In my last article, we took a look at Delaware’s Court of Chancery and how its rich history is a part of the Delaware advantage.  From that post we learned that the Court of Chancery hears matters of equity where no legal precedent is established, but what happens to business litigation that is purely legal in nature?  Commercial cases at law are heard by the Delaware Superior Court, which recently created a new division to identify and streamline resolution for complex commercial matters. In the June 2010 edition of The Metropolitan Corporate Counsel, Thomas E. Hanson, Jr. introduces the new Complex Commercial Litigation Division (CCLD) of the Delaware Superior Court. Below is an excerpt of the article that explains with further detail:

Introduction

Due primarily to the high cost of electronic discovery, delay in reaching a final resolution and uncertainty as to the outcome, there is a consensus that civil litigation must be reformed. To address the concerns of business litigants, and to provide yet another option for the resolution of complex business disputes within Delaware’s highly regarded court system, the Delaware Superior Court has established a Complex Commercial Litigation Division (CCLD) effective May 1, 2010. To promote prompt and efficient disposition of complex matters, the CCLD will include a special assignment of experienced judges, tight case management orders to move cases to conclusion, special e-discovery orders to limit expense and avoid disputes and protocols to control expert witness and fact discovery.

Not every business dispute is eligible for the CCLD. To qualify, a case must: (1) include a claim with an amount in controversy of at least one million dollars, (2) involve an exclusive choice of court agreement or a judgment resulting from an exclusive choice of court agreement or (3) be so designated by the president judge. Cases that meet one of these criteria can be brought in the CCLD – a forum that is focused on addressing what matters to parties who file and litigate complex commercial disputes.

The CCLD was designed to address two principal concerns of business litigants: (1) the need for predictable procedures to control the course of the proceedings and to bring such proceedings to a prompt conclusion and (2) the need for reasonable control over the cost of discovery, including e-discovery. The CCLD addresses these concerns by following three primary case administration principles.

First, each CCLD case will remain with the same judge from start to finish. Second, each CCLD case will be administered pursuant to uniform procedures, including the requirement of an early Rule 16 scheduling conference for counsel to meet and confer with the judge. At the Rule 16 conference, a case management order will be entered that covers all phases of the case, including the handling of discovery disputes and dispositive motions, early mandatory disclosures and the exchange of electronic discovery. Third, each CCLD case will be assigned firm pretrial and prompt trial dates that will be given priority as among the panel judges’ other trial assignments.

To read the full article click HERE.

Though there’s no formal guide book or instruction pamphlet, for most U.S. small business owners the initial registration and licensing requirements should be considered in a certain order.   I like to think of it as a large funnel; at the mouth of the funnel is the creation of the entity and at the bottom are all the local and trade specific permits one may encounter.  Hopefully, these tips will help you pave a smooth path on your way to starting your next business.

First and foremost, form a company!  Whether it’s a corporation or an LLC, form an entity to help protect you and any partners from the debts and liabilities of the venture.  Until the legal documents to create the entity are filed you’re leaving yourself personally liable for all things related to the business.  In today’s society where lawsuits run rampant, why take the chance?  Forming an entity in Delaware provides a solid foundation for protection by giving you the most favorable legal environment in the nation, since 2001.

Now that you’ve formed the entity and have separated yourself from liabilities of the business, it’s time to do the same thing from a financial standpoint. Imagine that the company is a living being that is going to generate its own revenue.  That revenue will be taxed by the IRS.  Just like individuals, businesses can get their own tax identification numbers for claiming income and paying taxes.  The tax ID or EIN is much like a social security number and just one more step to help separate you from your business.

Next you’ll need to consider requirements where the company plans to physically operate or bank. This is where the funnel begins to taper. Each jurisdiction you encounter may have its own registration requirements.  As a rule of thumb, always start at the top and work your way down when it comes to state and local licensing requirements.  A great place to start is the Secretary of State’s office, as most states require the registration of out of state entities through a process known as foreign qualification.  This is also a good place to inquire about trade specific permits and/or licenses that may be granted by state boards.

If the entity will generate revenue in a given state, the next stop should be the Division of Revenue where the entity will typically file for a business license.  Be careful though, as some states handle business licensing at a county level.

Obtaining a business license will complete the registration “funnel” for most business owners. But for those operating within the incorporated limits of a city or a town, a visit to city hall may also be in order.

Properly registering a small business entity in the U.S. will not be the same process for everyone, as state and local compliance issues differ from state to state, county to county, and city to city.  Following this “funnel” model is a good way to keep your entity legal and valid where operating by affording you very little opportunity to miss a critical license or registration along the way.

When referring to shares of stock in a Delaware company, par value is the bottom or lowest limit set to the value of a share of stock in a corporation. A share may not be bought, sold or traded for less than the par value. Simply stated, if the par value of a share is $1.00, then it cannot be issued to an investor for less than a dollar, paid for in funds or services. Par value sets only your bottom limit, but the Board of Directors may set the price of stock at any amount above par. Let’s say your par value is $.01 but the Board of Directors sells stock to an investor for $5.00 per share. This is perfectly legal. The board may ask any price and the investor pays what the market will bear. But keep in mind that you are selling some percentage of your corporation with each share you issue or sell.

If you’ve shopped around for an online incorporator, you might have noticed that they will often suggest a par value of zero. Why do they do this? Realizing that many people who are just starting their incorporations are small start-ups companies, incorporators suggest low to no par value so that the owners or initial shareholders will not need to make substantial investments into the corporations in order to own their companies at the time of organization. In the case of “no par” shares, they may be issued to the shareholders without the exchange of funds, goods or services. Having no par value will not restrict you in selling your shares to investors at the price determined by the Board, and accepted by the investor,  just like shares that do have a par value. Ultimately a share is worth what an investor is willing to pay for it.

Even though No Par stock sounds great, it is not for everyone. In many cases, corporations will want to assign a par value so that an investment (whether it be funds or services) is required in order to own a share in the company. This will help a corporation generate investment revenue for growth and/or help to recoup startup costs. Also, some states may have limitations to the number of shares that may be offered at no par, or charge additional filing fees and/or taxes based on the number of shares authorized at zero par. For instance, Delaware’s Division of Corporations will allow up to 1,500 shares of no par stock before you will begin to experience additional filing fees. In addition, franchise taxes for large amounts of no par stock (in excess of 5000 authorized shares) can prove to be very expensive.

If you have concerns about the impact of the number of authorized shares or the impact of the par value on your filing fees or franchise tax in Delaware, please feel free to give us a call or send us an email.