Delaware

Doing Business in Delaware

Introduction

Delaware is a small state situated on the East Coast of the United States of America often referred to as the “Gateway to the United States”. Marked by few regulations and a lack of bureaucracy in arranging its affairs, and with the Delaware Corporation Law being considered throughout the USA among the most attractive for organisation purposes, it is a valuable jurisdiction in which to organise new companies.

The policy of Delaware courts has always been to construe the Corporation Law liberally and to interpret any ambiguities or uncertainties in the working of the Statutes so as to reach a reasonable and fair construction. This causes the careful investor to have confidence in the security of the investment.

The concept of the Limited Liability Company (LLC) is relatively new and is potentially one of the most interesting developments in international corporate and trust work in recent years. An LLC has corporate form and personality but is categorised as a partnership under the Internal Revenue Code of the USA. As such, the LLC is not separately taxable but rather its income is taken to flow through to its members who are taxed according to US principles as though they had received the income directly. Non-US persons are only taxed on US source income or income connected with the conduct of a US trade or business. If the LLC earns only income that falls outside this definition and the members of the LLC are non-US persons with no US presence, then no tax would be payable either by the LLC or by its members.

Company Information The Delaware LLC

A Delaware LLC has the following characteristics:-

Taxation

A correctly structured Delaware LLC that has no US source income or an income effectively connected with the conduct of a US trade or business would not be subject to any form of US tax on income.

Members

An LLC is required to have only one member and a one member LLC will be tax transparent. It is more usual though to ensure tax free status by having two or more members. Members are the equivalent of shareholders in a normal corporation but hold “units” rather than shares. The details of the incorporating members appear on the public file.

Managers

It is normal for one or more managers, whose responsibilities and functions would be similar to those of the directors of a normal company, to be appointed. Alternatively, the members themselves may elect to carry out the administration of the company themselves in a similar manner in which the partners of a partnership conduct their affairs. Details of the managers do not appear on the public file.

Annual Reporting

A simple franchise tax report must be completed each year but this does not give any details about the structure of the LLC. Provided the LLC conducts no US business and receives no US source income neither the LLC nor its foreign members would be required to file US tax returns.

Timescale

Incorporation can be achieved within 48 hours. However, it does take approximately seven days for documents to arrive from Delaware.

Directors

The minimum number of directors is one. Directors may be natural persons or bodies corporate. They can be of any nationality and need not be resident. A copy of the Register of Directors must be held at the Registered Office and any changes to the Register must be sent to the Registered Office within 15 days of the change. Failure to do so may result in a fine of US$10,000.

Company Secretary

A company secretary is not a requirement under the Act, but a secretary is normally appointed to facilitate signing obligations. An imprint of the Company Seal must be held at the Registered Office. Failure to do so may result in a fine of US$10,000. If the Minute Books containing records of meetings of members and directors are not held at the Registered Office the address at which these books are held needs to be provided.

Shareholders

The minimum number of shareholders is one. A copy of the Register of Members must be held at the Registered Office and any changes to the Register must be sent to the Registered Office within 15 days of the change. Failure to do so may result in a fine of US$10,000.

Disclaimer
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. IQTESADI does not accept any responsibility, legal or otherwise, for any errors or omission.