Prior to retaining me, one of my international clients used Harvard Business Services to form a Delaware corporation. During that process, HBS made two significant mistakes that I had to fix.
Harvard Business Services Mistakes
First, the Certificate of Incorporation stated that the corporation was authorized to issue shares “having a par value of $ 0 per share.” A par value of $0 makes no sense for the following reasons.
- Par value is the minimum amount a shareholder must pay to acquire shares. So, with a $0 par value, a shareholder could acquire any or all of the corporation’s shares by writing a check for $0.00.
- The par value portion of the amount paid for shares appears on the corporation’s balance sheet as paid-in capital. So, however much actually actually was paid for shares, there would be an obligation to create a paid-in capital account with an amount of $0.00.
A par value of $0 suggests that the intent was to authorize shares without par value (see Delaware General Corporation Law Section 102(a)(4)) – at least if relatively few shares were authorized (see In Delaware, No-Par-Value Can Cost a Bundle).
Second, the Statement of Incorporator named, as initial directors of the corporation, one individual and one corporation! Like other states, Delaware requires that corporate directors be natural persons rather than legal entities. See Delaware General Corporation Law Section 141(b).
Vulnerable Foreign Client
Because my client is in a foreign country, it was especially vulnerable and unlikely to be aware of these errors. For example, in many countries legal entities may serve as the equivalent of corporate directors in the United States.
In light of the foregoing, I am adding Harvard Business Services to this blog’s Hall of Shame.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.