Beruflich Dokumente
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Setting up a business
in Delaware
1. INTRODUCTION
The US is known for being the first contemporary constitution in the world which still
remains those days. One of the most important bases is the different powers between the
Federal Government and the States1 that makes the Corporate Law an issue that only the
States can legislate.
Delaware is well known all over the world for hosting a huge amount of business. A lot
of American companies are based there even though its activity takes place in other
state, such as Facebook, General Motors or LinkedIn.
In this paper I will try to explain why Delaware has more business entities than
population and why shareholders want to place their corporations in the first state of the
United States.
The Federal Government has power to legislate the issues recognized in Section 8 Article I of the US
Constitution. The rest of issues have to be legislated by the states.
2
Delaware Constitution available online at http://www.delcode.delaware.gov/constitution. Accessed
07/01/2015, 6.41 p.m.
3
Delaware Code available online at http://www.delcode.delaware.gov. Accessed 07/01/2015, 7.00 p.m.
codified, so it has to be taken form the sentences of the cases. In Delaware Corporate
law, the Case Law is given by the Court of Chancery4 because of its specialization. It is
important to emphasize that the Court of Chancery is one of the three constitutional
courts.
3. FORMATION
Any person, or group of persons, physical or legal, can incorporate a corporation by
filing with the Division of Corporations in the Department of State a certificate of
incorporation. The corporation will be used to promote lawful business under this law
or any other law provided by the Constitution or any other law of Delaware.
Nevertheless, the corporations that will operate public utilities within Delaware will
have to be regulated under special legislation. 5
It is important to point that the legislative power does not restrict the access to create a
corporation for foreign people, or even for companies with its future economic activity
will not take place in Delaware.
4. POWERS
Every corporation possesses and may exercise all the powers and privileges granted by
the law6 . The powers, enumerated in article 122 of the General Corporation Law,
provide the corporation a range of freedom to manage the legal person if the physical
person has the capacity to do it7 . It includes powers referred to shares, contracts or
securities.
Article
Article
6
Article
7
Article
5
IV 10 Delaware Constitution
101 General Corporation Law (GCL).
121 GCL
124 GCL
The corporation shall be managed by the director or directors. The provisions of the
duties and powers of the board of directors are made in the certificate of incorporation,
and the performance should be according to the powers given8 .
Every corporation shall have officers provided by duties and powers. One of the officers
will have the duty to record proceedings of the meetings of the stockholders and
directors in a book to be kept9 .
The main difference between directors and officers is that the officers can legally blind
the corporation and they are not liable for their acts if these are taken on behalf of the
corporation10 .
Officers, directors and stockholders can be the same physical person. This is very
common in corporations of little measurements, while the big corporations usually have
different people because of the amount of job. It is important to say that there are many
legal problems between directors or officers and stockholders because each group has
different views of the corporation and their acts are aimed to a different future of it.
6. STOCK TRANSFERS
The transfer of stock and the certificates which represents it shall be governed by
Article 8 of Subtitle I of Title 613 .
The certification of incorporation has to include the way to transfer the stock and the
possible incompatibilities with certain prospective buyers or any other restrictions14 .
13
Article
Article
15
Article
16
Article
17
Artivle
18
Article
19
Article
14
201
202
211
212
214
215
215
GCL
GCL
GCL
GCL
GCL
GCL
(c) GCL
The
notification shall be not less than 10 days nor more than 60 days before the day of the
meeting to each stockholder entitled to vote20 .
10. DISSOLUTION
If the board of directors decides to dissolve the corporation, after the adoption of a
resolution by the majority of the whole board at any meeting for that purpose, shall
20
Article
Article
22
Article
23
Article
21
223
241
242
251
GCL
GCL
GCL
GCL
cause notice to the stockholders. In the stockholders meeting a vote shall be taken upon
the proposed dissolution; if the majority approves it, a certificate of dissolution shall be
filled with the Secretary of State24 .
General Partners: They may dissolve the corporation at their discretion and
usually run business (as specified in partnership agreement). They are liable for
all business debts.
Limited Partners: They cannot dissolve the corporation at their discretion. They
are liable to the amount of capital invested.
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corporate rates. The annual franchise tax is $300 payable to Secretary of State. This
business structure is regulated in Title 6 of the Delaware Code, from article 17 to 101.
4. C Corporation
In a C corporation an unlimited number of shareholders owns the company through
stock, while business is managed through the Board of Directors. The liability is limited
to the amount of capital contributed unless acting as a guarantor of the corporate debt.
In taxation, the corporation pays taxes on business income ant the corporate tax rate and
the profits distributed to shareholders are taxed at personal income tax rate. The annual
franchise tax is based on the number of authorized shares or assumed no-par capital
payable to Secretary of State.
5. Public Benefit Corporation
A Public Benefit Corporation, as known as B Corp, has the same characteristics than
a C Corp, but exists for the public benefit or common good, but can still earn a profit.
In Delaware, a B Corp does not have any advantages when paying taxes.
6. Subchapter S Corporation
An S Corporation is owned by the shareholders through stock and business is
managed through the Board of Directors. The owners liability is limited to the amount
of capital contributed (unless the stockholder acts as a guarantor of the corporate debt).
In taxation, the corporation pays taxes on business income ant the corporate tax rate and
the profits distributed to shareholders are taxed at personal income tax rate. The annual
franchise tax is based on the number of authorized shares or assumed no-par capital
payable to Secretary of State.
7. Limited Liability Company27
A LLC is owned by one or more members and it can be controlled by them or by
managers, as set in the operating agreement. The owners liability is limited to the
amount of capital contributed unless the member acts as a guarantor of the corporate
debt. It is taxied as a partnership, corporation, or it may disregard depending on the
election made. The annual franchise tax is $300 payable to Secretary of State.
27
12. CONCLUSION
Delaware is one of the most attractive states to place a business. This consequence is
not because of the innovative law, the respected courts or the amount of case law; the
law has been copied in other states, there are more respected courts all over the world
and from a European view, the English case law is older and bigger compared to a state
that is nearly 230 years old. Delaware is such a unique place for business because the
public policy has invested in the corporations. All the powers of the state work hard
every day to make simpler the life of these legal persons.
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BIBLIOGRAPHY
Delaware Constitution
Delaware Code
o Title 6 Commerce and trade
o Title 8 Corporations
or-not-to-b-corp
How
to
Form
New
Business
Entity.
Available
online
http://corp.delaware.gov/howtoform.shtml
at