SECTION I Overview of Delaware Corporate/LLC Formation

Transcription

1 SECTION I Overview f Delaware Crprate/LLC Frmatin This memrandum sets frth the steps required t establish a U.S. subsidiary f a freign parent cmpany. Althugh the Limited Liability Cmpany is briefly described belw, this memrandum is primarily devted t the frmatin f a Crpratin, the mst cmmnly used frm f entity fr U.S. subsidiaries f Eurpean cmpanies. General Cnsideratins There is n natinal crprate law in the United States gverning privately held crpratins. Each state has its wn frm f crprate law, which permits an entity t be frmed that insulates the sharehlders frm liability fr debts f that entity. There is n requirement that a crpratin be frmed in the state in the United States where the subsidiary has its headquarters. Mst f ur crprate clients incrprate in the state f Delaware because f its well-develped crprate law, as well as cst and cnvenience factrs (e.g., n an expedited basis it is pssible t register a crpratin in ne day). In almst all instances, the ttal state and federal crprate incme tax burdens d nt materially differ depending n the state f incrpratin. There is n need t have emplyees r set up any peratins in Delaware. There are a number f crprate service cmpanies, which regularly act as lcal statutry agent f Delaware crpratins. It is, f curse, pssible t frm a crpratin in the state where the subsidiary s headquarters are t be lcated, but it is nt unusual fr there t be higher administrative csts and delays and smetimes unusual lcal statutry prvisins which are nt beneficial t sharehlders. Frms f Crprate Entities Crpratin It permits unlimited classes f capital stck, prfits are taxed at the crprate level, and sharehlders pay taxes n dividends, unless whlly r partly exempt. Limited Liability Cmpany (LLC) U.S. federal tax law (and mst states) permits an LLC t elect partnership tax treatment while maintaining the limited liability f the wners. Very flexible structure and ften used fr jint ventures f tw crpratins. Frming a Crpratin (r LLC) in Delaware Name With very few limitatins, a crpratin s name can be any name that is nt cnfusingly similar t anther existing crpratin s name r a registered trademark. Capitalizatin A crpratin must have cmmn shares and may have any number and type f preferred shares with different rights frm the cmmn shares. Generally, a 100% wned subsidiary has nly cmmn shares at the time f frmatin. The certificate f incrpratin f subsidiaries usually authrizes 5000 cmmn shares, with minimal (ften $.01 per share) r n par value, per share. The number f shares issued t the sharehlder will nrmally be much less, ften 100 shares, the balance being held in reserve fr future capital increases. Unlike many cuntries, there is n specific requirement f minimum capital. Hwever, t avid a creditr s claim that the crpratin was thinly capitalized and that, as a cnsequence, its crprate status shuld be disregarded, t satisfy tax authrities, and mst likely, a lending institutin s lan cvenants, nce the crpratin is rganized, the debt/equity rati shuld be reviewed, and, if necessary, a prtin f funds advanced as a lan by the parent can be cnverted t capital by bard f directr s reslutin. Purpse In general, n need t be specific in the Certificate f Incrpratin as t industry r line f business. Certificate can state that the crpratin is frmed fr any lawful purpse. Only in a few areas, such as engineering and banking, d special prvisins apply. Other Prvisins It is nt uncmmn fr a Certificate f Incrpratin t have additinal prvisins limiting the persnal liability f directrs, as well as technical crprate matters that can simplify future rerganizatins. Filing Usually the lawyer wh drafts the Certificate f Incrpratin signs it as the Incrpratr, and then arranges fr the filing with the ffice f the Secretary f State in the state f incrpratin.

2 Pst-Incrpratin Prcedures Incrpratr The Incrpratr adpts by-laws and names the initial member(s) f the Bard f Directrs. Bard f Directrs A crpratin is managed by a Bard f Directrs and Officers. Under Delaware law the Bard may have as few as ne member. At the Bard s rganizatinal meeting (r by unanimus written cnsent), the Bard sets the price and number f shares t be sld t the parent cmpany and, if applicable, ther sharehlders, appints the fficers, apprves bank credit and lan agreements and the registratin f the crpratin fr tax and jurisdictinal purpses in ther U.S. states where business is t be cnducted. Officers At a minimum, a President and Secretary (ften the crpratin s utside lawyer is named Secretary in rder t maintain the apprpriate crprate frmalities). Mst crpratins als have at least ne Vice President and a `Treasurer. Whether the President is als called the Chief Executive Officer (CEO) and if anther fficer (e.g. Vice- President-Finance r Treasurer) is als called a Chief Financial Officer (CFO) is usually determined by the By- Laws. Tax Registratin An fficer f the Crpratin must file fr an Emplyer Identificatin Number ( EIN ) with the Internal Revenue Service prir t cmmencing business. In sme instances, a Freign Emplyer Identificatin Number may be acquired. Are all fficers, directrs and sharehlders listed in a public filing ffice? The names f principal fficers are filed in many states, including Delaware, n an annual basis. Except fr certain regulated industries, the identity f sharehlders f a privately held crpratin are nt a matter f public recrd. Raising Additinal Capital frm Third Parties The sale f securities (stck r debt) t fficers, emplyees, r ther third parties in the U.S., whether thrugh an initial public ffering (IPO) r therwise is highly regulated by states and als by the Federal Gvernment thrugh the Securities and Exchange Cmmissin (SEC). Specific exemptins apply, but each case shuld be separately reviewed t determine whether prspectus and/r registratin is required. Frequently Asked Questins (COSTS): What are the csts f frming/maintaining a Delaware Crpratin? Delaware State Fees (2014) Filing f Certificate f Incrpratin- $ Annual Statement $ Annual Franchise Tax $ (minimum and if n mre than 5000 authrized shares) Crprate Agent Fees $50-$500 depending n level f service. LLC General Cnsideratins The DE LLC in terms fr frmatin and related cncerns is virtually identical t that f the crpratin. Hwever, certain key deliverables and drafting cncerns are different. Namely the LLC has ne majr rganizatinal dcument (the perating agreement) that carries mst f the terms and addresses mst f the cnsideratins that a Crpratin s suite f bylaws, reslutins, sharehlder agreements, and certificate f incrpratin d as a whle. Frequently Asked Questins (COSTS): What are the csts f frming/maintaining a Delaware LLC? Delaware State Fees (2014) Annual Tax: Althugh Limited Partnerships, Limited Liability Cmpanies and General Partnerships frmed in the State f Delaware d nt file an Annual Reprt, they are required t pay an annual tax f $ Filing f LLC Certificate f Frmatin- $ Crprate Agent Fees $50-$500 depending n level f service.

3 Sectin II Legal Deliverables (Crpratin) 1. Planning and Structuring Cnsulting Services i. We will wrk clsely with cmpany management t ascertain its structure, its gals and its strengths/weaknesses in terms f freign jurisdictin, freign entity structuring, etc. ii. We will evaluate strategies t minimize tax burden and maximize any benefits made available by virtue f the US/Belgium Tax Treaty. iii. We will prvide and devise dcuments, instruments and structure that best maximizes the abve, while achieving the gals f management and allwing management t cnduct peratins in the US. 2. Filing f Crpratin in Delaware State i. We will handle filing the certificate f incrpratin. ii. We will assure the ptimal number f shares and related charter items are prperly reflected in the certificate, s as t assure the crpratin may attach early stage cnsultants, funders, and/r emplyees thrugh restricted stck awards raise cmpany valuatin. iii. Mst law firms will prvide nly the bare bnes basic certificate withut addressing the right capitalizatin (number f shares) and prper par value t facilitate shrt t lng term equity awards t critical persnnel. 3. Crprate Reslutins i. We will prvide all necessary crprate reslutins that attest t the frmatin f the crpratin by ur firm. ii. Such reslutins will prperly attach the Belgian Crpratin as the prime sharehlder f recrd (if that is the desired apprach). iii. Such reslutins will prperly set ut fficer and directr appintments. iv. Mst law firms will nly prvide reslutins that make clear it frmed the crpratin and nthing else. 4. Crprate Bylaws i. We will prvide sphisticated and venture capital ready bylaws. ii. Such bylaws will prvide cncrete mechanics n cre crprate functins, such as directr electins, sharehlder meetings, prtcl fr meetings, etc. iii. Mst law firms will prvide nly the bare bnes bylaws that nly lay ut the mst rudimentary f features and such bylaws will nt be tailred fr yur specific needs. 5. Freign Emplyer Identificatin Number i. All crpratins perating in the United States require a federal tax identificatin (knwn as an Emplyee Identificatin Number ). Hwever, where there is a freign natinal r entity that is the sle r funding sharehlder, a Freign Emplyee Identificatin Number ( FEIN ) is required ii. We will acquire the FEIN fr yur crpratin, which is a mre sphisticated and demanding prcess than acquiring a standard EIN. 6. Rbust Venture Capital Facing Sharehlder Agreement i. We will draft a sharehlders agreement that cntemplates venture financing. ii. It will assure the mechanics necessary t maintain cntinuity in share hldings and maintain crprate wnership as much pssible ver vested shares.

4 iii. iv. It will prvide the crpratin drag alng rights t assure that if there is a cmpany acquisitin, minrity sharehlders will nt be able t preclude the acquisitin. It will make the sharehlders agree t recgnize the varius securities rules that they will have t cmply with in rder t acquire and/r sell their shares. 7. Rbust Restricted Stck Award i. We will draft the agreements necessary t prvide funders, cnsultants, r critical early stage emplyee s equity n a restricted and vesting award basis. ii. With these agreements yu can feel cnfident that yu are incentivizing funders, emplyees r cnsultants t deliver high quality wrk prduct, withut having t give them a large chunk f equity up frnt. iii. The agreements are designed t prvide the crpratin the tls necessary t claw back the equity in the case the funder, emplyee r the cnsultant quits r is terminated. iv. We can prvide these agreements fr up t 8. Rbust Funder/Cnsultant Inventin i. We will prvide agreements that assure that all funders/cnsultants/emplyees that are generating intellectual prperty in cnnectin with the crpratin is bligated t assign all such IP t the crpratin. ii. We can prvide these agreements fr up t 9. Rbust Funder Emplyment/ Cnsultant i. We will prvide cntractr and/r emplyment agreements that make clear what the rles, rights, and duties f the varius crprate persnnel are. ii. These agreements will als clearly lay ut mechanics fr terminatin rights f the crpratin, which are directly tied t the vesting schedules mentined abve. iii. We can prvide these agreements fr up t 10. Rbust Cnfidentiality / NDA i. We will prvide a cmprehensive mutual Nn-Disclsure Agreement fr the cmpany t engage in cnfidential discussins with third parties. 11. Frmal Qualificatin t D Business in New Jersey i. We will file any and all paperwrk necessary t frmally qualify yur DE entity t cnduct business in New Jersey. Ding s will assure that yu can leverage NJ curts and benefit frm yur entity s limited liability prtectin in that state. Will require $125 in NJ State filing fees.

5 Sectin II Legal Deliverables (LLC) 1. Filing f LLC in Delaware State i. We will handle filing the certificate f frmatin. ii. We will assure the charter items are prperly reflected in the certificate, s as t assure the LLC may attach early stage cnsultants, funders, and/r emplyees thrugh restricted stck awards raise cmpany valuatin. iii. Mst law firms will prvide nly the bare bnes basic certificate withut addressing the right circumscriptins f cmpany liability and purpse. cmpany wnership as much pssible ver vested units. Prvide drag alng rights t assure that if there is a cmpany acquisitin, minrity members will nt be able t preclude the acquisitin. It will make the members agree t recgnize the varius securities rules that they will have t cmply with in rder t acquire and/r sell their shares. Prvide cncrete mechanics n cre crprate functins, such as manager electins, member meetings, prtcl fr meetings, etc. Mst law firms will prvide nly the bare bnes terms that nly lay ut the mst rudimentary f features and such perating agreements will nt be tailred fr yur specific needs. 2. Rbust LLC Operating Agreement i. We will prvide a rbust cmpany perating agreement that will achieve and address the fllwing missin critical cmpany cncerns: Prperly attaching the Belgian Crpratin as the prime member f recrd (if that is the desired apprach). Prperly setting ut fficer and manager appintments, alng with a rbust bard f manager framewrk. Assure the framewrk necessary t permit management t issue new equity twards venture financing. It will assure the mechanics necessary t maintain cntinuity in unit hldings and maintain 3. Freign Emplyer Identificatin Number i. All crpratins perating in the United States require a federal tax identificatin (knwn as an Emplyee Identificatin Number ). Hwever, where there is a freign natinal r entity that is the sle r funding sharehlder, a Freign Emplyee Identificatin Number ( FEIN ) is required ii. We will acquire the FEIN fr yur crpratin, which is a mre sphisticated and demanding prcess than acquiring a standard EIN. 4. Rbust Restricted Unit Award i. We will draft the agreements necessary t prvide funders, cnsultants, r critical

6 ii. iii. iv. early stage emplyee s equity n a restricted and vesting award basis. With these agreements yu can feel cnfident that yu are incentivizing funders, emplyees r cnsultants t deliver high quality wrk prduct, withut having t give them a large chunk f equity up frnt. The agreements are designed t prvide the crpratin the tls necessary t claw back the equity in the case the funder, emplyee r the cnsultant quits r is terminated. We can prvide these agreements fr up t 5. Rbust Funder Inventin i. We will prvide agreements that assure that all funders/cnsultants/emplyees that are generating intellectual prperty in cnnectin with the crpratin is bligated t assign all such IP t the crpratin. ii. We can prvide these agreements fr up t 6. Rbust Cnfidentiality / NDA iii. We will prvide a cmprehensive mutual Nn-Disclsure Agreement fr the cmpany t engage in cnfidential discussins with third parties. 7. Frmal Qualificatin t D Business in New Jersey i. We will file any and all paperwrk necessary t frmally qualify yur DE entity t cnduct business in New Jersey. Ding s will assure that yu can leverage NJ curts and benefit frm yur entity s limited liability prtectin in that state. Will require $125 in NJ State filing fees.