Philanthropists often ask if an LLC can be a non-profit. What they are referring to is the 501c3 tax-exemption status. 501c3 status is a coveted designation because it exempts a company from federal, sales, and property taxes. These exemptions are crucial to the function of non-profit organizations. 

IRS regulations do not allow LLCs to be assigned tax-exempt status directly. However, you may operate an LLC as a wholly owned subsidiary of a non-profit corporation.

We discuss how non-profit corporations can best use LLCs to reduce their liability risk. 

What Is a 501(c)3 Organization?

501(c)3 is an IRS code section that defines what qualifies as a tax exempt organization under federal law. To receive a tax determination letter from the IRS, approving the 501(c)3 status, a non-stock corporation must submit a Form 1023 or Form 1023-EZ application with the Internal Revenue Service (IRS). A corporation must meet specific requirements to be eligible for 501(c)3. To receive 501(c)3 public charity or private foundation status, specific language must be included in the non-stock corporation’s Certificate of Incorporation.

Purpose
Acceptable charitable purposes include religion, charity, education, science, literature, testing for public safety, or promoting animal welfare.

Non-Profit Corporations (501c3s) vs. LLCs

Non-profit corporations with tax exempt status (also known as 501c3 status) are incorporated as non-stock corporations. This is a type of legal entity that does not have any stockholders. 

Traditional LLCs have beneficial owners who hold an economic interest in the company. This characteristic of LLCs makes them ineligible for obtaining 501c3 exemption status.  

A non-profit corporation can still use an LLC to hold certain assets. To do this, the LLC must be a qualified subsidiary with the non-profit corporation being its sole member. The LLC’s management is permitted only to engage in activities approved by the parent non-profit corporation. 

The directors and officers of the non-profit corporation must also control the member managed LLC (See IRC Reg. 301.7701-3 et seq. as interpreted by Ann. 99-62 1999-43 I.R.B. 545). Thus, if you, Bob and Sue are the three directors of a non-profit corporation, you three must also manage the subsidiary LLC. 

The LLC’s Operating Agreement must specify that the LLC cannot violate the bylaws or restrictions of its member non-profit corporation. A subsidiary LLC cannot do something unless it is a permissible activity of the parent non-profit corporation.

How To Use a Subsidiary LLC for a Non Profit Corporation (501c3)

One way non-profits use subsidiary LLCs is as land-holding entities for real estate. This is especially common if the property is a brownfield with toxic contamination. Holding the property under an LLC keeps the non-profit corporation out of the chain of title. This can protect the corporation from superfund liability.

Non-profits corporations may operate service vans or other vehicles. A non-profit can title vehicles in the name of a subsidiary LLC in order to provide a degree of insulation for the corporation.

 For example, a breast cancer charity purchasing a mobile mammography van can set up an LLC subsidiary to hold title to the van. This can help protect the non-profit if the vehicle incurs any uninsured liabilities.

What Is A Low-Profit LLC?

Some states offer the L3C, which is a low-profit LLC. However, even these are not eligible for 501c3 status and have few practical purposes. Attorneys often advise clients to avoid the L3C because it only offers disadvantages compared to a traditional LLC. Members of an LLC can already agree to keep profits low in order to contribute to public benefit causes. Very few states have adopted low-profit LLC statutes.

How to Form a Non-Profit Corporation (501c3)

To create a Non-Profit that is 501c3 qualified, follow the following steps

1.  Form a non-stock corporation.
2. Complete IRS Form 1023 or IRS Form 1023EZ to apply for recognition of tax exemption status under section 501c3.
3. Obtain a tax determination letter from the IRS.

Once you receive the letter, your donors can deduct their contributions to your company as charitable contributions on their personal tax returns. Note that this can be done retroactively.

Can You Convert an LLC to a Nonprofit?

To become a non-profit in its own right, an LLC would first need to convert to a non-stock corporation. This involves the LLC members giving up their ownership interest before converting to remain eligible for 501c3 status. 

Owners are typically hesitant to forfeit their economic rights in an LLC. It is more common for LLC members who want to start a nonprofit to incorporate a new entity in the form of a non-stock corporation which has a nonprofit mission statement from its inception.

Why form a 501c3?

A 501(c)(3) provides not-for-profits with the tax relief that they are due based on the good they provide the community they are servicing. Without a 501(c)(3) tax exemption, the not-for-profit is defaulted to a taxable entity status and this will take away valuable funds from the cause that the not-for-profit is supporting.

Can a 501(c)(3) Be an LLC?

Only very recently has the IRS started allowing LLCs to apply for tax exempt status directly. The reason very few LLCs seek tax exempt status is because for an LLC to submit the IRS Form 1023 and obtain a tax determination letter from the LLC, the LLC must be structured in such a way as to mimic a non-stock corporation, such that the LLC’s members are non-equity owners. Plus the LLC must provide for a board of directors and officers, rather than just a manager or managing member. That complex structure may be the reason that it is so rare for LLCs to request and obtain tax exempt status directly.

Instead, more common is for an LLC to be a wholly owned subsidiary of a 501(c)(3) exempt corporation. The IRS has provided guidance to make it clear that if the LLC subsidiary is limited to the purposes of its parent and entirely controlled by its parent 501(c)(3) then the LLC would also be exempt under that umbrella without needing to apply to the IRS. One example of why a 501(c)(3) corporation would setup an LLC as a subsidiary is to take title to an asset that may have contingent liabilities, such as a vehicle or a piece of land with possible environmental contamination. That subsidiary structure helps keep the liabilities at the child level to avoid giving those possible creditors access to the assets of the parent company.

Do 501(c)3s Pay Taxes?

If a corporation receives 501(c)3 status from the IRS, it is considered tax-exempt and therefore is not required to pay taxes to the federal government on its exempt income. This status also incentivizes individuals to donate money to their cause because all charitable contributions donated to a 501(c)3 are tax-deductible for the donor.

MORE: How to Form a Non-Profit Corporation

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You may have seen the “Circle B” logo, but what does it mean? The logo can only be displayed by a Certified B Corporation. These are companies that have achieved a minimum score on an evaluation of their corporate governance, community, employee, and environmental benefits. Here’s what you need to know about this entity.

What Is a Certified B Corporation?

Certified B Corporations are for-profit entities that exhibit world-class standards for sustainability, transparency and accountability. These standards are audited periodically by the independent industry standard organization, B Lab. 

B Corp Certification can be likened to Fairtrade or USDA organic certification for products such as bananas or milk. The difference is that the certification looks at a company as a whole rather than just a single product. According to Juan Pablo Larenas, Executive Director of B Lab Global, “The B Corp Certification does not just evaluate a product or service; it assesses the overall positive impact of the company that stands behind it”. 

B Lab issues the B Impact Assessment, a free online tool that any company can use to assess its social and environmental performance. The assessment is scored out of 200 points. The average score for companies who complete the assessment is between 40 and 60 points. Certified B Corporations however are required to maintain a minimum verified score of 80 or above. Companies are able to compare their scores and share resources to help improve their score over time. 

The B Impact Assessment is a strict evaluation assessing a company’s overall impact on their workers, community, customers and environment. This holistic look at a company certifies a certain level of compassionate capitalism. Certified B Corps signal to potential customers and partners that they value stakeholder primacy over profit maximization. Increasing numbers of investors and customers now seek out companies that demonstrate sustainable business practices. 

B Corporation Requirements

1. Verified social and environmental performance. By maintaining their minimum B Impact score of 80 and submitting triennial assessments, Certified B Corps undergo a rigorous process to have their standards independently verified. 
2. Transparency. Certified B Corporations are required to share their B Impact Score publicly on bcorporation.net. 
3. Accountability. Many Certified B Corporations have adopted various legal structures which require them to consider their impact on all stakeholders of the company. These structures include traditional LLCs and corporations, as well as public benefit corporations and public benefit LLCs. 

How to Form a B Corporation

The first step of the B Corp application is to complete the B Impact assessment. Companies are required to have a minimum score of 80 in order to achieve certification. Companies must then maintain their passing B Impact score and recertify every three years. 

Becoming a B Corp is not simply a “participation trophy”. B Lab audits an applicant’s business practices, which is often a seven month process. It entails the initial 216 question application, the production of corporate documents and a series of interviews. Certification requires a company to open its books, goals and overall purpose for complete assessment based on standards set by the trained professionals at B Lab. Certified B Corps need to prioritize and disclose their impact to ensure continued progress toward their social, environmental and governance goals.

The rigor associated with B Corp certification distinguishes companies that make a real impact from those just with good marketing. Applying for B Corp status may not result in more business initially. Companies pursuing this certification look to legitimize their commitments to sustainability. 

The New “B Economy”

As the number and popularity of Certified B Corps has grown, so has their influence over other companies. The “B Economy” represents the greater community surrounding B Corps. This includes the more than 40,000 companies that have used the B Impact Assessment to improve their social and environmental performance, the millions of customers who buy from and support sustainable businesses, and the increasing number of investors seeking to invest in Certified B Corps. 

According to B Lab, over 120 venture capital firms have invested more than $2 billion in Certified B Corporations. The prevailing theory amongst these firms is that producing stakeholder value will produce the best financial returns. 

Although the B Corp movement started in the United States, it has spread all over the globe. There are now more Certified B Corps based outside of the United States than inside. Large multinational companies are beginning to adopt and promote B Lab standards throughout their global operations. In 2017, the French multinational Danone announced its intention to become the first Fortune 500 company to achieve B Corp certification. The company has already helped several of its subsidiaries achieve B Corp status. As of 2018, Danone has nine subsidiaries that are now Certified B Corps. 

The emergence of the B Economy is an exciting development. It means that anyone can participate in the broader movement to conduct business in a way that is best for profits and for the world. Certified B Corps represent a global community of leaders that benefit from increased credibility and trust. This enables them to attract more talent and promote better employee engagement.

IncNow: Delaware’s First B Corp

In May 2019, IncNow became the first incorporation service worldwide to be a Certified B Corp, and the first Certified B Corp in the State of Delaware. IncNow’s shareholders and directors approved an amendment to its corporate charter to declare its public benefit purposes, making them part of its governance structure. The company dedicates five percent (5%) of annual gross profits to support the environment, education, entrepreneurship and the arts in the greater Delaware Valley.

Examples of IncNow’s involvement in preserving and remediating the environment include its commitment pro bono clean water advocacy. The company is also involved in the leadership structures of the Delaware Natural Areas Advisory Council and the Christina Conservancy. It has also sponsored watershed cleanup initiatives and conservation in Delaware’s nature preserves. 

IncNow stands out even amongst Certified B Corps, earning the Best for the World award in corporate governance. Companies receiving the Best for the World honor rank in the top 5% of all B Corps worldwide for their impact in specific areas included in the B Impact assessment. Examples of IncNow’s award-winning governance include sponsoring athletic competitions for employees and company sponsored trips to destinations such as Portugal, Hawaii, Iceland, and Netherlands.

Pros and Cons of Forming a B Corporation

Forming a B Corporation also known as a Public Benefit Corporation (PBC) offers a unique business structure that allows the management to take into consideration stakeholder interests in the mission locked public benefit purpose that may not maximize the value to stockholders. To customers, employees, community and investors, it shows a commitment to certain social and environmental objectives. However, like any business decision, there are both pros and cons to consider. Here’s a breakdown:

Pros of Forming a B Corporation

1. Credibility and Trust:

Beyond simply incorporating as a PBC (or public benefit LLC), often these businesses seek out third party validation that they really are doing good. For example the gold-standard of this certification process is by a third party service, known as B-Lab at BCorporation.Net. B Corp certification is widely recognized as a symbol of commitment to social and environmental performance, making it easier for customers and investors to trust your business.

2. Attracting Purpose-Driven Customers:

Many consumers prefer to support businesses that are socially and environmentally responsible. Being a B Corp helps your company appeal to this growing market of conscious consumers.

3. Access to a Like-minded Network:

As a certified B Corp, your business joins a global community of purpose-driven companies, providing opportunities for collaboration, partnerships, and sharing best practices.

4. Employee Satisfaction and Retention:

Companies that focus on a broader mission than profit often attract employees who are passionate about making a positive impact. This can lead to higher employee engagement, satisfaction, and retention.

5. Legal Protection for Mission:

B Corps are legally able to consider the impact of decisions on stakeholders (not just shareholders), which helps protect the company’s social mission, even if owners think that decision is wasting potential corporate profits.

6. Attracting Impact Investors:

B Corps often have access to a broader pool of investors who are looking to make a positive impact, in addition to earning a financial return.

7. Marketing and Brand Differentiation:

B Corp certification can serve as a unique selling point, helping to differentiate your company in a competitive market and appeal to consumers who prioritize social and environmental responsibility.

Cons of Forming a B Corporation:

1. Costs and Time Commitment:

Certification involves application fees and costs for the required assessments. It can also be time-consuming to gather the necessary documentation, which may involve dedicating significant internal resources.

2. Rigorous Standards:

B Corps must meet high standards across various aspects of the business, including governance, workers’ rights, environmental impact, and community engagement. Maintaining compliance with these standards requires continuous effort.

3. Ongoing Reporting and Recertification:

B Corps must complete recertification every three years, which requires ongoing transparency and updating of practices. This can be a significant administrative burden. Additionally a Delaware PBC must report to its shareholders every other year on how it is advancing the public benefit mission.

4. Potential for Public Scrutiny:

Because B Corps are committed to transparency, they can face public scrutiny if they fail to live up to their standards, which can damage the company’s reputation.

5. Limited Focus on Financial Performance:

While B Corps balance social impact and financial performance, some investors may prefer a stricter focus on profitability, potentially making it harder to attract traditional venture capital or certain financial backing.

6. Complex Governance Structure:

Companies must integrate social and environmental goals into their legal structure. This may require changes to the company’s bylaws, governance documents, or operating procedures, which can be complex and challenging to implement. For example the B Corp must consider their Greenhouse Gas emissions through direct and indirect activities. This is not just a smokestack that emits carbon dioxide, but also considers the commute of employees to an office.

7. Limited Global Recognition:

While B Corp certification is growing, it is not universally recognized across all regions or industries. In some markets, it may not carry as much weight or may be less relevant to customers who just want to get the lowest price without concern about negative externalities, built into the products and services being consumed.

The post What Is a Certified B Corporation? appeared first on IncNow.

Do LLCs have stock?

Typically, “stock” is not the term used for LLC ownership shares. In most LLCs, the LLC Agreement designates a certain number of what it calls “membership units” or “member interests” and may break them down further into a certain number of Voting Units and Nonvoting Units. This bifurcation is similar to how corporations can authorize voting and nonvoting stock, usually called “common” and “preferred” shares, respectively.

Stock, in the context of a corporation, means units of ownership that give its holders rights to a percentage of ownership, a certain number of votes, and possibly a certain dividend. Membership is used in the context of an LLC because in addition to the rights stockholders possess, LLC members more often manage the day to day business of an LLC, which in a corporation is a right usually left to the Directors.

The simpler structure of vesting the rights of shareholders, directors and managers all in one type of person is one reason many people choose to form an LLC instead of a corporation. 

What Is Stock, Exactly?

A stock certificate is a fancy piece of paper signed by the president and the secretary of a corporation that lists the name of a shareholder, the certificate number, and the number of shares held. The list of stockholders who own a corporation’s issued shares appears on the corporation’s stock ledger.

Stock may also be uncertificated. That means the shareholders do not receive those fancy certificates. Instead the shareholder names, number of issued shares and date of issuance just show up on a capitalization table, known as a cap table. This may also be stored virtually through blockchain technology or otherwise.

Stock gives a person a certain amount of rights in voting and economic interests depending on the number of shares and class of those shares. Shares can be voting and convoying. They can also be common and preferred.

The number of shares issued to shareholders cannot exceed the number of authorized shares set forth in the Certificate of Incorporation. In turn these shareholders elect the directors that in turn appoint officers to run the corporation.

Unlike an LLC, changing ownership in a corporation is fairly straightforward and simple. While a stockholder agreement may add restrictions to the transfer of shares, otherwise the shares of stock are freely transferable which can be accomplished through an endorsement on the back of the certificate.

Are there shareholders in an LLC?

Because LLCs do not issue stock, there are not “shareholders” or “stockholders” in LLCs. LLCs do have “members,” which hold ownership units in the LLC. There can be different classes of membership units with different rights and duties.  For example, an LLC can designate Voting and Non-Voting membership units.

Limited Liability Companies do not have stock or bylaws. In fact, LLCs have almost no features of corporations. Legal professionals refer to LLCs as “unincorporated entities” because they are creatures of contract, rather than corporations, which are creatures of statute.

But what does it mean to be a “creature of contract”? Doesn’t the Delaware LLC Act authorize LLCs? Does that not make them statutory?

The general answer is that corporations have statutory formalities and hierarchies they must follow and cannot waive. Corporations have “default rules”, many of which the owners cannot change.

How do you Structure an LLC?

In the Delaware LLC, there is not a default rule to establish the LLC framework. Instead, its internal contract can establish the entire framework for an LLC. This contract is called its “Operating Agreement.” After a general notice filing with the formation jurisdiction, called a Certificate of Formation in Delaware, the LLC’s private Operating Agreement takes over to set forth the ownership structure and management structure. It may provide for a broad business purpose or a single business purpose. The Agreement can give managers broad powers or narrow powers. It can provide for member liability or limit member liability for capital calls and other obligations.

Who Owns the LLC?

The LLC does not have stock or stockholders. Instead, the Operating Agreement has membership interests. The Operating Agreement lists the membership interests of each member rather than in separate member certificates. The Operating Agreement determines the rights of each type of membership interest.

Delaware allows for maximum flexibility of contract when entering into an Operating Agreement. In exceedingly rare situations, LLC members use this freedom to “opt into” the Delaware General Corporation Law and establish members to establish rights of corporate stockholders who vote for directors who appoint officers. That anomalous situation is far from the norm. Most Delaware LLCs have owners called members and operators called managers. The Operating Agreement sets forth their powers and duties. This structure is much less bureaucratic than the corporate formalities which makes LLCs more popular.

How to Add Owners to an LLC

The owners, also known as “members”, of a Delaware LLC are like parties to a contract. The Operating Agreement sets forth the names of the members and managers. You can either become an owner at the outset at the time of formation, or later by being transferred membership interests. The operating agreement controls the transfer of ownership interests. We often see this documented in an amended and restated Operating Agreement, as well Members Resolutions approving the new members and transfer of interests. Sometimes one can also become a member by gift or inheritance, but because of the contractual nature of the LLC, those new members should be required to sign the operating agreement. Operating Agreements in Delaware do not need to be in writing. They can also be oral or implied. Every LLC in Delaware has an operating agreement whether or not the members know they do. It may just be a series of emails, a handshake or a course of performance. Of course the best practice is to have a written and signed operating agreement. The operating agreement is not on file with the secretary of state. It is a private document between the LLC’s members. Even single member LLCs have operating agreements listing just one person as an owner.

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Counterparties can rely upon the signature of a President to know that a Corporation will be bound to an agreement without being able to disavow the contract as not being authorized. This is because the President is cloaked with authority to act on behalf of a Corporation. Likewise, Vice Presidents have authority to bind the Corporation. Sometimes the VPs are limited in their titles to specific aspects of the Corporation, like Vice President of Marketing or Vice President of Operations.

Other officers set forth in Bylaws include the Treasurer and Secretary. The Treasurer keeps track of the Corporation’s finances, including its funds in bank accounts. Often times the treasurer has signing privileges for checks. The Secretary holds and maintains the Corporation’s meeting minutes. Often the Secretary must attest to contracts signed by the President to confirm the President has authority to sign the contract.

In addition to the officers of a Corporation, the corporation has two other layers that make up its structure. It is owned by shareholders who elect a board of directors to oversee the management and set the strategy and objectives of the Corporation, to be carried out by the officers. Daily operations are handled by officers, and that includes the President of the Corporation. But what does the President of a Corporation do, exactly? Here’s what you need to know.

So, What Does the President of a Corporation Do on a Regular Basis?

The President is typically the highest-ranking officer of a Corporation. In some larger businesses, the President or another person will be the Chief Executive Officer (CEO). The President’s duties may vary by Corporation. But, in general, a Corporation’s President typically has the following responsibilities:

• Executing the board’s vision and direction
• Providing general leadership for the Corporation and its officers
• Meeting with top officials in the Corporation to ensure the organization is running well
• Managing the employees
• Overseeing finances
• Strategizing areas of growth for the Corporation

It is possible for one person to hold the position of multiple officers in a Corporation. For example, in small businesses, it is possible for one person to be the Corporation’s President, Secretary, and Treasurer, as well as its sole Director and only Shareholder.

The role of the President should be clearly spelled out in the Corporation’s Bylaws.

Is the President of a Corporation a Full-Time Job?

Corporations come in all sizes, from the gargantuan multi-national trillion dollar enterprise to the micorpreneur side-hustle. Being the President of a corporation does not have to be a full-time job, if the business is your own or the directors only need your assistance a few hours per month. The President reports to the board of directors and steers the ship for the destination set by the board of directors. Typically the President manages the team, oversees finances, operations, sales and marketing. Though the responsibilities and role of a President may vary from company to company, the significant time commitment required to perform the duties are what qualifies this job to be considered full-time. The role of the President is prescribed in the bylaws. However the role of President is also cloaked in many implied authorities, such as the ability to execute contracts and hire and fire employees. The role of the President should be distinguished from the role of Chairman. For the Chairman just runs the board of directors meetings and has no executive authority to operate the corporation directly.

In some larger enterprise, you may have heard of the C-suite. For businesses that need more executive leadership, other non-bylaw roles can be created, such as Chief Executive Officer (CEO). Having two separate executive leadership positions is not common practice in smaller business structures for several reasons. For example, paying the salary of two executives may not be practical or cost effective for small business owners. In a small business, combining the two jobs is more efficient because one person can manage all major strategic initiatives and day-to-day operations to streamline decision-making. As a business grows, and the responsibility increases and becomes more complex, the owner may decide to split the roles into the two different positions of CEO and President.

How to Become the President of a Corporation?

The President is appointed by the board of directors of a corporation. The quickest way of doing this is by incorporating your own business and naming yourself President. Another way of becoming President of a company is by being designated to the position in a family business where no other family members would seem to have the interest or skillset to serve in that leadership capacity.

Climbing the corporate ladder in a large corporation is sometimes thought of as winning a golf tournament. Under this “tournament theory” dozens or even hundreds of players work very hard to earn the top title, trying to compete for a position where the top executive takes home the prize for winning. Usually this would require years of proven performance in management, a deep understanding of the product and a vision for the future. Working hard in your current role, having an education and relevant work experience, developing leadership skills, understanding office politics, networking and serendipity often lead to promotions and more responsibility.

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You interact with businesses set up as corporations nearly every day, however, you may not understand how corporations work.

In this article, we break a corporation down into its main parts: shareholders, directors, and officers. We explain how this legal structure works and how incorporating can benefit your business.

What is a Corporation, Exactly? 

Corporations are legal business entities that are separate from the real people who own them, run them and work for them. When a business becomes a corporation, it becomes its own person. 

In the eyes of the law a corporation is a separate person, different from the real people who own it, run it, and work for it. This means that a corporation can own assets, sign contracts, and do business all in its own name.

The split between a corporation and the people who own and run it does two important things:

      1.) Limited Liability Protection

First, the corporate structure protects the personal assets of the company’s owners, known as shareholders, such as their homes and cars, from debts or lawsuits against the business.

       2.) Perpetual Existence 

Second, a corporation can keep doing business even if the owners or managers change.

Limited liability protection is the primary benefit of registering a corporation. Limited liability ensures that a corporation’s shareholders, directors and officers are not personally accountable for the financial obligations or other liabilities associated with the business. 

Is A Corporation An LLC?

No, corporations are not LLCs. Limited liability, known as “LLCs” are a different type of legal entity structure. Small businesses typically prefer to form as LLCs because an LLC’s legal structure is flexible and easier to manage.

Top 16 Benefits Of A Delaware LLC

How Does a Corporation Work? 

State incorporation laws require corporations to have a specific business structure and follow strict rules. Most corporations are setup as “general corporations” and have three main parts:

• Shareholders – Have ownership in the corporation.
• Directors – Make major decisions for the corporation.
• Officers – Run the day-to-day business of the corporation.

Corporations: Who are the Shareholders?

• Shareholders are initial investors and own parts of a corporation.
• Shareholders elect the directors and decide on major issues.
• Shareholders anticipate returns but also face investment risks.

Shareholders are the people or other entities who own parts of a corporation. Shareholders often put money in when the business is just starting out. The corporation issues stock certificates to shareholders as proof of their ownership and rights in the company.

Shareholders play a crucial role in the corporation’s big-picture decisions. They avoid meddling in the day-to-day operations of the business; however, they have a crucial role: electing the board of directors. The directors are responsible for guiding the corporation’s overall strategy, so choosing the right people is essential.

Each shareholder gets a certain number of votes based on how many shares they own. Thus, an individual with many shares holds more voting power and greater influence over the selection of directors.

Shareholders also have a say in other big decisions that could affect the company’s future. For example, if the company is thinking about merging with another company, the shareholders would likely get to vote on that. Similarly, if the company wants to issue more shares, the shareholders would usually need to approve.

Shareholders typically hope to get a financial return on their investment. The company might distribute these as ‘dividends’, which are payments made from its profits. The value of the shares can also increase over time as the company grows and becomes more successful.

Being a shareholder can be risky, as their investment can decrease in value if the company doesn’t do well. However, it can also be rewarding if the company succeeds.

Corporations: Who are the Directors?

• Directors guide the corporation’s strategic decisions.
• Directors select corporation’s officers and represent shareholders’ interests.
• Directors are selected for their experience and industry knowledge.

Directors are like the guides or navigators of the corporation. Shareholders select them to make crucial decisions for the business. Each director sits on the Board of Directors, which is the group of people collectively responsible for the company’s overall direction. The Board of Directors ensures that the company remains on course and progresses towards its objectives.

The directors don’t usually get involved in the everyday tasks of the corporation. Instead, they focus on the big picture, making strategic decisions that shape the company’s future. For instance, they might decide to open a new branch, launch a new product, or invest in research and development.

The Board of Directors meets several times a year to discuss the company’s performance, review its strategy, and make critical decisions. These meetings might involve analyzing financial reports, discussing market trends, or deciding on major projects. In Delaware, where many companies choose to incorporate, the law requires the directors to hold at least one big meeting each year. This is known as the Annual Meeting.

A critical job for the directors is selecting the corporation’s officers. These are the people who will manage the daily operations of the business. The directors must choose competent, trustworthy individuals to ensure the company is run well.

Directors also have a responsibility towards the shareholders. They must make decisions that are in the best interests of the company and its shareholders. This might mean balancing short-term gains with long-term growth, or making tough decisions during challenging times.

Directors are usually chosen because of their experience and knowledge in the business or industry. They might be veteran businesspeople, industry experts, or individuals with unique skills that can help guide the company. It’s a significant role with considerable responsibility, but it’s also a chance to guide a corporation towards success.

Corporations: Who are the Officers?

• Officers manage daily operations with roles like “President”, “Treasurer”, or “Secretary”.
• They are responsible for strategic decision-making and operational tasks.
• The board of directors oversees the hiring and firing of officers.

Officers are the individuals who handle the daily operations and responsibilities of the corporation. They’re often referred to by their specific titles, such as “President”, “Treasurer”, or “Secretary”. These roles are critical for the smooth running of the company and play a significant role in its success.

The President, often also known as the CEO (Chief Executive Officer), is typically the highest-ranking officer in the company. They are responsible for making major corporate decisions and setting the company’s overall direction. They also act as the main point of communication between the Board of Directors and the rest of the company.

The Treasurer, or CFO (Chief Financial Officer), handles the company’s financial affairs. This includes:

• Overseeing financial planning, 
• Tracking cash flow, 
• Analyzing the company’s financial strengths and weaknesses, and 
• Proposing corrective actions. 

They might also handle investor relations, ensuring that shareholders receive updates on the company’s financial performance.

The Secretary is usually responsible for ensuring the company meets all its legal obligations. This includes:

• Maintaining corporate records, 
• Preparing minutes of board meetings, and 
• Ensuring the company’s documents are in order.

Other officer roles could include the COO (Chief Operating Officer), who oversees the company’s day-to-day administrative and operational functions, or the CMO (Chief Marketing Officer), who develops marketing strategies to boost the company’s brand and increase market share.

The board of directors is typically responsible for hiring and firing senior officers. This means the board must ensure they choose individuals who are capable of effectively running the company and guiding it towards its strategic objectives.

Officers must act in the best interests of the company, balancing various needs and goals. This often involves strategic thinking, decision-making, and a deep understanding of the business and its environment. A corporation’s officers are critical in steering the company towards its goals and ensuring its successful operation.

What are Fiduciary Duties for Directors and Officers?

Directors and officers of a corporation have specific fiduciary duties to the company. Directors and officers have a legal obligation to act in the best interest of the corporation and its shareholders because of these duties.

Fiduciary duties are guided by two main responsibilities: the duty of care and the duty of loyalty.

The duty of care means directors and officers need to make careful, well-informed decisions for the corporation. They should take time to understand the business fully, and their choices should be based on careful thought and honest judgment. 

The duty of loyalty means that directors and officers need to put the corporation’s needs first, above their own. They should avoid situations where their personal interests might conflict with the corporation’s interests. Directors and officers cannot use their position, or any information they get from it, for personal benefits. In simple terms, this duty is about being loyal to the corporation and its shareholders.

What is Incorporation, or Incorporating?

“Incorporation”, or “incorporating”, is the process of a business becoming a corporation.  Incorporation involves filling out legal documents and filing them in the state where the business wants to be a corporation. These documents tell the public important things about the corporation like its name, where it’s located, what it does, and how its shares (or pieces of ownership) work.

Some states call the incorporation document a “Certificate of Incorporation” or the “Articles of Incorporation”. 

Where Does a Company Incorporate?

A business can register as a corporation in any state that it chooses, no matter where it does business. So you can be located in California or India and still incorporate your business in Delaware. 

The incorporation process is done through the Secretary of State’s office in a given state. The Secretary of State keeps a record of all the corporations in the state and makes sure they are compliant with the state’s business laws and regulations.

The laws of the state where a company first incorporated legally govern a corporation. This means that business owners can shop around and take advantage of state laws that offer them the best protections.

Businesses from all over the world choose to incorporate as Delaware corporations for this reason.

Which State is Best for Corporations?

Delaware is well known as being the number one state to incorporate a business. Entrepreneurs from all over the world choose to incorporate their businesses in Delaware to take advantage of the state’s business friendly laws and tax advantages. 

What are the Functions of a Corporation?

Corporations, as distinct legal entities, carry out several unique functions that set them apart from other business structures. Understanding these functions is important when deciding whether forming a corporation is the right move for your business:

1.) Separate Legal Identity: A corporation is its own legal entity that provides limited liability protection for its owners. This means it can enter into contracts, own property, and be sued, all under its name.

2.) Raising Capital: Corporations have the ability to issue shares of stock, which can be sold to investors. This provides a significant advantage when trying to raise capital for expansion or other large projects compared to other business structures.

3.) Governance Structure: A corporation has a formalized governance structure that involves a board of directors, officers, and shareholders. 

4.) Continuity: The corporate structure ensures that a business can continue its operations regardless of changes in ownership or management.

5.) Compliance with State Laws: Since corporations are governed by state laws, they have to ensure that they comply with regulations, pay required fees, and file necessary paperwork, like Annual Reports.

Corporation vs. Limited Liability Company (LLC). What’s the difference?

Corporations and LLCs are similar in that they both provide limited liability protection and legal separation between a business and its owners. However, these two business structures have several key differences:

Corporation vs. LLC – Ownership:

LLCs are owned by “Members”, while corporations are owned by shareholders. Ownership in an LLC is often more flexible and can be distributed without the need for stock issuance. 

Rather than issuing stock, rights and ownership in an LLC is detailed in the company’s Operating Agreement. The LLC Operating Agreement is a private contract between LLC Members. 

Corporation vs. LLC –  Management:

Corporations must maintain a rigid structure, while an LLC has the flexibility to determine its operational methods. While corporations operate with a board of directors and officers, members manage an LLC directly or appoint managers to do so.

Corporation vs. LLC – Profit Distribution:

Corporations typically distribute profits according to the number of shares an individual owns. In contrast, LLCs distribute profits according to the terms set in the Operating Agreement.

Corporation vs. LLC – Taxation:

Corporations are typically subject to double taxation (corporate level and then shareholder level when dividends are paid), whereas LLCs often benefit from pass-through taxation where profits and losses pass through to the owners’ personal tax returns.

The post How Do Corporations Work? appeared first on IncNow.

Delaware corporations need to fulfill an important legal requirement: filing the Delaware Annual Report. The Delaware Annual Report is a set of business information that needs to be submitted to the Delaware Division of Corporations each year. 

Filing the Annual Report is crucial for maintaining a Delaware corporation’s good standing in the state. Corporations are required to file Annual Reports each year following their incorporation to maintain this status.

In this article, we break down the Delaware Annual Report. We’ll cover what the report requires and provide you with the steps you need to follow to complete and submit your company’s Annual Report.

What Is the Delaware Annual Report?

The Delaware Annual Report is a legal requirement that Delaware corporations must complete each year. This report collects information about the company’s directors and senior officers from the past year. More specifically, the Delaware Annual Report requires the names and addresses of each director and one senior officer.

Delaware corporations need to submit Annual Reports to the Delaware Division of Corporations by March 1st each year to comply with state laws. Corporations file the Annual Report at the same time that they submit their Delaware Annual Franchise Tax payment.  

After it’s filed, a company’s Annual Report becomes part of Delaware’s public record, and copies of the report can be purchased from the state.

What Is The Delaware Annual Franchise Tax?

The Delaware Annual Franchise Tax is a fee that all corporations and LLCs registered in Delaware need to pay each year. The Franchise Tax is a privilege fee for maintaining a company’s good standing status and legal compliance in Delaware. 

LLCs and companies owe the state franchise tax for each year that they are active in Delaware. Business owners can submit franchise tax payments directly to the Delaware Division of Corporations through their website, corp.delaware.gov. 

For LLCs, the Annual Franchise Tax is a flat fee of $300, due each year by June 1st. For corporations, Delaware calculates the Franchise Tax based on the number of authorized shares of stock. Corporations must pay their Franchise Tax by March 1st each year.

What Is Required For The Delaware Annual Report?

The Delaware Annual Report requires details about a corporation and its leadership. More specifically, the Annual Report includes the following information:

• The current address of the business,
• The name and address of one senior officer, and 
• The names and addresses of each director. 

Who Are Senior Officers In A Corporation?

Senior officers in a corporation are responsible for the daily management of the business.  Their primary duty is to implement the business strategies put in place by the company’s directors. 

These officers typically hold specific titles that reflect their responsibilities. Common titles for senior officers include:

• Chief Executive Officer (CEO),
• Chief Financial Officer (CFO),
• Chief Operations Officer (COO),
• Chief Technology Officer (CTO),
• General Counsel (GS),
• President,
• Treasurer, and
• Secretary.

Who Are Directors In A Corporation?

Directors in a corporation are responsible for making strategic business decisions. They are chosen by the company’s shareholders and serve on the Board of Directors.

The board collectively oversees the company’s overall direction and meets several times a year to vote on key business decisions. These include managing investments, deciding whether to launch new products or services, and considering any restructuring of the business.

A critical responsibility of the directors is to appoint or dismiss the company’s senior officers. While directors generally do not manage day-to-day operations, they do review the company’s performance and guide the senior officers.

When Is The Delaware Annual Report Due?

March 1st is the deadline for Delaware corporations to submit their Annual Report each year. The Secretary of State charges a penalty if the Annual Report is submitted late. Corporations need to file an Annual Report every year after the company is incorporated in Delaware. 

How Early Can I Submit A Delaware Annual Report?

Delaware corporations can start filing Annual Reports for the previous tax year beginning on January 1st. This is when the Delaware Division of Corporations opens its online filing system for Annual Reports. However, the filing deadline is not until March 1st.

How To File An Annual Report For A Delaware Corporation

Follow these steps to successfully file an Annual Report for your Delaware corporation:

Step 1: Gather Information

Before you begin, collect the names and addresses of each of the company’s directors, as well as the name and address of one senior officer. This information is necessary to complete the Annual Report.

Step 2: Go To The State’s Website

Access the Delaware Annual Report form online by visiting the Delaware Division of Corporations website at corp.delaware.gov. Under the “services” section, you will find a link to “file your Annual Report.”

Step 3: Fill Out And Submit The Annual Report

Complete the Delaware Annual Report by entering the company’s business address, and the names and addresses of each director and one senior officer. Once filled, submit the report along with your Franchise Tax payment. After these steps, your filing is complete.

What Happens If You Don’t File A Delaware Annual Report?

Delaware corporations that fail to submit their Annual Report on time or do not pay the state franchise tax will lose their good standing status in Delaware. 

If a corporation loses its good standing for more than three years, the state will put the entity into “void” status, and the company’s corporate charter will be revoked.

There is a process to revive a Delaware corporation that has been put into void status. This involves filing a Delaware Certificate of Revival. Before the Certificate of Revival can be filed with the Secretary of State, the company must settle any outstanding state franchise tax and submit any overdue Annual Reports.

Do Delaware LLCs Need To File An Annual Report?

No, Delaware LLCs do not file Annual Reports. However, LLCs in Delaware do need to pay the Delaware Annual Franchise Tax each year. 

Do I Need to Hold Onto a Record of My Delaware Annual Report?

The Delaware annual reports are public records and can be obtained anytime in the future, thus you do not need to keep a copy. Aside from annual reports, a number of documents are important to maintain for a Delaware corporation in your minute book, as part of good corporate governance. Under the Delaware General Corporation Law, every corporation is required to have annual meetings of stockholders (to elect or reelect directors) and meetings of directors (to appoint or reappoint officers). It is important to keep a copy of these annual meeting minutes of shareholders and directors in the corporate minute book. Failing to do so could be one factor if a business creditor were to bring a lawsuit against the shareholders trying to pierce the corporate veil that protects shareholders’ personal assets from business liabilities.

Failing to follow corporate formalities can result in “alter ego” liability where the courts deem your personal assets available to satisfy corporate creditors. Failing to segregate books and records of the corporation from your personal finances similarly can result in alter ego piecing of the corporate veil. In addition to retaining annual meeting minutes, every corporation should keep a record of all incorporation related documents such as the certificate of incorporation, bylaws, stock certificates, shareholder ledger, minutes of the meeting of incorporator and unanimous action of directors to appoint officers and issue stock.

The post How To File A Delaware Annual Report appeared first on IncNow.

After forming a Delaware LLC or corporation, many business owners wonder, “What’s next?” One crucial part of running a business is maintaining your company’s good standing status.

In this article, we delve into what good standing means and guide you on how to maintain your company’s good standing status in Delaware. We also discuss how you can obtain a Delaware Certificate of Good Standing and why you may need one.

What Does “Good Standing” Mean?

Being in “good standing” means your company meets all its legal requirements in the state where it was set up. Generally, a company is in good standing if it has paid its state taxes and doesn’t owe any bills. Some states require corporations to also file an Annual Report to keep their good standing.

Keeping your company in good standing is essential for running a business. In states like Delaware, the Secretary of State can administratively dissolve a company if it loses its good standing for an extended period of time. This puts business owners at risk of losing their limited liability protection. This protection is crucial as it safeguards personal assets from business debts.

How To Maintain Good Standing In Delaware.

In Delaware, LLCs and corporations need to meet three major requirements to keep their good standing status:

1. Pay the Delaware Annual Franchise Tax on time,
2. Have a Delaware Registered Agent appointed at all times, and
3. File Annual Reports each year. This requirement only applies to Delaware corporations however. 

Delaware companies need to pay their Annual Franchise Tax on time to keep their good standing status. The deadline for corporations to pay the Delaware franchise tax is March 1st each year, and for LLCs, it’s June 1st. 

Delaware corporations are also required to file an Annual Report that includes a list of their directors. The Delaware Annual Report gets submitted along with the company’s franchise tax payment.

Delaware state laws also require every company registered in the state to have a Delaware Registered Agent appointed at all times. Business owners can be their own Registered Agent if they have a physical address in Delaware. However, you can also hire a Delaware Registered Agent service to help take this responsibility off your plate. 

What Is A Delaware Certificate of Good Standing?

A Delaware Certificate of Good Standing is a document the Delaware Secretary of State issues. It certifies that a business entity has met its legal obligations in Delaware and maintains a “good standing” status in the state.

Delaware Certificates of Good Standing are crucial for several key business activities. For instance, a Delaware LLC or corporation may need this certificate to:

• Open a business bank account, 
• Register to do business in other states, 
• Obtain business loans or secure financing, and
• Purchase real estate. 

This type of certificate has different names in different states. Some states also call it  a “Certificate of Existence” or a “Certificate of Authorization”.

How To Get A Delaware Certificate Of Good Standing.

You can purchase a Delaware Certificate of Good Standing for an LLC or corporation from a Delaware Commercial Registered Agent, like IncNow. As a Registered Agent, IncNow has access to the Delaware Division of Corporations’ online filing system and can quickly generate a Certificate of Good Standing for any Delaware company.

How Does A Company Lose Good Standing?

A business entity might lose its good standing status if the company:

A.)  Fails to file Annual Reports on time,

B.) Does not have a Registered Agent appointed, or

C.) Misses state franchise tax payments.

Oftentimes, a company can regain its good standing fairly quickly by correcting one of these issues.

What Happens When A Business Loses Good Standing?

Losing good standing status can cause serious problems for a business and its owners. States may impose fines and penalties on non-compliant companies. For example, in Delaware,  companies that don’t pay their annual state franchise tax to the Delaware Division of Corporations on time immediately lose their good standing. 

Additionally, the state charges late fees, which accrue interest, making it increasingly challenging to settle the tax debt. The company needs to pay its full tax balance to restore its good standing.

Furthermore, a company can be administratively dissolved or declared “void” for losing its good standing. For example, if a Delaware company fails to maintain a Registered Agent on the state’s website for more than 30 days, the Delaware Secretary of State will dissolve it.

How To Regain Good Standing In Delaware:

Delaware LLCs and corporations often lose their good standing status by missing the deadline for their Delaware Annual Franchise Tax payment. Delaware corporations need to pay their franchise tax by March 1st each year, and LLCs need to pay by June 1st.

You will need to pay the company’s overdue franchise tax balance in full to return its good standing status. This includes any late fees and interest penalties applied by the state. You can make payments for the Delaware state franchise tax directly on the Delaware Division of Corporations website at corp.delaware.gov.

After you submit your franchise tax payment, the Delaware Division of Corporations will automatically update your company’s status to good standing.

How To Revive a Delaware Company.

If your Delaware company has been administratively canceled by the Secretary of State, there’s a process to revive it and restore its good standing status.

Step 1: Pay The Overdue Delaware State Franchise Tax

First, pay all of the Delaware state franchise tax that the company owes. This needs to be done before the company can be revived. You can make these payments through the Delaware Division of Corporations website.

Step 2: Appoint A Delaware Registered Agent 

If your company lacks a Registered Agent in Delaware, appoint one. Consider hiring a Delaware Registered Agent service, like IncNow, to fulfill this role.

Step 3: File All Annual Reports (For Corporations Only) 

If your company is a Delaware corporation, you’ll need to submit any missing Annual Reports.

Step 4: File A Certificate of Renewal and Revival 

The last step is to submit a Certificate of Renewal and Revival to the Delaware Division of Corporations. This request asks them to reinstate your company and return its good standing status.

After the Renewal and Revival is processed and accepted, your company is reinstated and can conduct business legally again.

A Delaware Registered Agent service, like IncNow, can help you with the revival process and file the Certificate of Renewal and Revival in Delaware for you.

What Is The Delaware Annual Franchise Tax?

Delaware LLCs and corporations are required to pay an annual tax to the state to keep their good standing status. This Delaware Annual Franchise Tax is owed each year after the company is officially registered in Delaware.

To maintain good standing, Delaware companies must pay their franchise tax by the due date: June 1st for LLCs and March 1st for corporations each year.

For LLCs in Delaware, the Annual Franchise Tax is a set fee of $300. For corporations, the franchise tax amount varies and is calculated based on the number of shares the company is authorized to issue.

What Is “Void” Status For a Delaware Company?

The Delaware Secretary of State assigns a “void” status to an LLC or corporation if it fails to pay its state franchise tax for more than 3 years. Once a company goes void, the state will administratively cancel the entity. 

If your company is placed into void status, you can revive it by filing a Certificate of Renewal and Revival.

The post What Does “Good Standing” In Delaware Mean? appeared first on IncNow.

If you have applied for a loan with your corporation as the borrower, you may have heard the term “Delaware Certificate of Incumbency”. What is a Delaware Certificate of Incumbency and when do you need one?

Navigating corporate documentation is crucial for business operations, especially when engaging in financial transactions or significant changes in company structure. The Delaware Certificate of Incumbency, an essential document, evidences a corporation’s current authoritative figures.

This article delves into the importance of the Certificate of Incumbency, outlining its purpose, when it’s necessary, and how it stands in relation to other corporate documents like the Certificate of Good Standing.

What Is a Delaware Certificate of Incumbency?

An officer of a corporation signs a Delaware Certificate of Incumbency to identify the current officers and directors of the corporation. This Certificate may also list the company’s current shareholders.

The Delaware Certificate of Incumbency differs from corporate minutes, Unanimous Actions of the Directors, and bylaws. It is an internal statement of the corporate officer representing a snapshot in time to express what individuals currently are held-out with authority of an officer to act.

Overtime, corporations often reorganize or restructure their management. While lenders may ask for organizational documents of the company that state who was in charge at the beginning, the lender also wants to know who is in charge now. The Certificate of Incumbency details changes that have occurred since the entity’s initial organization.

The Secretary or President of the Corporation signs the Certificate of Incumbency. The Certificate can also undergo notarization to verify its authenticity, enabling recording in a public record.

When Does My Delaware Company Need a Certificate of Incumbency?

A Certificate of Incumbency is often requested when completing certain business functions, such as: 

• Establishing a bank account, 
• obtaining financing from a lender, 
• selling off all stock or assets, or 
• engaging in large business transactions.

Does a Certificate of Incumbency Need to be Filed?

No, companies do not need to file their Certificate of Incumbency with the state. An authorized Officer prepares and executes a Certificate of Incumbency, a private legal document not filed with the state of incorporation.

Do LLCs Need a Certificate of Incumbency?

A limited liability company (LLCs) can produce a Certificate of Incumbency if necessary. An LLC manager or officer signs a Certificate of Incumbency. It is a snapshot in time expressing what natural persons or entities currently are the officers, managers and members of the LLC.

Certificate of Incumbency vs. Certificate of Good Standing 

A Certificate of Incumbency and Certificate of Good Standing are two types of corporate documents that service completely different purposes. 

A state government issues a Certificate of Good Standing. This certificate confirms that a corporation or LLC is:

1. Duly formed under the state’s incorporation laws,
2. Has met all its legal obligations, such as submitting annual reports, and 
3. Has paid all necessary state taxes on time.

A Certificate of Incumbency is like a current directory of your company’s leadership. It names the individuals who have the authority to act on behalf of the company. A company officer actively prepares and signs this document.

Conversely, the Certificate of Good Standing serves as validation from the state that your business is compliant with applicable laws and regulations. It is a formal endorsement from the state.

The Certificate of Incumbency is helpful when you need to authenticate the identity and authority of the people managing your company’s affairs. This is typically required when opening new bank accounts or securing corporate financing.

The Certificate of Good Standing, however, is often necessary when a company seeks to register to do business in other states or needs to reaffirm its legitimacy and adherence to state laws for various business engagements.

To summarize, the Certificate of Incumbency provides verification of who currently has decision-making power within the company, whereas the Certificate of Good Standing assures that the company itself has maintained good legal standing with the state.

The post Does My Delaware Company Need a Certificate of Incumbency? appeared first on IncNow.

What Is a Corporate Secretary?

A Corporate Secretary is one of three essential senior officer positions typically found within a corporation. Along with the President and Treasurer, the Corporate Secretary rounds out the core officer positions that a company appoints when initially incorporating.

The Corporate Secretary works closely with c-suite executives and the Board of Directors to guide the company’s governance practices. A Corporate Secretary should be knowledgeable of current governance trends and should advise board members on how to navigate potential issues.

Does My Company Need a Corporate Secretary?

Your company must appoint a Corporate Secretary if state laws require it, but beyond compliance, this role is pivotal for seamless governance. A Corporate Secretary keeps your business in line with regulations and ensures that all essential documents are accurate and filed on time.

Appointing a Corporate Secretary can add value no matter your company’s size. In smaller firms, Corporate Secretaries often wear multiple hats, blending roles to keep the company organized and primed for growth.

What Does the Corporate Secretary Do?

Corporate Secretaries have core responsibilities pertaining to the management of official corporate records and compliance. They may also serve as a resource to board members, providing advice on their specific responsibilities.

A corporation’s by-laws establish the powers and duties of the Corporate Secretary. The primary responsibilities of the Corporate Secretary typically include:

1.) Arranging Board Meetings

The Corporate Secretary organizes and attends all Board of Director or committee meetings. The Corporate Secretary is often tasked with:

• Sending notices of stockholder and board meetings,
• Creating meeting agendas,
• Collecting and recording motions, votes and proxies, and,
• Signing meeting resolutions and certifications.

2.) Maintaining Corporate Records

Corporate Secretaries are often responsible for maintaining all of a corporation’s important internal documents. Some of these documents include:

• Stock certificates and transfers,
• Business licenses,
• Corporate Minutes and resolutions,
• Shareholder correspondence, and,
• The corporation’s capitalization table.

3.) Advising Board Members

The members of  a corporation’s Board of Directors often come and go. An experienced Corporate Secretary may be responsible for onboarding new members and advising them on their fiduciary duties as directors.

4.) Managing Subsidiaries

Many corporations also operate subsidiary companies. The Corporate Secretary may be responsible for ensuring that subsidiaries maintain good standing status and that their boards follow proper governance practices.

5.) Additional Responsibilities

The company President may also assign the Corporate Secretary to perform additional duties, including:

• Assisting in shareholder relations and outreach;
• Making inquiries on behalf of the company;
• Preparing materials and presentations; and,
• Organizing or complying with company contracts.

Corporate Secretaries and The Annual Meeting

State corporation laws require corporations to hold an Annual Meeting of shareholders. The Corporate Secretary plays an important role in organizing this event.

In addition to managing the logistics of the Annual Meeting, Corporate Secretaries are also responsible for:

• Preparing an agenda for the Annual Meeting,
• Distributing the necessary legal governing documents, and
• Preparing the minutes of the Annual Meeting. 

Is a Corporate Secretary a Board Member?

The Corporate Secretary is often not a board member. They do not even need to be a shareholder in the corporation. A corporation’s Board of Directors elects a Corporate Secretary, often to a one year term. The Board typically renews the Corporate Secretary’s terms at the annual meeting.

Is a Corporate Secretary an Executive Officer?

Yes, the Corporate Secretary is often considered a senior officer in the company. The Corporate Secretary often has responsibilities pertaining to corporate governance and record keeping comparable to that of a Chief Executive Officer or Chief Financial Officer. 

Is the Corporate Secretary a Lawyer?

The Corporate Secretary does not need to be a lawyer. However, if a Corporate Secretary is a lawyer, they may also serve as the company’s general counsel. This often comes with increased responsibilities in areas such as securities compliance, mergers and acquisitions, and employee relations.

Do Companies Need a Corporate Secretary?

Many state corporation laws require companies to name a Corporate Secretary. These laws also require corporations to hold an annual shareholder meeting, which the Corporate Secretary plays an important role in.

Can a Corporate Secretary and Treasurer Be the Same Person?

Yes, one person can hold multiple officer titles in a corporation, including both Corporate Secretary and Treasurer. It is often the case in small business corporations that one person occupies multiple senior officer positions in the company. For example, it is possible to have a one-person corporation in which one individual is the sole shareholder and director of the company and holds all of the officer titles.

The post Does My Company Need a Corporate Secretary? appeared first on IncNow.

Many business owners strive to balance running a profitable business with doing good for the planet. As businesses grow, enforcing standards and achieving sustainability goals becomes more challenging. One successful strategy that businesses use to pursue both profits and purpose is to incorporate as a Delaware Public Benefit Corporation, or a “PBC”.

But what is a Delaware Public Benefit Corporation? Forming a Delaware Public Benefit Corporation enables your business to have the best of both worlds: generating profits while striving towards environmental, governance and social responsibility goals.

In this article, we breakdown what Delaware Public Benefit Corporations are, how they work, and how to set up your business as a Delaware Public Benefit Corporation.

What is a Delaware Public Benefit Corporation, Exactly?

Delaware Public Benefit Corporations (PBC) function like any other for-profit corporation, but with a key difference. Public Benefit Corporations bake specific public benefit purposes into their foundation documents as for-profit entities. Delaware PBCs can use company resources to pursue public benefit causes without strictly focusing on maximizing profits or shareholder value.

A Delaware Public Benefit Corporation has a similar structure as a traditional corporation, with:

• Directors: Who make strategic decisions for the company;
• Officers: In charge of day-to-day business operations; and,
• Shareholders: Who invest and have an ownership stake in the company.

Delaware Public Benefit Corporations name their stated public benefits in the company’s Certificate of Incorporation. The Certificate of Incorporation is the public document that officially registers the corporation in the state.

This informs both the shareholders and the public about the company’s commitments to advancing its stated causes. The public benefit purposes will always be a part of the company’s incorporation document, unless the directors carry out an amendment process.

How Are Delaware Public Benefit Corporations Different?

What sets Public Benefit Corporations apart from general corporations is that PBCs don’t have to focus solely on maximizing business profits. Leadership in a PBC can dedicate resources to the company’s stated public benefits without facing backlash from shareholders

People often expect traditional corporations to maximize value for their shareholders. Shareholders of a for-profit corporation can take legal action against the company’s board of directors if they feel that the board made intentional decisions that negatively impacted profits.

The idea of maximizing shareholder value typically prevents general, for-profit corporations from dedicating significant resources to social or environmental causes. In a Public Benefit Corporation, the board of directors has the freedom to make decisions that advance the company’s public benefit causes, even if it means sacrificing some profits.

Directors of a Public Benefit Corporation are legally protected from allegations of waste made by shareholders, as long as the company makes progress towards its public benefit purposes.

Delaware Public Benefit Corporation Advantages

Here are some of the key advantages of Delaware Public Benefit Corporations:

1.) Public Benefit as a Priority

The Public Benefit Corporation structure enables businesses to stamp social and environmental causes into the company’s formal documents. This allows the corporation to prioritize public good alongside general profit goals.

In addition, the PBC structure sets a high bar to reverse a company’s public benefit commitments. Removing a public benefit from a PBC’s incorporation documents requires approval from two thirds of the company’s shareholders.

2.) Protection for Directors and Managers

Directors can focus on public benefit goals without fearing backlash from shareholders, even if these decisions impact profits.

3.) Pursue Profits

A Delaware Public Benefit Corporation can still pursue a profit while prioritizing its public benefits.

A Delaware Public Benefit Corporation is not a nonprofit organization, or a 501(c)(3). A PBC is still a for-profit corporation that can make business decisions aimed at benefiting the company’s bottom line.

How to Start a Delaware Public Benefit Corporation:

Here are the steps you need to follow to set up a Public Benefit Corporation in Delaware:

Step 1.) Identify Your Public Benefit Purposes

The first step to forming a Delaware Public Benefit Corporation is to establish the company’s public benefit purpose. PBCs can promote causes that benefit the environment, the arts, their employees, or society in general.

The company must include the public benefit purpose (or purposes) in its corporate documents. It’s a good idea to have these purposes decided before forming the company.

Step 2.) Get a Delaware Registered Agent

Every corporation in Delaware needs to have a Delaware Registered Agent. If you do not have a physical mailing address in Delaware, you can hire a registered agent service, like IncNow, to be your Delaware registered agent.

Step 3.) File a Certificate of Incorporation with a Public Benefit Statement

Forming a Delaware Public Benefit Corporation requires filing a Certificate of Incorporation with the Delaware Secretary of State’s office. The company needs to include a statement in the Certificate of Incorporation detailing the specific public benefit causes the corporation intends to pursue.

Requirements for Public Benefit Corporations in Delaware

Because of their status, Delaware Public Benefit Corporations are required to be more transparent with their shareholders. For example, Delaware law requires PBCs to provide their shareholders with statements detailing progress that the company has made in promoting its stated public benefits.

The public benefit statement needs to be issued at least every two years, and should address:

1. Objectives for promoting public benefits;
2. Standards for measuring the company’s progress;
3. Factual information about the company’s success in meeting its objectives; and,
4. An overall assessment of the company’s progress towards its public benefit objectives.

The biennial public benefit statement is an additional requirement to the corporation’s Annual Meeting and Annual Report.

How to Convert your Company to a Delaware Public Benefit Corporation

If you have an existing Delaware corporation, and want to start pursuing public benefit causes, you can convert your company into a Delaware Public Benefit Corporation. This requires filing an Amendment to the company’s original Certificate of Incorporation.

The Amendment needs to state the public benefit causes that the company intends to pursue. Any Amendment to a corporation’s Certificate of Incorporation needs to be approved by two thirds of the company’s shareholders.

Is a Delaware Public Benefit Corporation a Non-Profit?

Delaware Public Benefit Corporations are not non-profits. Delaware PBCs are for-profit corporations that do not qualify for 501(c)(3)  tax-exempt status.

Non-profit organizations are typically incorporated as non-stock corporations. A non-stock corporation is structured similarly to a general corporation, however, the company does not have shareholders. This means that the corporation does not have owners who can benefit economically from the company’s operations.

The post What Is a Delaware Public Benefit Corporation? appeared first on IncNow.