DELAWARE’S

BUSINESS ENTITY LAWS

2015

PRESENTED BY:

TAMARA KLING, ESQ.

FEBRUARY 10, 2015

©2015, CT. ALL RIGHTS RESERVED.

AGENDA

•Why Delaware remains the leading formation state

•Delaware General Corporation Law – Overview and Update

– Including the Public Benefit Corporation

•Delaware Limited Liability Company Act – Overview and Update

•Business Trust (if time permits)

• Annual Reports and Franchise Taxes

•Questions

WHY IS DELAWARE THE LEADING FORMATION STATE?

WHY DELAWARE?

•The Business Entity Statutes

•The Court System

•The Body of Case Law

•The Division of Corporations

BY THE NUMBERS DELAWARE 2014

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PERCENT OF FORTUNE 500 COMPANIES ARE INCORPORATED IN DELAWARE

•65% of Fortune 500

•1,064,310 Active Entities in DE

– 291,000 Corporations

– 780,410 Alternative Entities

•169,000 New Entities formed in 2014 (4% growth over 2013)

•82% of all New US IPO's

•1.5B in franchise tax revenues

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DELAWARE’S BUSINESS ENTITY STATUTES

•Modern

•Flexible

•Liberal

•Non-restrictive

•Efficient

•Predictable

GUIDING PRINCIPLES OF DE ENTITY LAW

•Allow management to act quickly

•Freedom of contract

•Bias against regulation

•Laws must be adaptable to new developments

LAW ADAPTABLE TO BUSINESS CLIMATE

• Impetus

– Change in business environment

– Unpopular court decision

•Annual amendments drafted by Corporate Law Council

• Input from lawyers, professors, management, investors, etc. nationwide

•Requests from SOS (2012 amendments)

• Enacted by legislature

DELAWARE’S COURT SYSTEM

Supreme Court

Court of Last Resort

Court of Chancery Superior Court

Equity and Law Courts

Justice of the Peace Courts Alderman’s Court

Court of Common Pleas Family Court

Courts of Limited Jurisdiction

CHANCERY COURT

•Trial level equity court created in 1792

•No juries or punitive damages

•Chancellor and four Vice Chancellors appointed for 12 year terms

•Undisputed expertise in business matters

THREE WAYS TO CHANCERY COURT

•Equitable Remedy

•Equitable Claim

•Statute confers jurisdiction

MASS. MUTUAL LIFE INSURANCE CO. V. CERTAIN UNDERWRITERS AT LLOYDS OF LONDON

•C.A. No. 4791 (Chancery Court, 9/24/2010)

•Pl lost money entrusted to Bernie Madoff

•Filed suit in Ch Ct seeking equitable apportionment of defense costs between bond underwriters and D&O insurers

•All litigants wanted case heard by Ch Ct

•Ch Ct raised subject matter jurisdiction issue on its own

•Held that Ch Ct lacked jurisdiction

MASS. MUTUAL LIFE INSURANCE CO. V. CERTAIN UNDERWRITERS AT LLOYDS OF LONDON

•Ct stated that at heart, claim is that defs did not fulfill obligations

under insurance policies

•Claim is fundamentally a breach of contract action for money

damages

•Such a claim is province of Superior Court

•Rejected argument that D&O coverage issue resembles

indemnification issue Ct can hear under Sec. 145 of GCL

– Sec. 145 authorizes DE corp to buy D&O insurance

– Does not give Ch Ct jurisdiction over enforcement of policies

BENEFITS TO BUSINESS ENTITIES

•Expertise

•Speed

•Thoroughness

•Flexibility

•Consistency

DELAWARE’S CASE LAW

•Largest body of corporate case law in US

•Most sections of GCL have been interpreted

•Extensive precedents

– fiduciary duties

– director liability

– takeover defenses

– merger fairness

•Now has extensive LLC case law too

DELAWARE DIVISION OF CORPORATIONS

•Division of Secretary of State’s Office

•Processes all business entity filings

•Maintains official records

•Assesses and collects franchise taxes

DELAWARE DIVISION OF CORPORATIONS

•Modern, technologically advanced filing systems

•Filings can be completed within half hour

•Generates 25-30% of state’s revenue

•Meets and works with user community

•Unique role of service companies

FILING DOCUMENTS WITH DIVISION

•No “official” state forms

•One copy of document

•Effective date - upon filing or later date or time set forth in document

– Up to 90 days after filing for corporations

– Up to 180 days after filing for LLC, LP, LLP, ST (2011 amendment – effective

for filings on or after 1/1/2012)

– Prior effective date not acceptable except for extraordinary condition

FILING DOCUMENTS WITH DIVISION

•Expedited filing is available

•Five levels authorized by statute – 30 minutes, one hour, two hours,

same day, within 24 hours

•Correction filings allowed

– If document was inaccurate when filed

– If document was defectively executed

– Effective date - same as document being corrected

EXECUTION OF DOCUMENTS

•Corporation - Generally, any officer

•LLC - Any authorized person

•LP - Some documents signed by one general partner; some by all

general partners

•LLP - At least one general partner or other authorized person

•ST - Some documents signed by one trustee; some by all trustees

EXECUTION OF DOCUMENTS

•Signatures may be

– Facsimile

– Conformed

– Electronically transmitted

DOCUMENT ORDERING

•Certificates of good standing

– Long form

– Short form

•Certified copies of documents

•Certificates in re

•Expedited or standard service

SERVICE COMPANIES

•Access to state computer system

• Immediate filing capabilities

• Immediate document retrieval

•Public/private partnership

TOP 10 FILING ERRORS

•Name and title of signer not indicated

•Registered agent’s name and address

•DCLA Section # missing

•Co. name does not agree with State’s computer

•Stock information incorrect

•SOP information missing or incorrect in mergers

•Failure to verify tax due prior to filing

•Failure to check names for availability

•Copy quality of document

•Attempts to assume Charter of Non-Survivor

EXPEDITE OPTIONS

•30 Minute Expedite Service

– Effective October 1st, 2009

– Corporate Filings ONLY

• Excludes Preclearances & Bank Commissioner Approvals

– Cut Off of 8:45pm ET

– $1,500 Expedite Fee

•Global Filing Service

– Secure Future File Date

– Preparation Needed

– $1,000 Expedite Fee

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EXPEDITE OPTIONS

•Super Global Filing Service

– No Preparation Required

– $7,500 Expedite Fee

•Unexpected Closure Override

– Emergency SOS Closure

– 8:30am – 4:30pm ET

– Does NOT Apply to UCC Filings

– $2,500 Expedite Fee

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DELAWARE’S GENERAL CORPORATION LAW

BRIEF HISTORY OF GCL

•GCL of 1899 based on NJ GCL

•1913 - NJ passed antitrust acts & DE became top incorporation

state

•July 3, 1967 - new statute effective

•Publicly traded DE corporations – subject to federal securities

laws

– Traditionally federal law did not govern internal affairs

– SOX, Dodd-Frank – regulate corps in areas formerly left to states

• Makeup and duties of board committees

• Prohibition on loans to executives

• Say on pay

GENERAL CORPORATION LAW

•Formation

•Stockholders

•Directors & Officers

•Amendment, Merger, Conversion, Dissolution

INCORPORATION FEES

• Incorporation fees consist of:

– Filing fee - based on authorized shares (minimum - $15, no maximum limit)

– $25 receiving & indexing fee

– $5 fee for entering into database

– $20 municipality fee

– County assessment - $6 plus $9 per page

• Certification page counts as one page

FILING FEE TABLE

Stock With No Par Value Rate Per Share

First 20,000 shares 1 cent

Shares from 20,001 to 2 million 1/2 cent

Shares over 2 million 2/5 cent

Stock With Par Value (each $100 of capital stock = 1 share)

Rate Per Share

First 20,000 shares 2 cent

Shares from 20,001 to 200,000 1 cent

Shares over 200,000 2/5 cent

PRACTICE POINTER

•Annual franchise tax - based on # of authorized shares

•Corporation with high # of authorized shares & low PV may owe

only the minimum filing fee but high annual tax

•Care should be taken in deciding on the capital structure of a new

Delaware corporation to avoid surprise on first annual report

BYLAWS

•Provisions relating to conduct of affairs

•Typically address

– Size of board

– Election of directors

– Meetings

– Committees

– Officers

•2009 amendments permit bylaws to provide:

– Shareholder access to proxy solicitation materials

– Proxy expense reimbursement

•Stockholders may amend or repeal

•Directors may amend or repeal if Certificate of

Incorporation provides

ATP TOUR, INC. V. DEUTSCHER TENNIS BUND

•No. 534, 2013, Del S Ct, decided 5/8/2014

• Issue – is a bylaw adopted by board shifting atty fees to

unsuccessful plaintiffs in intra-corporate litigation valid?

•Del S Ct says it is valid

– No provision of GCL, other DE law, common law prohibits it

– Enforceable even if board’s intention is to deter legal challenges to

corporate action as that is not an improper purpose

•Decision led to introduction of bill to prohibit fee shifting bylaws

for stock corporations

– Bill proponents say decision will make stockholders reluctant to bring

legitimate derivative suits and undermine limited liability

– Opponents say corporation should be able to deter derivative suits

brought to obtain settlement or attorney fees

– Bill was tabled until 2015

ISSUANCE OF STOCK

•Consideration for stock

– Cash or any property or benefit to the corporation

•Shares may not be issued for less than par value

•No par value shares may be issued for any consideration determined

in good faith by board

•Corporation may issue uncertificated stock

ITEMS OF INTEREST

•GCL retains “legal capital” concepts of par value, stated capital,

surplus

•MBCA and most state acts abolished these concepts

•These concepts affect the issuance of shares, sources of dividends,

the initial filing fee tax and annual franchise tax

TERMS DEFINED

•Legal Capital - aggregate amount of par value of all shares,

couldn’t use to pay dividends, “financial cushion”

•Par Value Par - dollar value of shares per the articles of

incorporation, not market value

•Stated Capital - amount of consideration determined to be capital

in shares without par value

•Surplus - Excess net assets over capital

• Payment of dividends out of net profit is a nimble dividend

STOCKHOLDERS: MEETINGS, VOTING AND OTHER RIGHTS

STOCKHOLDER MEETINGS

•Annual meeting required

•Special meetings may be called by board or any authorized person

•Meetings may be held by “means of remote communication”

ACTION BY CONSENT

•Action may be taken without a meeting, notice or vote

•Voting requirements same as meeting

•May be denied in Certificate of Incorporation

•Election of directors requires unanimous consent

VOTING

•One vote per share

•Classes or series may have greater, lesser or no voting rights

•Cumulative voting may be authorized

•Most voting in publicly traded corporations done by proxy

DIVIDENDS

•Payable if and when declared by board

•May be paid out of surplus or net profits

•Stockholder approval not needed

INSPECTION OF BOOKS AND RECORDS

•Stockholders may inspect

•Written demand and proper purpose required

•Burden of proof for proper purpose

– Stockholder list - on corporation

– Other records - on stockholder

KING V. VERIFONE HOLDINGS, INC.

•No. 330, 2010 (DE. Supreme Ct. 1/28/2011)

•Pl filed deriv suit after co announced it was restating earnings

and income. Three other suits were then filed.

•Counsel wanted to be 1st to file to be named lead pl

•Fed Ct dismissed for failure to meet pleading burden. Granted

leave to amend and suggested pl seek an inspection in DE

•Ch Ct dismissed inspection complaint on grounds that pl’s

purpose – to seek information to show that making a demand in

previously filed derivative suit was futile, not proper

KING V. VERIFONE HOLDINGS, INC.

•Del S Ct reversed Ch Ct

•Held that Ch Ct’s bright line rule, barring stockholders from

pursuing inspection solely because they filed a derivative action

first, did not comport with DE law or sound policy

•Held that it is a proper purpose under DE law to inspect books

to aid Pl in pleading demand futility where derivative action

was dismissed with leave to amend and w/o prejudice

•S Ct stated it was sensitive to Ch Ct’s concerns about wasting

resources repeatedly litigating issue of demand futility

•But bright line rule was overly broad. Narrower remedies are

available to address concerns

DERIVATIVE SUITS

•Contemporaneous ownership required

•Procedural rules - found in Chancery Court Rule 23.1 and case law

•Demand may be excused if futile

•Plaintiff must be adequate representative

LOUISIANA MUNICIPAL POLICE V. PYOTT

•No. 380, 2012 (Del. Supr. 4/4/2013)

•Addresses issue of “fast filers” – stockholders rushing to court

to file derivative suit to control litigation before investigating if

demand is futile

•Allergan pled guilty to promoting “off-label” uses of Botox

•Derivative suits filed first in Cal Fed Ct, then in Del. Ch.Ct.

•Fed Ct dismissed for failure to plead demand futility

•Del. Ch. Ct denies defendants’ motion to dismiss on collateral

estoppel grounds

– Under DE law Cal pls lack privity until DE ct dismisses

– Cal pl were inadequate reps bec they filed suit shortly after

settlement without reviewing bks and records under Sec. 220

LOUISIANA MUNICIPAL POLICE V. PYOTT

•DE Supreme Court reversed

•Cal law applied to determine preclusive effect of the Cal federal

ct’s dismissal

– Required by Full Faith and Credit Clause

– Federal ct’s judgment satisfied requirements of collateral estoppel

under CA law

•Cal plaintiffs were adequate representatives

– Rejected Ch Ct’s irrebutable presumption against pls who file

derivative suits shortly after a corporate trauma without first

demanding inspection of books and records

– No record support for such a presumption

– Remedies for fast-filer problems should be directed at the lawyers,

not the stockholder plaintiffs

CHANCERY RULE 23.1

•Plaintiff in a derivative action must allege

– Corporation failed to enforce a right

– Plaintiff was a stockholder at the time of the transaction and

– With particularity, efforts were made to obtain action from the board

or it would have been futile to make the effort

WHEN DEMAND IS EXCUSED

•Demand can only be excused when facts allege board’s decision not

entitled to the protections of the business judgment rule

•Purpose of demand requirement is to give corporations ability to

rectify an alleged wrong prior to litigation

DIRECTORS & OFFICERS

BOARD OF DIRECTORS

•Manages business and affairs

•May have one or more members

•Term - one year unless staggered

•May be removed by majority vote of stockholders

•May be removed by Chancery Court

ELECTION OF DIRECTORS

•Elected by plurality of votes cast by stockholders

– Director with most votes is elected w/o regard to votes withheld, not

cast or voted against

•“Plurality plus” bylaw may be adopted

– Requires director receiving less than majority of votes to resign

– Bylaw may give board discretion to reject the resignation

DIRECTORS’ FIDUCIARY DUTIES

•Defined by case law, not GCL

•Owe duty of loyalty

– May not be on both sides of transaction

– May not compete with corporation

– Corporate opportunity doctrine

– Good faith is not an independent duty but part of the duty of

loyalty (Stone v. Ritter, 911 A.2d 362 (Del. 2006))

•Owe duty of care

– Must make informed decisions

•Actions protected by business judgment rule

AMERICAS MINING CORP. V. THERIAULT

•51 A.3d 1213 (Del Supr. 2012)

•DE SCt affirms awards of $2 billion in damages and $300 million in

attorneys’ fees

•Southern Peru (SP) buys Minero for $3 billion from its controlling

stockholder Groupo Mexico

•Stockholders claim price too high; sue for breach of duty

•Ch Ct finds SP special committee breached duty of loyalty

– Was controlled by Groupo

– Only wanted to find way to approve Groupo deal

– Was not free to negotiate or look for other strategies

– Changed financial analysis to make Groupo bid look better

AMERICAS MINING CORP. V. THERIAULT

•Del SCt holds that burden of proving entire fairness of deal

stayed with defs because special committee was not well

functioning

•Holds $2 billion award was reasonable estimate of difference

between price paid and what price would have been had

process been fair

•Approves Ch’s use of “percentage of common fund” to

determine attorneys’ fee award

•Holds that 15% of fund awarded in this case was reasonable

FREEDMAN V. ADAMS

•58 A.3d 414 (Del Supr. 2013)

•Derivative suit alleging board of directors committed waste by

failing to adopt a plan that would have made its executive bonus

payments tax deductible

•Chancery Court - complaint did not adequately allege that a

demand on the board of directors would have been futile

•Delaware Supreme Court affirmed

– To state a claim for waste a stockholder must allege with

particularity that the board authorized an action no reasonable

person would consider fair

– Board’s decision to sacrifice some tax savings to retain flexibility in

compensation decisions was a classic exercise of business

judgment and not unconscionable or irrational

STATUTORY PROTECTIONS

•Sec. 102(b)(7) - Eliminate liability for breach of duty of care

•Sec. 141(e) - Directors protected if they rely in good faith on expert

opinions

•Sec. 144 - “Safety harbor” for conflict transactions

•Sec. 122 - Corporation may renounce interest in business

opportunities

OFFICERS

•Titles and duties stated in bylaws or board resolution

•Any number of offices may be held by same person

•Chosen as prescribed in bylaws or as determined by board

•Owe same fiduciary duties as directors

– Gantler v. Stephens, 965 A.2d 695 (Del. 2009)

INDEMNIFICATION

•Sec. 145(a) - Permissive indemnification

– Pays expenses, attorney’s fees, judgments, amounts paid in

settlement

– Person must have acted in good faith & in corporation’s best

interests

•Sec. 145(b) - Indemnification not permitted in derivative suit if

defendant found liable

•Sec. 145(c) - Mandatory indemnification

– Director or officer must be successful on merits in defense of

claim

ADVANCEMENT OF EXPENSES

•Sec. 145 (e)

•Attorney fees and other expenses incurred by officer or director in

defending him or herself may be paid by corporation in advance of

final disposition

•Conditioned upon receipt of undertaking by officer/director to

repay if determined he or she is not entitled to indemnification

ITEMS OF INTEREST

•Sec. 145 is nonexclusive

•Corporations may have bylaws and agreements providing

indemnification and advancement, rather than relying on statutory

scheme

•Many Delaware corporations include a provision in their bylaws

making indemnification and advancement mandatory under

circumstances where they would only be permissive under Sec. 145

BENEFIT CORPORATIONS

BENEFIT CORPORATIONS

•Senate Bill 47 – Effective August 1st, 2013

– Public Benefit Corporation or PBC

– Must state a Public Benefit Purpose

– Changes the fiduciary duties of the directors

•Must “balance” the economic interests with the public benefit

purpose

– Can be Formed, Amended, or Converted/Merged (from non-DE)

– Beneficial Purpose will not be “policed”

• Cannot be obscene or hateful

– Existing Corporations need 90% shareholder vote to become B Corps

BENEFIT CORPORATIONS (CONT.)

•The Delaware Difference

– Fiduciary requirements are unique

• Balance three items:

– Pecuniary/economic, benefit purpose, & community impact

– Does NOT require a “Benefit Director”

– No public reporting

– “Reasonably Objective” Standard instead of “Independent”

Standard

– 90% shareholder vote to become B Corp

– 66% shareholder vote to change beneficial purpose or discontinue

BENEFIT CORPORATION QUESTIONS

•First, a little bit about Ben and Jerry's

•Why not just form a regular non-profit corporation?

– NP can make a profit but earnings go back to NP

– IRS must grant tax exempt statutes

– Possible exemptions for sales, property and income tax

– May be more appealing to donors

– Tax exempt donations

ADDITIONAL QUESTIONS

•Are donations accepted by PBC? Why Not?

•Any examples?

– Method Cleaning Products - eco-friendly, sold at Target, bought by a

European company, 2012 Revenue 100M

– Plum Organic Baby Food – 2012 93M in gross sales, bought by Campbell

Soup

2014 AMENDMENTS TO GCL

•HB 329, effective August 1, 2014

• Incorporator unavailability (Secs. 103, 108)

– Person for whom unavailable incorporator was acting may sign documents or take

certain other actions regardless of reason for unavailability

•Escrowed consents by directors, stockholders (Sec. 141, 228)

– Person, not yet a director or stockholder may sign a consent to act that will be

effective up to 60 days in the future and the consent will be effective as long as

the person is then a director or stockholder and has not revoked the consent

– Overturned Ch Ct decision in AGR Halifax Fund, Inc. v. Fiscina invalidating consent

by person signed before becoming a director

•Voting trust agreements (Sec. 218)

– May be delivered to ppb or registered office

2014 AMENDMENTS TO GCL

•Amendments to certificate of incorporation (Sec. 242)

– May be made by board without stockholder approval to

• Delete names of incorporators, initial directors, original

subscribers

• Delete provisions of an amendment necessary to effect change,

exchange, reclassification, subdivision, combination, cancellation

of stock

– Repeal requirement that notice of stockholder meeting set forth

amendment or summary of changes if notice constitutes notice of

Internet availability

CERTIFICATE OF VALIDATION

•Effective April 1st, 2014

•Ratification of defective corporate acts and stock errors

•$2,500 base filing fee + tax increases

•Three dates noted on document

– File date

– Effective date

– Corporate act effective date

NEW IN 2014 – RATIFICATION OF DEFECTIVE ACTS

•New Sec. 204

– Establishes procedure for corp to ratify an over issue of stock, election of

directors or act or transaction that due to a lack of compliance with GCL,

cert of inc., bylaws, or other agreement is void or voidable

– Board of directors adopts resolution

– Stockholders approve (if act being ratified required approval)

– File certificate of validation with SOS (if act being ratified would have

required a filing)

•New Sec. 205

– Ch Ct can ratify if Sec. 204 not available

– Ch Ct can rule on the validity of a Sec. 204 ratification

HB 127 – RATIFICATION OF DEFECTIVE ACTS

•Demonstrates how DE legislature responds to needs of business

community

•Will discuss case that demonstrates response of Chancery Court to

new legislation

• In Re Trupanion – first petition for relief under GCL 205

– Law effective 4/1/14

– Petition filed 4/1/14

–Chancery Court issued final order on 4/28/14

IN RE: TRUPANION

•Facts:

– Incorporated in DE in 2006

– Employee in accounting unilaterally reincorporated in AZ to reduce

franchise taxes

– Actions taken without vote of board or stockholders

– Employee realized his error and reincorporated in DE

– As a result, corporation was unable to determined validity of board

IN RE: TRUPANION (CONT.)

•Actions failed to meet provisions of DCL, written consents were not

strictly dated

•No notice as required by code

•Potentially invalid acts included issuance of common and preferred

stock

•Left doubt in the election of 9 of 10 directors

•Did not think section 204 (DIY remedy available)

•Sought relief under 205

IN RE: TRUPANION - FINAL ORDER OF COURT

•Described as seeking correction of an innocent error that resulted

in serious consequences

1. Disregarded reincorporation and recognized initial corp as a valid

and existing entity

2. Confirmed stock issuances were valid

3. Determined Board of Directors valid

DELAWARE’S LIMITED LIABILITY COMPANY ACT

DLLC ACT - AN OVERVIEW

•Effective October 1, 1992

•Modeled after LP Act, not GCL

•Mostly default provisions

•Policy of Act - “give the maximum effect to the principle of

freedom of contract and the enforceability of LLC agreements”

PRACTICE POINTER

•Far fewer default provisions in the DLLCA than in GCL

•LLC Agreement must be carefully drafted to provide for those issues

not provided for in the Act

• Issues include place and time of meetings, quorum, notice and

voting requirements

GATZ PROPERTIES, LLC V. AURIGA CAPITAL CORP.

•59 A.3d 1206 (Del Supr. 2012)

•Case creating split over default fiduciary duties

•Minority members sued manager alleging breach of fiduciary duties

after he bought them out for price well below market value

•Ch Ct holds that managers owe default fiduciary duties of care and

loyalty

•S Ct states that Ch Ct’s ruling that managers owe default fiduciary

duties was dicta and had no precedential value

– Where there is a contractual provision imposing fiduciary duties there is

no need to decide if there are default duties

– No party asked the Ch Ct to decide the issue

– Reasonable minds can differ so it is up to General Assembly to clarify

2014 AMENDMENTS TO LLCA

•HB 327, effective August 1, 2014

•Sec. 18-104 – requires LLC to provide communications contact with

name and address of person with access to LLC books and records

•Secs. 18-302, 18-404 – person not yet a member or manager can

consent to any matter with consent to take effect in future; consent

will be effective as long as person is a member or manager at that

future date

•Sec. 18-305 – member’s attorney or other agent may inspect books and

records on members’ behalf; demand must contain proof of

authorization. Also requires LLC to maintain record of names and

addresses of members and managers

•Sec. 18-806 – provides additional means by which LLC may revoke

dissolution

2014 AMENDMENTS TO DRULPA

•HB 328, effective August 1, 2014

•Sec. 17-104 – requires LP to provide communications contact with

name and address of person with access to books and records

•Secs. 17-302, 17-405 – person not yet a partner can consent to any

matter with consent to take effect in future; consent will be effective

as long as person is a partner at that future date

•Sec. 17-305 – partner’s attorney or other agent may inspect books and

records on partner’s behalf; demand must contain proof of

authorization. Also requires LP to maintain record of names and

addresses of partners

•Sec. 17-806 – provides additional means by which LP may revoke

dissolution

DELAWARE’S STATUTORY TRUST ACT

STATUTORY TRUST ACT - AN OVERVIEW

•Enacted in 1988

•Title 12, Ch. 38, Sec. 3801 et seq.

DEFINITION OF STATUTORY TRUST

•Unincorporated association created by a governing instrument

under which property is held, managed, administered, controlled,

invested and/or operated or business or professional activities

carried on by a trustee for the benefit of persons entitled to a

beneficial interest in the trust property

FORMATION

FORMATION

•File Certificate of Trust

•Executed by all trustees

•Contents

– Statutory Trust’s name

• Entity indicator not required

• Must be distinguishable

• Check availability; reserve name

– Name and address of resident trustee

•$200 filing fee

FORMATION

•Must have a governing instrument

– Creates the trust

– Governs business & affairs

•Must have at least one trustee who is an individual DE resident or has

its principal place of business in DE

– Exception-registered investment company that maintains registered

agent and office in DE

•A statutory trust is managed by or under the direction of its trustees,

unless the governing instrument provides otherwise

POST-FORMATION

LIABILITY OF OWNERS & TRUSTEES

•Beneficial owners - have same limitation of liability as stockholders

of DE corporations

•Trustees, officers, managers or employees - when acting in official

capacities are not liable for ST’s acts, omissions, or obligations

DISSOLUTION & CANCELLATION

•ST is dissolved and wound up at the time and in the manner

specified in governing instrument

•Upon completion of winding up, file Certificate of Cancellation that

– Is executed by all trustees,

– Sets forth name and filing date of Certificate of Trust

– Terminates ST’s existence

PAYING ANNUAL FRANCHISE TAXES

ANNUAL FRANCHISE TAX - CORPORATIONS

•Significant revenue producer for DE

•March 1 due date

•Electronic filing is mandatory

•Charter voided if tax not paid within 1 year of due date

•Charter voided if complete report not filed within 1 year of due date

•Two methods provided for calculating tax; lesser tax is payable

•Minimum tax – Method 1 -$175 (increased from $75 effective July 1,

2014); Method 2- $350

•Maximum tax -$180,000

CALCULATING FRANCHISE TAX

•Method 1 - Based on authorized shares

– 1 to 5,000 shares = $175 (increased from $75 effective July 1, 2014)

– 5,001 to 10,000 shares = $150

– For each additional 10,000 or part thereof add $175 (increased from

$75 effective July 1, 2014)

•Method 2 - Based on assumed par value capital

– Tax = $350 per $1 million or portion thereof of assumed par value

capital

QUESTIONS?

THANK YOU FOR ATTENDING DELAWARE’S BUSINESS ENTITY LAWS 2015