Many entrepreneurs opt to form a Delaware LLC due to its flexibility and customizable operating agreement. However, it’s essential to remember that the state isn’t perfect.
It is not recommended to utilize a Delaware LLC to hold assets located outside of Delaware, as the laws of that other state may not provide the same level of protection that Delaware LLC law offers to such assets.
The Number of Shares
Delaware LLCs are a business structure that offers the advantages of both corporations and partnerships or sole proprietorships. As tax-favored entities, Delaware LLC members are treated as owners for income and sales tax purposes.
Delaware LLCs can have any number of shares, depending on the company’s needs. These numbers can be set in the Certificate of Incorporation or amended after a majority vote by directors and stockholders approves it.
Shares are units of equity ownership in a corporation and can be issued to outside investors who wish to invest in the business. They may also be sold in order to raise capital as needed by the corporation.
When selecting the number of shares to issue, you must take into account the timeframe in which you need to raise capital. If your objective is to complete this task quickly, setting your share capital low can reduce franchise tax exposure and help ensure smooth operations.
The Value of Shares
Corporations must set a par value for its shares, which is the minimum amount shareholders can purchase them for. Usually, this par value is set at something like $0.001 or $.0001 (not the actual value of the shares).
Delaware LLCs and other entities typically set a share’s par value in their operating agreement. The purpose is twofold: to incentivize founders to purchase shares at a low cost, and to reduce franchise tax that must be paid by the business.
A company’s franchise tax is calculated using the Assumed Par Value Capital Method, taking into account gross assets, issued shares and authorized shares. A state processing fee of $50 is added to this amount for processing. To find out what your franchise tax would be using this approach, consult the Assumed Par Value Capital Method Calculator on the Delaware Secretary of State website.
The Rights of Shareholders
One of the primary rights shareholders have is to inspect corporate books and records. Delaware statutes guarantee this right; upon written request to the company, shareholders can inspect and copy its stock ledger, list of shareholders and other documents.
Shareholders in Delaware LLC operating agreements have contractual rights to inspect corporate books and records. Under this rule, a shareholder may demand access to a document only if it is necessary for accomplishing an important purpose (like investigating potential fraud) and the information isn’t readily accessible in a timely manner.
Delaware boasts an impressive collection of business codes and statutes, making it a prime choice for entrepreneurs. Furthermore, its Court of Chancery is dedicated solely to handling business disputes – typically resolving them faster than in other states.
The Requirements for Issuance of Shares
Delaware LLCs can issue shares of stock, which serve as legal evidence that the business exists and are owned by it. This allows you to raise capital and attract investors alike.
The number of authorized shares for a Delaware corporation is determined by the corporation’s articles of incorporation. You cannot issue more shares than this amount.
If you need to increase the number of shares issued, you can request an amendment to your corporate documents. This is an option worth considering if your business requirements change over time.
You could also add no-par stock to your Delaware LLC, granting access to shares without a market value. However, be aware that an additional fee will apply.
Your small business should create a comprehensive business plan, outlining the organization structure, target customers and marketing strategy. Doing this will allow you to cultivate authentic connections with customers which may eventually result in organic brand recognition.
