem the issuance exempt from such registration.

The Exchange Act requires companies to register classes of equity securities in order to list these securities on a national securities exchange in the United States. The Exchange Act also requires companies to make periodic filings with the Commission to disclose information about their business operations, financial condition and management.

Foreign private issuers registering to sell securities in the U.S. will be required to file a detailed disclosure form with the SEC on one of a series of forms prescribed by the regulations under the Securities Act. Depending on the nature of the issuance and to whom the securities will be offered, the level of disclosure will vary.

SEC Registration Statements Requiring Designation of “Agent for Service”
The name, address in the U.S. and phone number of an “agent for service” (as defined under section 230.100 of the General Rules and Regulation of the Securities Act) are required to be listed on the cover page of the following SEC registration statements:

  • SEC Form F-1 - a foreign private issuer publicly selling securities for the first time in the U.S. will register the securities on SEC Form F-1. This registration form requires a higher level of disclosure than some of the other SEC registration forms.
  • SEC Form F-3 – a short form registration statement used by foreign private issuers that have previously completed registered offerings in the U.S.
  • SEC Form F-4 – a registration statement filed in connection with business combinations and exchange offers.
  • SEC Form F-6 – used to register depositary shares evidenced by American Depositary Receipts.
  • SEC Form S-8 – used to register securities issued to employees under an employee benefit plan.

In addition to receipt of legal proceedings, the agent for service is also required and authorized in the registration statement to receive notices and communications from the SEC.[i]

Unlike a contractual transaction, in which the terms of the agreement are likely to identify a fixed term of the agreement and term for the process agent, a foreign issuer is required to retain the process agent for an indefinite period of time for as long as the securities are registered.

Timing of Process Agent Appointment is Critical
As mentioned in prior posts, successfully coordinating the timing of the appointment of the process agent is critical. The timing of the electronic filing the registration statement via EDGAR (Electronic Data Gathering, Analysis, and Retrieval system) and for pricing the stock offering is very well orchestrated among the transaction parties. Therefore, the acceptance of the process agent at least a day in advance of the filing is prudent. While the acceptance of the process agent is one of the smaller matters on a pre-filing conditions precedent list, its importance should not be overlooked.  Not having the consent of the process agent in advance of the scheduled submission date may cause a delay in the filing with the SEC resulting in serious consequences to all parties.

In addition to the foreign private issuer naming an agent for service in the registration statement, in some cases, naming a U.S. Duly Authorized Representative(“USDAR”) is also required. The roles of the agent for service and the USDAR are different, but equally important to be in place prior to filing with the SEC. Future blog posts will include a discussion of the appointment of a USDAR and explore securities issuances by foreign private issuers that are exempt from the SEC registration requirements.

[i] For more information about the SEC registration forms, requirements and to obtain copies of the forms, you can access them directly from the SEC site at http://www.sec.gov/forms.

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

 

Tags: Corporate Transactional, International, International Transactions, Cross Border Transactions, Process Agent

Sales and Use Tax Exemptions for Nonprofits

Posted by Ron Barrett on Tue, Feb 14, 2017

nonprofit sales tax exemption.jpgBy Ron Barrett, National Corporate Research, Ltd.

“In this world nothing can be said to be certain, except death and taxes.” When Benjamin Franklin wrote this sardonic proverb to Jean-Baptiste Leroy in 1789, tax exemptions were likely few, and he certainly wasn’t talking about tax-exempt charities. Nowadays, the only things more pervasive than taxes are exceptions, deductions and exemptions from taxes. As for charities, not only are these entities potentially immortal in terms of their perpetual corporate existence, but they also have the keen ability to avoid most taxes.

Of course, immortality for nonprofit corporations is only assured if they make prudent business decisions, maintain public support and comply with state and federal laws and regulations. Many tax exempt entities died (or at least took a step toward death) in June 2011 when the IRS revoked the tax-exempt status of more than 275,000 nonprofit organizations for failing to file IRS Form 990 annual returns in the preceding three years. Similarly, nonprofits that fail to file required annual or periodic reports with the state corporate and charity authorities may find that they are susceptible to death in the form of revocation or involuntary dissolution.

The Elusive Sales Tax Exemption
It is well known that most nonprofits are exempt from federal and state income tax. They are also frequently exempt from real property tax, but one tax exemption that even nonprofits sometimes find elusive is sales tax.* With sales tax rates approaching 10% in some jurisdictions that combine state and local sales taxes, it is an important exemption not to overlook. Some nonprofits, however, fail to take advantage of these exemptions because of the complexity of determining in which states an exemption exists and because of the lack of uniformity from state to state.

Though several states provide a variety of sales tax exemptions to various industries and organizations, most only make an exception for certain groups or types of nonprofits. For example, Georgia’s list of eligible sales tax exemptions is fifteen pages long, but there is no broad exemption for nonprofit organizations. In fact the opposite is true, with several narrow exemptions available to certain types or specific nonprofit organizations, such as nonprofit blood banks.

501(c)3 Tax Exemption is Key
In the majority of states the key to a sales tax exemption is the designation as a charitable, 501(c)3 nonprofit organization. Fortunately for the nonprofit sector, there are nearly a million such organizations in the United States. These are organizations recognized under the Internal Revenue Code as tax-exempt, charitable organizations. For other types of tax-exempt nonprofits, a state sales tax exemption is much less certain and requires a careful reading of each state’s tax code and regulations.

Even with a 501(c)3 designation, charitable nonprofits in some states are still not exempt from sales taxes and, even if they are, procedural requirements must be strictly followed to actually receive the exemption. For example, in Washington, D.C., a charitable nonprofit organization must be physically located in D.C. and file an application to qualify for a sales-tax exemption. Once an exemption application is approved and a Certificate of Exemption is issued, exemptions from sales tax are granted only if the purchases, purchaser and the method of payment are in accordance with the requirements to receive an exemption from sales tax. In other words, the purchases must relate to a charitable purpose, by a person associated with the tax-exempt organization and the payment must be made by that organization. If all of these requirements are not met, then sales tax may be imposed, even when an organization has a legitimate sales-tax exemption and a certificate to prove it. This is true in D.C. and nearly all states that offer an exemption from sales tax to nonprofit organizations.

In Pennsylvania, it is not sufficient just to be a charitable nonprofit in order to receive a sales tax exemption. Under Act 55 of 1997, an organization must complete a cumbersome, six-page application and quantifiably demonstrate that it meets all five of the following criteria in order to qualify for the state sales tax exemption:

  1. advance a charitable purpose;
  2. operate entirely free from private profit motive;
  3. donate or render gratuitously a substantial portion of its services;
  4. benefit a substantial and indefinite class of persons who are legitimate subjects of charity; and
  5. relieve the government of some of its burdens

Sales tax exemption applications are frequently denied in Pennsylvania for failing to prove that an organization meets all of the above requirements. Fortunately, most states do not have such cumbersome requirements and the forms are somewhat consistent in terms of required information and supporting documents that must accompany a sales-tax exemption application.

General Requirements in Most States
Most states that broadly offer sales tax exemptions to charitable nonprofits (about 30) require the completion of a short application form along with some or all of the following items in support thereof:

  1. IRS Determination Letter and/or IRS Form 1023 or 1024
  2. Articles of Incorporation and/or Bylaws
  3. Financial Statements and/or Form 990

A fee is rarely required and, in most states, this is a one-and-done type of filing. Some states such as Maryland, Missouri and Florida require annual, triennial, or quinquennial (every 5 years) renewal filings.

Varying State Requirements
Not all states require an exemption application or certificate to obtain an exemption from sales tax, but this does not necessarily mean that obtaining the actual exemption is any easier. For example, states such as Kansas and Illinois require a letter of request, while others simply require that purchasers provide to each vendor a form that claims they are exempt from state sales tax (e.g. Connecticut and Michigan). In North Carolina, charities must pay sales taxes, but nonprofit entities defined in G.S. 105-164.14(b) can file semiannually for a refund of sales taxes paid. In Wyoming, all that is required is for nonprofits to provide the state with a copy of the organization’s IRS determination letter in order to receive an exemption approval letter. Also, in a handful of states, there is no sales tax (Alaska, Delaware, Montana, New Hampshire and Oregon), so everyone is spared the additional expense in these states.

For most nonprofits, a sales tax exemption usually makes sense only in the state they are domiciled or in nearby states where they conduct a lot of business. For larger nonprofits that conduct business in multiple states and regularly make exempt purchases from the same vendor(s), it sometimes makes sense to obtain sales-tax exemptions in multiple states. For these organizations, it might also be helpful to use the Streamlined Sales and Use Tax Agreement Certificate of Exemption (SSUTA-COE) when making tax exempt purchases.

Multistate Certificate of Exemption
The SSUTA-COE was created by the Streamlined Sales Tax Governing Board pursuant to the Streamlined Sales and Use Tax Agreement. This board and agreement were created by multiple state members with the goal of streamlining the administration of sales tax collection and reporting, including procedures for claiming an exemption from sales tax in multiple states. The SSUTA-COE is accepted by vendors in 24 states and in some nonmember states. Not all states, however, allow all exemptions listed on the form and, therefore, purchasers are still responsible for knowing if they qualify to claim an exemption from taxes in the states that would be due taxes on otherwise taxable sales. Also, nonprofits that use this form will be held liable for any tax and interest, and possibly civil and criminal penalties imposed by the member state(s), if the nonprofit is not eligible to claim a tax exemption. So, while this form can be a time saver, it does not relieve a nonprofit organization from first obtaining a sales tax exemption in the state(s) or performing the proper due diligence of knowing whether or not the organization qualifies for a sales-tax exemption in the states that accept this form.

Nonprofits Need Not Fear Death and Taxes
Varying sales tax exemptions from state to state, specific nonprofit, entity-based exemptions, specific charitable use, purchaser and payment requirements and multistate exemption certificates all add to the confusion of determining where, when and how a nonprofit organization qualifies for a sales tax exemption. Yet nonprofits need not fear death or sales taxes. Assistance in making these determinations can be obtained by consulting an attorney, tax advisor or knowledgeable service company.




*For the purposes of this article, the term “sales tax” includes use taxes.



This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Tags: Nonprofit

Updating the Public Record to Reflect Important Company Changes

Posted by Teri Mayor on Thu, Feb 09, 2017

Company changes that require a filing.jpgBy Teri Mayor, National Corporate Research, Ltd.

As many brides can tell you, lining up the necessary paperwork to change your name can be painful, time consuming and confusing. One young bride I know changed her name with the Department of Motor Vehicles (DMV), but didn’t realize that changing the name on the title of her car required submitting a separate form. That came to light when she had difficulty renewing her registration a year later because the title was in her former name. Unfortunately, companies often make similar faux pas when it comes to updating the public record after making a change. 

When a company makes a change, it can experience the same frustration, multiplied by the number of states it’s registered in. Every state has its own requirements and the burden of making sure those changes are reflected is on the company. The accuracy of the public record is at stake and state laws may even require notification within a certain time frame. For example, Delaware requires that the Secretary of State be notified within 30 days after a foreign corporation changes its name or principal office address. While not every state imposes a time limit, all have provisions indicating the foreign corporation should change its registration when certain changes are made.

Common Changes in the Home State That Should Be Reflected in Foreign States

Change of Name of Business Entity: If a company changes its name, it should file an amendment to change its name in every state where it is registered to do business.  Name changes require a separate amendment filing --- a company cannot amend its name using an annual report. Many states will require the entity to provide an official certificate issued by the home state to show the change was made.

When a company neglects to update the records, it can cause a lot of confusion and difficulty. An entity re-registering to do business because of a name change (rather than amending the original registration) is one of the most expensive pitfalls. At that point it will have two separate registrations at the state and can be liable to pay the fees and taxes due for both registrations.  At the very least it will be time consuming and problematic to clean up the public record so that it reflects the real situation.  

Change of the Principal Office:  While not every state requires the listing of the principal place of business on the initial registration, for those that do, it is important to notify the state when this changes. Often this can be done either using an amendment or on the annual report.    

If a company fails to update the public record regarding its new address, it can miss important notifications.  While legal process will be served on the registered agent, states often send other notices and annual report forms to the principal business address instead.

Change of Business Entity Type:  This is often the most complicated change to reflect.  Laws allowing entities to change or convert from one type of entity to another do not currently exist in every state. So when a change like this is made in the home state, the entity may not be able to file an amendment to change the record in a state where it is registered to do business. To reflect the change, a withdrawal or termination may be required. So, for example, if a Delaware corporation that is registered to do business in New York converts to an LLC, they will need to take the following steps to reflect that change since New York does not recognize conversions:

  1. Obtain a certificate from the Delaware Secretary of State that reflects the fact it converted to an LLC.
  1. File that certificate, observing certain protocols, like the attachment of a ‘backer’ or cover sheet, to terminate the existence of the corporation.
  1. File an Application for Authority to register the LLC to do business in NY.

Changes made to entity type can sometimes affect when an entity should file its annual report. For example, in Massachusetts a corporation files its annual report based on its fiscal year (the report must be filed on or before the third month after the end of the fiscal year) whereas an LLC files based on its registration date. In other states, like Arizona, an LLC has no annual report requirement but a corporation does. Companies that have changed their entity type should not only ensure they have reflected the change properly wherever they are doing business, but also need to be aware of potential changes in their annual reporting requirements. If they are not, they could fall out of good standing.

Why Maintaining Good Standing is Important

Corporate filing registries like the Secretary of State commonly revoke or void companies that don’t file annual reports in a timely way. This loss of good standing status can have serious repercussions, including:

  • Another company can form in the state using its name, as names of voided companies become available for use after a certain period of time.
  • The company can experience difficulties in getting financing or opening bank accounts due to the need to provide a good standing certificate.
  • The company may need to pay fines and penalties to reinstate.
  • The company can lose its ability to maintain an action in the courts of that state.

Ensuring the accuracy of the public record is an important value for the corporate registries charged with maintaining it. Businesses, banks and the general public benefit from having an easily accessible public record that accurately reflect the correct names, addresses and status of entities doing business in a given state. However, because each state maintains independent databases, it does result in a lot of paperwork for companies to ensure that their records are kept up to date.

How to Ensure Everything Is Up-to-Date (Without Losing Your Mind)

Just as a bride can use a name change service to switch from “Miss” to “Mrs.”, when an entity makes a change that requires updating the public record, it can outsource the mandatory paperwork to an experienced service company. This can be a cost effective way to save time and avoid frustration, while maintaining good standing and ensuring compliance with state requirements.

 

 This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Compliance, Good Standing

Frequently Asked Questions About Delaware Annual Reports for Corporations

Posted by Colleen DeVries on Thu, Feb 02, 2017

Delaware Annual Reports FAQs.jpgBy Colleen A. De Vries, National Corporate Research, Ltd.                                                      

By now, all Delaware domestic for-profit and non-profit corporations incorporated on or before December 31, 2016 should have received a notice covering the corporation‘s Delaware annual report and franchise tax payments due March 1, 2017 for the 2016 tax year. If your corporation has not received a notice, you should contact the corporation’s registered agent or the Delaware Division of Corporations to determine the reason.

To simplify the annual report filing process, answers to some frequently asked questions are listed below.

Q:   What is due and when?
A:   A Delaware domestic corporation must file a fully completed annual report and pay the annual report filing fee and franchise tax by March 1, 2017. The franchise tax payment due is for the prior (2016) calendar year. An exempt corporation does not have to pay franchise tax, but it must file a completed report and pay the annual report filing fee. The report must be filed online and must be received by the Division of Corporations on or before the March 1st due date.

Q:    How is the amount of the Delaware franchise tax calculated?
A:     There are two methods to calculate a Delaware corporation’s franchise tax: Authorized Shares method and Assumed Par Value Capital Method. The corporation pays the lesser of the two amounts.

Q:    How do I calculate the franchise tax using the Authorized Shares method?
A:     If the corporation has 5,000 shares or less, it pays the minimum tax of $175. For corporations with 5,001 to 10,000 shares, the tax is $250. For corporations with over 10,000 shares, the tax is $250 plus $75 for each additional 10,000 shares or portion thereof. The maximum annual tax is $180,000. Go to the “How to Calculate Franchise Taxes” page on the Delaware Division of Corporations’ website for additional information on calculating the tax due.

Q:  How do I calculate the franchise tax using the Assumed Par Value Method?
A:   For corporations using the Assumed Par Value Method, the minimum tax is $350. To use this method the corporation must report its total number of issued shares (including treasury shares) and total gross assets (as reported on U.S. Form 1120, Schedule L, for the company’s fiscal year ending the calendar year of the report). The tax rate using this method is $350 per $1,000,000 or part thereof of assumed par value capital. The maximum annual tax is $180,000. To calculate the estimated tax, go to the Delaware Division of Corporations’ Franchise Tax Calculator or go to the How to Calculate Franchise Taxes page for additional information.

Q:   Are there any additional fees that are required to be paid at the time of filing my corporation’s Delaware Annual Report?
A:    The Secretary of State of Delaware charges an additional annual report filing fee of $50. Exempt corporations pay $25 to file an annual report.

Q:    How do I calculate the franchise tax for non-exempt non-stock corporations?
A:     All non-exempt non-stock corporations pay a franchise tax of $175. There is no alternate tax method available.

Q:    I understand some corporations have to pay franchise taxes quarterly. How does that work?
A:    Taxpayers owing $5,000 or more pay estimated taxes in quarterly installments with 40% due June 1st, 20% due by September 1st, 20% due by December 1st and the remainder due March 1st. Taxpayers subject to the quarterly payment requirement will receive a reminder notice each quarter. 

Q:    Is an annual report required to be filed each quarter with payment of the tax?
A:    No, the Delaware annual report is required to be filed only one time per year, by March 1st.

Q:    If the tax amount is large, can payment be made by wire to the Delaware Secretary of State?
A:    A corporation may pay its franchise taxes directly via DE SOS ACH- this method must be used for all transactions over $5,000. If you prefer to make payment via a wire transfer, check with your registered agent, since most professional registered agent companies will accept the funds by wire, pay the Delaware Secretary of State and follow up with evidence of such payment on behalf of your corporation.

Q:    What happens if I missed the March 1st deadline?
A:     Reports that are not filed by March 1st will result in the Delaware Division of Corporations assessing a $125 penalty in addition to the tax and annual report fee, plus interest at 1.5% per month applied to any unpaid tax balance. Also it is important to note that Delaware will not issue Good Standing Certificates for corporations that have not met the annual report filing requirements. After two years of non-filing and non-payment, the corporation’s Certificate of Incorporation will be revoked.

Q:   What information is required on the annual report?
A:    Your corporation’s Delaware annual report is pre-populated with certain information including the exact legal name of the entity, total number of authorized shares, class and par value of the shares and a breakdown of the franchise tax and fees due. In addition, the annual report is required to include the principal business address and phone number, the names, addresses of all Directors, the name and address of one officer and must be executed by an authorized signer.

Q:    Who can serve as the Authorized Signer of the electronic annual report?
A:     The annual report must be signed by the corporation's president, secretary, treasurer or other proper officer duly authorized to so act, or by any of its directors, or, if filing an initial report, by any incorporator in the event its board of directors shall not have been elected. The incorporator may not sign subsequent annual reports.

Q:    How do I file my corporation’s annual report and make payment?
A:    Delaware now requires that all annual franchise tax reports be filed electronically and accepts payment only in U.S. dollars drawn on U.S. banks.

You have the following options to file your report and pay taxes and fees:

  1. File electronically at Delaware’s website, http://www.corp.delaware.gov/paytaxes.shtml. Your payment options at the state’s site are ACH Debit, Visa, MasterCard, Discover or American Express. Live support is available online Monday through Friday, 8:30 AM to 4:00 PM by clicking the “Contact Us” link. If you require special accommodations, you may contact the Division of Corporations Franchise Tax Section at (302) 739-3073.
  2. File electronically utilizing your registered agent’s online system for Delaware annual report filing. Agents who offer such systems usually store the information needed to complete the report so that you will not have to re-enter it in subsequent years. (When you file directly with the state, you will have to input all of the information each year.) The payment options at registered agent sites vary, so check in advance to ensure you are able to pay with the options offered.

Q:    The domestic Delaware corporation I formed never engaged in business. Do I still have to file an annual report and pay the tax?
A:     Yes. You are still required to file the annual report and pay the franchise tax even if the corporation never engaged in business.

Q:   What happens if the corporation merges or dissolves before the end of the calendar tax year?
A:    Delaware requires that annual report(s) be current prior to all dissolution and merger filings. At the time of dissolution or merger, all franchise taxes must be paid through the date of the filing of the Certificate of Dissolution or Merger with the Delaware Secretary of State. Not being aware of this requirement can cause frustration when time-sensitive filings are delayed for this reason. We recommend identifying the tax due in these cases well in advance of the date of filing for a dissolution or merger. A professional registered agent company should be able to assist with obtaining total taxes due on any given date.

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Annual Reports, Delaware Franchise Tax, Delaware Annual Reports

A Guide to Filing Annual Reports in States with Complex Requirements

Posted by Jacob Sherretts on Thu, Jan 26, 2017

challenging annual report filing jurisdictions.jpgBy Jacob Sherretts, National Corporate Research, Ltd.

Have you ever found yourself under the gun to meet an annual/periodic report deadline in order to maintain your company’s good standing only to find that you are missing pertinent information before you can file?  While many states require similar basic information, there are some states that make annual report filing a bit more challenging. Hopefully, this brief guide to filing in the states with more complex requirements, compiled by the annual report compliance specialists at National Corporate Research, Ltd., will make the filing process easier for you.

Alaska:

  • If a limited liability company (LLC) is member managed, all members listed on the annual report must show their percentage of ownership in the LLC. Officers with the title “shareholder” are listed similarly for corporate entities and are required to be included on the report if they hold 5% or more of the issued shares.
  • While in a number of states, some types of information about the entity can be changed at the time the annual report is filed, this is not the case in Alaska. A corporation’s stock information (excluding the amount of shares issued) and the NAICS (North American Industry Classification System) code must be changed separately from the annual report form.

Arizona:

  • The term commencement dates of officers must be listed.
  • A Certificate of Disclosure and Statement of Bankruptcy or Receivership must be completed for corporations.
  • Electronic filing of the report is acceptable. However, if a report is rejected, the state will send a rejection form to correct any issues. The form, along with its cover page, must then be physically signed and mailed to the Arizona Secretary of State, scanned and emailed to documentintake@azcc.gov or faxed to 1-602-542-4366. If the corrected filing takes more than 30 days to submit, the entity will be charged a fee of $9 for every month that the report is not filed.

California:

  • For LLCs, California still requires paper filing by mail or over the counter at the state’s office.

Delaware:

  • A corporation’s franchise tax due to the state with the annual report is calculated based on the corporation’s authorized shares of stock (a minimum payment of $175.00). There are two methods of calculating the tax due – the Authorized Shares Method (for corporations having no par stock) or the Assumed Par Value Capital Method. It may take some collaboration and time to obtain the information necessary to file via the Assumed Par Value Capital Method, so make sure to plan ahead for the March 1st due date each year. If not filed and paid on time, the state will implement an immediate $125 late fee and apply interest of 1.5% per month to any unpaid tax balance!

Hawaii:

  • Hawaii allows for electronic filing of annual reports. Although the Hawaii annual report form is relatively straight forward, the turnaround time can sometimes take weeks or even months. This is because a clerk needs to review the filing before it is accepted – even when the report is submitted electronically. Checking back to see if an annual report has been accepted can be time consuming and frustrating. (This wait time is not unique to Hawaii in that other states, such as Massachusetts and Rhode Island, have delays related to a clerk needing to review the filing before it is accepted. But this takes much less time -- approximately 24 hours -- than Hawaii.)

Illinois:

  • Illinois may require a paper filing of the informational report based on the company’s paid in capital. If a paper filing is required, the form is more involved than most states since it requires financial data to calculate the franchise tax due to the state at the time of the annual report filing.
  • If stock information has changed since the previous annual report, a separate form – Cumulative Report of Changes in Issued Shares and Paid-In Capital (BCA 14.30) must be filed to update the information.

Virginia:

  • The Virginia State Corporate Commission (SCC) requires a paper filing with an original signature                            for corporate annual report filings with officer and director changes when the officers and directors are different than those listed on the state’s mailed prepopulated report. (The SCC no longer allows these up
    dates to be made when filing online.) The postmark must be on or before the due date to be considered an on time filing. If there are no officer/director changes from the prior year, then the filing can be made electronically via the state’s eFile system.
  • The Assessment payment must be mailed by check in a separate envelope to a different section or payment made online via the state’s website.

Key to Success: Keeping Good Records and Having a Tracking System in Place

Although many states have different requirements to remain in good standing within their jurisdictions, compliance can generally be maintained by keeping good records and tracking when annual reports (in addition to taxes and required business licenses) are due. Even with the best adherence to these rules, however, remaining in good standing still might be a challenging task, especially if multiple entities are operating in different jurisdictions and are engaged in business that requires multiple reports to maintain compliance.  

If your organization is utilizing a lot of resources to track and handle annual compliance requirements, you may want to consider outsourcing this responsibility to an experienced registered agent service company to save time while ensuring that all of your entities stay in good standing.

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This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Annual Reports

Ready to Start Doing Business in Mexico? Here’s What You Need to Know About Entity Formation

Posted by Karen Redman on Thu, Jan 19, 2017

By Karen Redman, National Corporate Research, Ltd.

entity formation in mexico.jpg

These are interesting times economically for Mexico, making it an equally interesting time to form a business there. However, if you’re willing to weather a little uncertainty, it’s a great time to do so.

The Benefits and Risks of Forming a Mexican Business Now

In a November 2016 press release, the IMF praised Mexico for having “navigated successfully a complex external environment, characterized by heightened global financial market volatility,” and went on to write that “the economy continues to grow at a moderate pace and inflation is close to target”[1] Indeed, the IMF reports that real GDP growth in Mexico was projected to come in at 2.1% in 2016 with the primary drivers being private consumption, a rise in remittances, robust employment and real wage growth. The labor market was strong with steady job creation primarily in services and residential construction. In line with the strengthening jobs market, there is rise in credit to the private sector. Another positive data point is that the balance sheets of both private sector (total private corporate debt is low at approximately 25% of GDP) and financial institutions remain strong[2].

There are, of course, points of concern, with both known and unknown consequences. It is well known that PEMEX (Petroleos Mexicanos) has been negatively affected by the decline in oil production and prices, resulting in a significant increase in debt. The government took measures to assist by providing financial assistance, cutting expenses and restructuring the pension scheme2. Other concerns have unknown consequences such as the new tone of protectionism in the U.S. (increasing barriers to trade and capital can delay investment). On the flip of that same coin, the promised increase in U.S. manufacturing production may help Mexico and could lead to an increase in exports given the ties between the two countries.

Current economic conditions aside, if your entity needs to expand into Mexico, the process for formations is known and proven --- although there are some requirements that are unexpected to those who have only formed entities in the U.S.

Mexican Entity Types and Their Requirements

The most popular entity types in Mexico are corporations (Sociedad Anonima or S.A and the Sociedad Anonima De Capital Variable or S.A. De C.V) and the limited liability company (Sociedad de Responsabilidad Limitada or S. De R.L.). There is a third type of entity that is rising in popularity -- the S.A.P.I. -- Sociedad Anónima Promotora de Inversion (Mexican investment promotion company).

The corporations (S.A.) and the limited liability company (S. De R.L.) have similar features and requirements, which include:

  • Limited liability
  • A resident Mexican legal representative
  • Mandatory shareholder annual meetings
  • A domestic address
  • Required tax return and financial statement filings
  • A minimum of one director/manager and a minimum of two stockholders/partners (the S.De R.L has a maximum of 50 while the S.A has no minimum).

For the S.A., the minimum capital cannot be less than 50,000 Mexican pesos and for an S De R.L., it cannot be less than 3,000 Mexican pesos. Only the S.A. may have multiple share classes and special shares for employee stock options.

The S.A.P.I. is a special investment corporation similar to the S.A. but with more robust minority shareholders’ rights and tax advantages. It is commonly used in real estate and capital-intensive projects.

Also, in March 2016, President Peña Nieto announced the passage of a law that created a simplified business category called Sociedad for Acciones Simplificadas (S.A.S.) This type of company can be registered online, however, it is geared to the domestic entrepreneur (the owner needs to have a Mexican Resident tax I.D.).

How to Form an Entity in Mexico

Once the desired entity type for the foreign owned entity is identified, the process for formation includes obtaining approval from the Ministry of Foreign Affairs for the name, providing an international power of attorney (duly notarized and apostilled) to the resident legal representative, drafting the Articles of Association and by-laws and executing the Articles before a notary in Mexico (if qualified, the Mexican resident legal representative can do this). Once the Articles are signed and notarized, you have your Mexican entity!

With your company established, it is time to register it! All companies with foreign investors must register at the Registry of Foreign Investment within 40 working days.

Similarly, the company is required to obtain a tax identification number, a digital signature and a digital symbol within 30 days of formation.

There are other possible registrations after the company is formed, including the Public Registry of Commerce, the Social Security Institute and the National Business Information Registry.

Once your company is formed and has a Tax I.D., tax filing obligations, the scope of which is beyond this article, arise. Be aware that these filings are required even if the company is not operating or doing business.

Are You Ready to “Take the Plunge”?

The economic outlook in Mexico is positive, but not without risks. Depending on what business you’re in, you may determine that the potential rewards of doing business in Mexico outweigh the risks. If/when you decide to “take the plunge”, you’ll find that the formation process is relatively pain-free, although there are some additional hoops to jump through (vs. forming in the U.S.).  Are you ready to start doing business in Mexico?

 

[1] International Monetary Fund; Press Release No. 16/520, November 22,2016

[2] International Monetary Fund; Staff Report for the 2016 Article IV Consultation, November 4, 2016

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: International, Mexico

Frequently Asked Questions About Annual/Periodic Report Compliance

Posted by Vincent Blond on Thu, Jan 12, 2017

 

filing an annual report.jpg

By Vincent Blond and Terri Lennon, National Corporate Research, Ltd.

Compliance is a prevalent concern for all businesses due to the ever increasing number of regulations that must be met. One aspect of “compliance” for business entities involves filing informational reports in states where the company is doing business. Most states require registered entities to file a yearly/periodic informational report in order to maintain good standing and remain compliant with the state.

It seems simple enough, however, since each state has different requirements, companies that operate in all or many states can find it challenging to understand and keep track of what they have to do. Hopefully, the answers to the frequently asked questions below will help to clarify some of the variations and exceptions in how annual/periodic reports are handled across the country.

Do all states call these required informational filings “annual reports”?

No, there is a lot of variation in how each state refers to this required filing. For example, in Connecticut, Idaho and many other states, this report is referred to as an “Annual Report”, while in California it is called a “Statement of Information”. Below is a list of some of the commonly used names across the nation:

  • Business Renewal
  • Annual Report
  • Annual Renewal
  • Annual List
  • Statement of Information
  • Business Entity Report
  • Periodic Report
  • Annual Registration

Is the solicitation I received legitimate?


The different names for the informational reports in each state are confusing enough, but add to it the fact that there are companies who purposefully confuse you further. These deceptive firms mail scam notices that look official and offer to provide, for a fee, services that either are not required in the state where the entity is registered or that you can easily handle yourself at no cost. If you receive a notice like this and are not sure if it is legitimate, visit the Misleading Annual Report and Compliance Solicitations page of our website to learn about the latest deceptive solicitations and view samples of them.

Do all states require an annual/periodic report filing?

An informational report is generally, but not always, required for every entity type in most jurisdictions.  Some states may require reporting for corporations, but not limited liability companies or other entity types and vice versa.  For example:

  • In Ohio, foreign and domestic limited liability partnerships are required to file biennially, while a foreign professional corporation is not required to file and a domestic corporation is required to file. Nonprofits are required to file every five years. Corporations and limited liability companies are not required to file a periodic report.
  • Arizona, Missouri, New Mexico and South Carolina all require corporations to file periodically, but limited liability companies are not required to file at all.

It is important to thoroughly review each state’s statutory requirement based on the type of entity and whether it was domestically formed or foreign qualified in the specific state.

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What information is required when I file an informational report?

While each state’s annual/periodic information report may be different, there is basic information that is required in most states. Common questions that are asked on the majority of information reports for the different states include:

  • Where is the entity’s principal place of business?
  • What is the name and address of at least one officer (member/manager, if an LLC) for this entity?*
  • What is the name and address of at least one director for this entity?
  • What is the name of someone who is authorized to complete and/or file this report on behalf of the entity?
  • What is the nature of company’s business?

*Some states do require the listing of multiple, and sometimes very specific, officer titles on the annual information reports.  Below are a few examples, but this does not include every possible scenario:

  • For corporations, California requires the names of the CEO (or equivalent), Secretary (or equivalent) and CFO (or equivalent) to be listed on the annual report.
  • Oregon corporations must list a President and Secretary on the annual report.
  • New York corporations must list the CEO on the biennial report.

When are my company’s informational reports due?

Individual state statues govern and regulate the varying due dates for these informational reports within each state. These due dates vary widely from state to state and can also be based on the type of entity. States calculate these due dates differently.  Some commonly use the anniversary date of the entity’s formation or qualification or the last day of the entity’s anniversary month. Some states, such as Minnesota, have all Annual Renewal Reports due on the same day (12/31) each year for all entity types (corporations, limited liability companies, etc.). Some states use other criteria, such as the entity’s fiscal year end.

Annual/Periodic Report Due Dates Based on Entity’s Fiscal Year End

  • Alabama (corporations, limited partnerships and LLCs)
  • Kansas (corporations, nonprofits, limited partnerships and LLCs)
  • Massachusetts (corporations, and nonprofits)
  • New Mexico (corporations and nonprofits)
  • North Carolina (corporations)
  • South Carolina (corporations and nonprofits)
  • Tennessee (corporations, nonprofits, LLPs and LLCs)
  • Vermont (corporations and LLCs)

What other information may be required when filing my annual/periodic report?

Some states require the listing of specific financial data in conjunction with the informational report filing. This additional information is commonly required for for-profit corporations and varies from state to state.

Do all states require our financial information to be listed?

No, approximately 25% of states require the listing of some financial information when filing a corporation’s annual report. These include:

  • Alabama
  • Arizona
  • Arkansas
  • Delaware
  • Illinois
  • Maryland
  • Massachusetts
  • Michigan
  • Oklahoma
  • Rhode Island
  • Texas
  • West Virginia
  • Wisconsin
  • Wyoming

What basic financial information is requested on these annual reports?

An entity’s stock structure is commonly required on an annual report.  General stock information requested may include:

  • The class of the stock (common/preferred)
  • The number of authorized shares of stock
  • The number of issued shares of stock
  • The number of outstanding shares of stock
  • The par value of the stock
  • The name(s) of any shareholders and sometimes the percentage of ownership

For what period of time is the financial information required?

State requirements for the date range of financial data vary but usually fit one of the following criteria:   

  • Current day – The financial information of the entity as of the day the report is being filed. (Arizona)
  • Fiscal year end – The financial information of the entity is for the specific fiscal year end that is listed on the report. (Massachusetts)
  • Calendar year end – The financial information of the entity as of 12/31 of the prior year (Delaware)

Is there a change in cost when filing the report based on the financial information I supply?

The answer to this question varies greatly based on the state in which you are filing. Usually, if you are required to pay a franchise or corporation tax along with the annual report, then the fee changes based on the financial information disclosed.  As a sample, the following states require a fee based on the financial data provided:

  • Arkansas (foreign and domestic corporations)
  • Wyoming (foreign and domestic corporations)

Can a change or amendment be filed if the financial information provided on the annual report is inaccurate?

Yes.  Each state customarily allows an amendment filing to change the financial information that is on record with the respective Secretary of State. These amendment forms can be found on each state’s website. 

For example, Illinois requires the financial information on the current report to match what is on record with the Secretary of State. If they are not a match, an amendment (BCA 14.30 form) must be included with the annual report submission to avoid rejection.  If you are unsure of what financial information was listed on the last filed annual report, you can order a copy of the last report from the Secretary of State for an additional fee. 


Where can I find the annual report forms?

The annual report forms can usually be found online on the Secretary of State websites. There are some states that require electronic filing of the annual reports via the states website. Most times, these states will require payment by credit card, state account or ACH transfer.

Are the annual reports and tax returns always separate?

No, there are a few states in which the tax return is filed in conjunction with its annual information report. Below is the list of the states that this applies to:

  • Alabama
  • Maryland
  • Oklahoma
  • South Carolina
  • Texas

Compliance is an ever growing and continually changing concern for all companies, from the large conglomerate to the small family owned corporation. If your company handles all of its annual/periodic report filings, it is important to fully understand the requirements in each state where you are registered to ensure ongoing good standing and compliance. Seeking the assistance of a competent attorney, tax consultant or service company can make the process a lot easier and help to ensure your reports are being handled properly.

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Corporate Compliance