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STATE OF DELAWARE
- POLITICAL CONDITIONS
- LEGAL ENVIRONMENT
- LIMITED LIABILITY COMPANY (LLC)
- ADVANTAGES OF DELAWARE
- POWERS OF LLC
- FORMATION OF LLC
- CERTIFICATE OF FORMATION
- MEMBERS
- MANAGERS
- FINANCE
- RECORDS
- FEES
- TAXATION OF LLC
- REGISTRATION REQUIREMENTS
- REGISTRATION SET OF DOCUMENTS
STATE OF DELAWARE
The State of Delaware is located on the east coast of the United States of America, between New Jersey and Washington DC, and to the south of the city of Philadelphia. Major cities of Delaware are in close proximity to Philadelphia International Airport. Delaware was declared the first state of the Union in 1787. The capital of the state is in Dover – a major financial center with dozens of multinational banks and financial institutions. The population is 690 thousand people. Official language is English.
POLITICAL CONDITIONS
Very stable democracy. Three branches of the government are: Legislative, Judicial and Executive. The Congress with the Senate and the House of Representatives represents legislative branch.
LEGAL ENVIRONMENT
For almost a decade there are more companies being registered in Delaware than anywhere else. Delaware is recognized as the most popular jurisdiction. The registration process is the fastest and easiest in the world. Close to half of the U.S. top 500 corporations are registered here. The Congress passed recently a set of additional measures giving preferential treatment to companies registered in Delaware. It means that chances are that in foreseeable future Delaware will remain to be the most attractive jurisdiction.
LIMITED LIABILITY COMPANY (LLC)
Limited Liability Company (LLC) can offer a lot of advantages if registered in Delaware.
If you are not in banking or insurance business you may find it attractive to use LLC. LLC represents a legal hybrid between a corporation and a partnership and combines the best of both worlds. You can have it structured any way to accommodate for desired income distribution. Ownership schedule will remain confidential and is not a part of public domain.
LLC requires one or more owners. Owners can be individuals or legal entities, both domestic and foreign. Owners are not personally liable for debts or other obligations of LLC. Their liability is rather limited to the actual amount invested in LLC. In other words, owners can lose only what they have invested. There are no general partners among owners and they all share the same limited liability regardless of actual size of ownership interest.
ADVANTAGES OF DELAWARE
- Computerized fast and easy registration procedure with electronic
Certificate of Incorporation/Registration. Among other papers you will
receive a certified hard "copy" of a Certificate.
- You can do any business, which is not prohibited by law or requires
licensing.
- There are no restrictions on citizenship or residency of owners.
- Corporate papers are identical to those of U.S. origin.
- Data on owners is not publicly available and will remain confidential.
- There are no preset limits on duration of business. Every company
however that failed to pay annual fees for three years in a row will be
liquidated.
- A liquidated company might be reopened upon execution of all dues and
fees.
POWERS OF LLC
A limited liability company may carry on any lawful business, purpose or activity, whether or not for profit, with the exception of the business of granting policies of insurance, or assuming insurance risks or banking.
A limited liability company shall possess and may exercise all the powers and privileges granted by Delaware LLC Act or by any other law or by its limited liability company agreement, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the limited liability company (§18-106).
| FORMATION OF LLC |
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Two things are required under the Delaware LLC Act in order to properly form a Delaware LLC:
- A written LLC agreement and
- A certificate of formation duly filed with the Delaware Secretary of State.
CERTIFICATE OF FORMATION
In order to form a limited liability company, 1 or more authorized persons must execute a certificate of formation. The certificate of formation shall be filed in the Office of the Secretary of State and set forth:
- The name of the limited liability company;
- The address of the registered office and the name and address of the
registered agent for service of process required to be maintained by
§18-104 of this title; and
- Any other matters the members determine to include therein
(&18-201a).
A limited liability company is formed at the time of the filing of the initial certificate of formation in the office of the Secretary of State or at any later date or time specified in the certificate of formation. A limited liability company shall be a separate legal entity, the existence of which as a separate legal entity shall continue until cancellation of the limited liability company’s certificate of formation (&18-201b).
The name of the LLC
The name of each limited liability company
- Shall contain the words “Limited Liability Company or the abbreviation
“L.L.C.” or the designation “LLC”;
- May contain the name of a member or manager;
- Must be such as to distinguish it upon the records in the office of the
Secretary of State from the name of any corporation, limited
partnership, business trust, registered limited liability partnership or
limited liability company reserved, registered, formed or organized under
the laws of the State of Delaware or qualified to do business or
registered as a foreign corporation, foreign limited partnership or foreign
limited liability company in the State of Delaware; provided, however,
that a limited liability company may register under any name which is not
such as to distinguish it upon the records in the office of the Secretary of
State from the name of any domestic or foreign corporation, limited
partnership, business trust, registered limited liability partnership or
limited liability company reserved, registered, formed or organized under
the laws of the State of Delaware with the written consent of the other
corporation, limited partnership, business trust, registered limited liability
partnership or limited liability company, which written consent shall be
filed with the Secretary of State; and
- May contain the following words: “Company”, “Association”, “Club”,
“Foundation”, “Fund”, “Institute”, “Society”, “Union”, “Syndicate”, “Limited”
or “Trust” (or abbreviations of like import) (&18-102).
Registered office, registered agent
Each limited liability company shall have and maintain in the State of Delaware:
- A registered office, which may but need not be a place of its business in
the State of Delaware;
- A registered agent for service of process on the limited liability company,
which agent may be either an individual resident of the State of
Delaware whose business office is identical with the limited liability
company’s registered office, or a domestic corporation, or a domestic
limited partnership, or a domestic limited liability company, or a domestic
business trust, or a foreign corporation, or a foreign limited partnership,
or a foreign limited liability company authorized to do business in the
State of Delaware having a business office identical with such registered
office, which is generally open during normal business hours to accept
service of process and otherwise perform the functions of a registered
agent, or the limited liability company itself (&18-104a).
LLC Agreement
Limited liability company agreement is any agreement, written or oral, of the members as to the affairs of a limited liability company and the conduct of its business (&18-101.7).
Although each LLC agreement is unique, typically it includes following important issues:
- Management matters (who will have authority and responsibility for
managing the LLC, the management rights and duties of such person or
persons, and the limitations or restrictions on such authority);
- The economic rights and duties of members, including the making of
contributions to the entity, the right to receive allocations of profits and
losses, and the timing of and restrictions on distributions by the entity to
its members;
- All democracy rights and restrictions including voting rights and, if
desired, the establishment of various classes or groups of members of
managers having different rights, powers and duties;
- Matters relating to the issuance and transfer of interests in the entity, the
admission and withdrawal of members, including substitute and
additional
members, and mandatory and no mandatory purchase of interests in the
entity upon the occurrence of specified events, such as the death,
disability, resignation or expulsion of a member;
- Matters relating to the term of the entity and its dissolution and
winding-up.
A limited liability company agreement may be entered into either before, after or at the time of the filing of a certificate of formation and, whether entered into before, after or at the time of such filing, may be made effective as of the formation of the limited liability company or at such other time or date as provided in the limited liability company agreement (&10-210d).
| MEMBERS |
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A person may be admitted to a limited liability company as a member of the limited liability company in connection with the formation of a limited liability company and after the formation of a limited liability company (&18-301a,b).
A limited liability company agreement may
- Provide for classes or groups of members having such relative rights,
powers and duties as the limited liability company agreement may
provide,
- Make provision for the future creation in the manner provided in the
limited liability company agreement of additional classes or groups of
members having such relative rights, powers and duties as may from
time to time be established, including rights, powers and duties senior to
existing classes and groups of members,
- Provide that any member or class or group of members shall have no
voting rights,
- Grant to all or certain identified members or a specified class or group of
the members the right to vote separately or with all or any class or
group of the members, on any matter. Voting by members may be on a
per capita, number, financial interest, class, group or any other basis,
- Set forth provisions relating to notice of the time, place or purpose of
any meeting at which any matter is to be voted on by any members,
waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person
or by proxy, or any other matter with respect to the exercise of any such
right to vote (§18-302).
No member of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member of the limited liability company. Under a limited liability company agreement or under another agreement a member may agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company (&18-303a).
Except as provided in a limited liability company agreement, a member may lend money to, borrow money from, act as a surety, guarantor or endorser for, guarantee or assume 1 or more obligations of, provide collateral for, and transact other business with, a limited liability company and, subject to other applicable law, has the same rights and obligations with respect to any such matter as a person who is not a member (&18-107).
A limited liability company agreement may provide that:
- A member who fails to perform in accordance with, or to comply with the
terms and conditions of the limited liability company agreement shall be
subject to specified penalties or specified consequences; and
- At the time or upon the happening of events specified in the limited
liability company agreement, a member shall be subject to specified
penalties or specified consequences (&18-306).
MANAGERS
Manager is a person who is named as a manager of a limited liability company in, or designated as a manager of a limited liability company pursuant to, a limited liability company agreement or similar instrument under which the limited liability company is formed (&18-101.10).
If a limited liability company agreement provides for the management, in whole or in part, of a limited liability company by a manager, the management of the limited liability company, to the extent so provided, shall be vested in the manager who shall be chosen by the members in the manner provided in the limited liability company agreement. The manager shall also hold the offices and have the responsibilities accorded to the manager by the members and set forth in a limited liability company agreement. A limited liability company may have more than 1 manager. Unless otherwise provided in a limited liability company agreement, each manager has the authority to bind the limited liability company (&18-402).
A limited liability company agreement may
- Provide for classes or groups of managers having such relative rights,
powers and duties as the limited liability company agreement may
provide,
- Make provision for the future creation in the manner provided in the
limited liability company agreement of additional classes or groups of
managers having such relative rights, powers and duties as may from
time to time be established, including rights, powers and duties senior to
existing classes and groups of members,
- Provide for the taking of an action, including the amendment of the
limited liability company agreement, without the vote or approval of any
manager or class or group of managers, including an action to create
under the provisions of the limited liability company agreement a class or
group of limited liability company interests that was not previously
outstanding,
- Grant to all or certain identified managers or a specified class or group
of the managers the right to vote separately or with all or any class or
group of the managers, on any matter. Voting by managers may be on a
per capita, number, financial interest, class, group or any other basis,
- Set forth provisions relating to notice of the time, place or purpose of
any meeting at which any matter is to be voted on by any manager or
class or group of managers, waiver of any such notice, action by consent
without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy, or any other matter with
respect to the exercise of any such right to vote (§18-403).
A limited liability company agreement may provide that:
- A manager who fails to perform in accordance with, or to comply with
the terms and conditions of, the limited liability company agreement shall
be subject to specified penalties or specified consequences; and
- At the time or upon the happening of events specified in the limited
liability company agreement, a manager shall be subject to specified
penalties or specified consequences (&18-405).
Except as provided in a limited liability company agreement, a member or manager may lend money to, borrow money from, act as a surety, guarantor or endorser for, guarantee or assume 1 or more obligations of, provide collateral for, and transact other business with, a limited liability company and, subject to other applicable law, has the same rights and obligations with respect to any such matter as a person who is not a member or manager (&18-107).
Except as otherwise provided by Delaware LLC Act, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of acting as a manager of the limited liability company. Under a limited liability company agreement or under another agreement a member or manager may agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company (&18-303).
The manager of a limited liability company shall have the right to keep confidential from the members, for such period of time as the manager deems reasonable, any information which the manager reasonably believes to be in the nature of trade secrets or other information the disclosure of which the manager in good faith believes is not in the best interest of the limited liability company or could damage the limited liability company or its business or which the limited liability company is required by law or by agreement with a 3rd party to keep confidential (&18-305c).
| FINANCE |
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The contribution of a member to a limited liability company may be in cash, property or services rendered, or a promissory note or other obligation to contribute cash or property or to perform services (&18-501).
The profits and losses of a limited liability company shall be allocated among the members, and among classes or groups of members, in the manner provided in a limited liability company agreement. If the limited liability company agreement does not so provide, profits and losses shall be allocated on the basis of the agreed value (as stated in the records of the limited liability company) of the contributions made by each member to the extent they have been received by the limited liability company and have not been returned (&18-503).
Distributions of cash or other assets of a limited liability company shall be allocated among the members, and among classes or groups of members, in the manner provided in a limited liability company agreement. If the limited liability company agreement does not so provide, distributions shall be made on the basis of the agreed value (as stated in the records of the limited liability company) of the contributions made by each member to the extent they have been received by the limited liability company and have not been returned (&18-504).
RECORDS
A limited liability company may maintain its records in other than a written form if such form is capable of conversion into written form within a reasonable time (&18-305d).
FEES
A fee in the amount of $50 shall be paid to and collected by the Secretary of State for the use of the State of Delaware upon the receipt for filing of
A certificate of limited liability company domestication,
A certificate of transfer,
A certificate of conversion to limited liability company,
A certificate of formation,
A certificate of amendment,
A certificate of cancellation,
A certificate of merger or consolidation,
A restated certificate of formation,
A certificate of amendment of a certificate of merger or consolidation,
A certificate of termination of a merger or consolidation,
A certificate of correction, a certificate of restoration, or a certificate of revival (&18-1105a3).
TAXATION OF LLC
For purposes of any tax imposed by the State of Delaware or any instrumentality, agency or political subdivision of the State of Delaware, a limited liability company formed under Delaware Limited Liability Company Act or qualified to do business in the State of Delaware as a foreign limited liability company shall be classified as a partnership unless classified otherwise for federal income tax purposes, in which case the limited liability company shall be classified in the same manner as it is classified for federal income tax purposes. For purposes of any tax imposed by the State of Delaware or any instrumentality, agency or political subdivision of the State of Delaware, a member or an assignee of a member of a limited liability company formed under Delaware Limited Liability Company Act or qualified to do business in the State of Delaware as a foreign limited liability company shall be treated as either a resident or non-resident partner unless classified otherwise for federal income tax purposes, in which case the member or assignee of a member shall have the same status as such member or assignee of a member has for federal income tax purposes (&18-1107a).
Every domestic limited liability company and every foreign limited liability company registered to do business in the State of Delaware shall pay an annual tax, for the use of the State of Delaware, in the amount of $100 (&18-1107b).
The annual tax shall be due and payable on the first day of June following the close of the calendar year or upon the cancellation of a certificate of formation. If the annual tax remains unpaid after the due date, the tax shall bear interest at the rate of 1 and one-half percent for each month or portion thereof until fully paid (&18-1107c).
A domestic limited liability company or foreign limited liability company that neglects, refuses or fails to pay the annual tax when due shall cease to be in good standing as a domestic limited liability company or registered as a foreign limited liability company in the State of Delaware (&18-1107h).
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