Most of us think about an individual being the party that forms a corporation. As an alternative, this post discusses the corporate incorporator, i.e., a corporation that forms another corporation. (For information about incorporators generally, please see What Does an Incorporator Do? )
To start, I wondered whether various states’ statutes permit a corporate incorporator. (more…)
This post explains how Delaware became the incorporation capital of the U.S. It is based on a Quora question that I answered recently. Please see How did Delaware acquire its status as a corporate haven?
There are a number of law review articles about the history of Delaware corporate law and how Delaware became the home to so many U.S. corporations.
In my opinion, one of the most informative articles is Arsht, “(more…)”, Delaware Journal of Corporate Law (1976).
This post discusses the role of the incorporator when a corporation is formed. I decided to write this after answering a Quora question. Please see When a third party files Articles of Incorporation as the incorporator for a company, what are the necessary steps to ensure that the company is legally released to the directors?
The incorporator signs the corporation’s Articles or Certificate of Incorporation. When I form a corporation for a client, the client typically takes that role.
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.
This post expands upon an Avvo answer that I provided. Q. Can I form a corporation with a future filing date?
A. Yes. The answer will vary slightly depending on the state of incorporation.
Future Filing Date in Delaware
If you want a future filing date in Delaware, Section 103(c)(4) of the General Corporation Law says, in relevant part:
Many entrepreneurs need to control expenses – including legal fees. One way to do that is to incorporate online rather than work with a lawyer. Occasionally I am asked, “When is it OK to incorporate online?”
My greatest concern when entrepreneurs incorporate online is that they have no way to know whether the process has been completed properly. This is particularly true with respect to issuing shares – a critical task.
In answering this question, I look for activities that increase the likelihood of a dispute or a lawsuit. I ask:
California Secretary of State turnaround times for corporate and LLC formation – which stretched to their longest ever early this year – now have been reduced significantly.
The reason: In April, the state Legislature passed a bill authorizing $1.6 million for overtime and temporary personnel to resolve a backlog of 122,000 business filings! (more…)
This post, which discusses legal terminology, is adapted from a Quora answer that I provided almost two years ago. Q. Why do you “incorporate” corporations but “form” LLCs? Why the differing terminology?
A. Corporations have existed for much longer than LLCs. “Incorporation” was? chosen as the single word that denotes “forming a corporation”. The obvious tie? between the words “corporation” and “incorporation” is why “incorporation”? applies only to corporations and is easily understood.
Many years later, LLCs – more fully, limited liability companies – come along.? Right away, we see this three-word phrase is awkward to work with. I? suppose that one could have made up a related term to designate? formation, such as “inlimit” or “inLLC”, but, to say the least, those do? not roll off the tongue. Maybe someone will devise such a term; for? now, we must be satisfied with “forming” LLCs.
Almost two years ago, I wrote about how Delaware corporations with no-par-value stock can find themselves obligated to pay extraordinarily high franchise taxes (In Delaware, No-Par-Value Can Cost a Bundle). Yesterday, a reader of this blog pointed out that IncNow, an online incorporation service, virtually lures naive customers into this tax trap.
Here is what the reader reported to me:
- IncNow’s default assumption is that no-par stock will be issued.
- IncNow does not invite the user to specify a par value (in contrast to LegalZoom, for example, which does).
- IncNow’s representative said that the reader “could assign a par value to shares, under special requests at the bottom of the checkout form” [emphasis added].
In my opinion, considering par-value designation a “special request” is ridiculous on its face. But doing so with tens or hundreds of thousands of dollars at stake is grossly irresponsible. As a result, IncNow has been added to this blog’s Hall of Shame.
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I recently received (more than five years after this post was written) a polite, friendly email from IncNow’s president in response to this post. That email is too long to include in its entirety, so I will quote substantial portions below:
You may not be aware that we at IncNow call all customers who place orders for Delaware corporations with more than 1500 shares authorized that do not specify the par value in the comments box. We do this to explain the options to them over the phone before the Certificate of Incorporation is filed. One reason we don’t just “auto-file” a boxcar number of shares with zero par is because it drastically increases the filing fee (not just the annual fee – tax trap you mention)….
The reason we do not ask for par value is because it confuses potential customers who are not familiar with the par value concept (which seems to be most entrepreneur customers). We previously had this on our order form and people would put down what they expected to sell the shares for (or the market value). We would then have to correct them before the filing. What was an even bigger problem was people being confused by the concept in general and abandoning the order form (paralysis of analysis). In about 2003 we removed this par value option and it doubled the number of orders by reducing the order form abandonment rate by half.
We have thought of other ways to hide the par value unless the potential customer lists more than 1500 shares then try to provide more information on the topic and allow the customers to fill-in the information. That also results in confusion because the customer does not read the explanation or understand it… We are still considering how to explain it more clearly to add it back to the order form….
We have found it is better to suspend an order and contact the customer to ensure they understand the concept and make a more informed decision.
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.
This post asking may a minor form a corporation is based on my answer to a Quora question. Please see Can a little kid register a company in United States?
Answer: States differ as to whether they let a minor form a corporation (i.e., whether a minor can act as an incorporator).
For example, Michigan, according to a 1981 Attorney General opinion, does not let a minor form a corporation. A footnote in that opinion lists 31 other jurisdictions whose incorporation statutes (as of that time) variously require that incorporators either be at least 18 years old or have the capacity to contract. As of the date of that opinion, those jurisdiction were: