Recorded Webinar: Best Practices for Corporate Transactions

Best Practices for Corporate Transactions

Please be advised that these free recorded webinar presentations have been edited from the original format (which might include a poll, product demonstration, and question-and-answer session). To set up a live demo, please complete the form to the right.

Corporate transactions can come with a host of complex compliance and filing requirements that are often necessary to complete under tight time schedules. Therefore, it is critical that practitioners know best practices for these transactions.

In this recorded program, we will highlight some meaningful points to consider when working on corporate transactions and discuss relevant recent case law.

Join Helena Ledic, associate general counsel, Pat Nolan, customer service specialist, and Rob O’Byrne, strategic account manager, as we discuss these important topics, including:

  • Review of common corporate transactional work
  • Things you will encounter regularly
  • Formations and qualifications
  • State-specific information
  • Mergers and acquisitions, and related filings

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Webinar Transcript


Anu: Hello, everyone, and welcome to today's webinar, Best Practices for Corporate Transactions. My name is Anu Shah, and I will be your moderator. Joining us today are Helena Ledic, Patrick Nolan, and Robert O'Byrne. And now I will hand it off to Helena to introduce our presenters. Thank you, Helena.


Helena: Good morning, everyone. Good morning. Thank you, Anu. My name is Helena Ledic, and I will be one of the participants in our session today.

Just a quick overview about CSC, we have offices throughout the United States, and we help corporations and law firms with their various entity compliance work and things of that sort.

So, as you can see from our first slide, we have offices throughout the United States, Europe, and then also Asia and Australia. And our headquarters are in Wilmington, Delaware. On our next slide, you can see that we work with over 180,000 corporate customers and 10,000 law firm customers.

Finally, before we actually jump in to our actual presentation, just a quick mention on our next slide, our disclaimer is that none of this information is a substitute for legal advice or opinion, and of course, you should consult with an attorney if you do happen to have any questions.

So, along with that, let me let you know a little bit about us. So, as I mentioned I'm Associate General Counsel at CSC, and I work with our customers, our law firm customers, corporate customers, and also our management and law firm teams, on presenting business solutions for our customers and providing legal advice and so on.

Joining me we have Pat Nolan and Robert O'Byrne. Pat and Rob have between them over 50 years of experience in the industry, and have a tremendous amount of knowledge on our solutions, and also with the workings of the various secretary of state offices. Pat, both he and Rob are located in New York City.


Pat: Thank you, Helena. I'm Pat Nolan and thank you for attending our seminar today. We hope you find it very useful and somewhat entertaining.


Helena: Name availability, reservation, and registration are going to be the first things that we talk about. So, Pat and Rob are going to walk us through the steps of how do you determine whether or not a name is available with the secretary of state, how do you reserve it if you need to do that, and then what are the steps that you need to take in order to start your registration.


Pat: Thank you, Helena. Well, the first thing we're going to talk about is a very basic transaction that usually begins any type of formation. We're going to start with some definitions. Name availability, that's a verbal check with the secretary of state or the state agency that monitors corporations to make sure that a potential name is available for use. We can do that either by telephone, or for those states where there's a live database, that would be also another option for you to do.

One thing to remember, when you check a name, there is no guarantee. What happens is sometimes you'll get an entry-level clerk and not an actual filing examiner, and that clerk will only be looking at what's available to them on their database, and there may be another company that they do not see, or it's possible that a formation filing could come in, in the interim of making the phone call and submitting the filing.

If there's going to be sometime between checking the name and actually filing the business entity, it might be a good idea to consider reserving the name. A name reservation is a period of 30 days to 120 days depending on the state where that name is locked up for your exclusive use. Every state permits name reservation except the State of Florida.

One thing I will add, though, is you want to consider carefully whether you need to reserve a name. For example, in my state of New York, once you submit a name reservation it can take two days or longer to get the name reservation receipt. That receipt must be attached to the underlying filing in order for the state to accept it. So, once you start that process, you have to wait for it to be finished.

In our world, a lot of times two days is an eternity, and you may wish the attorney, or the client may wish, to form the entity that same day. So, there's an example of where you might not want to reserve a name. If there's any period of time to lapse between checking it and forming the entity, it is something to consider.

The third definition is name registration. That's more or less a long-term way of reserving a name. Not every state permits it. I believe currently there are 44 states that allow it. What that is, is you file a one-page application. The caveat is the company that you're registering the name for has to be in existence somewhere, because you have to send in with that application a good standing certificate, which we'll discuss in a while.

Basically, like I said, this is for one year, which is a lot longer than the 30 days that most states reserve names for. Delaware probably is the longest. They allow you to reserve it for 120. But a name registration is good for one year, and again, the caveat is the company has to be in existence.


Rob: Example of a name registration is the company In-N-Out Burger. As they have expanded from the West Coast to the East Coast, their name has been reserved in each state, in all 50 states where applicable. So, when they've gone in to do business in each state, their name has been registered for that one-year period.


Pat: Thanks, Rob. Name availability, it's not just a matter of checking with the state to see if that name is available, now by that I mean that there is no other name on their records that the state would not be able to distinguish it, but it's also good to look at the words that are in your proposed name to make sure none of them will cause any hiccups or bumps along the way.

And our second bullet point on our name availability slide lists a good few of those words: bank, finance, trust, co-operative, credit, union, insurance. In a good few states, those words could slow down the filing process because you might need to obtain consent from another state agency.

For example, in our state of New York, if you were to be forming 123 Bank Street Real Estate Corporation, clearly from the name of that entity, it's not a bank or a financial company, but just because of the word bank in the title you have to get consent from the Department of Financial Services, formerly the Banking Department.

And in New York, that consent can take up to two months, so it's a good thing to just be mindful of these words. The big industries that have these restrictions are insurance and then banking.

Once again, when a state checks a name, what they're looking at is really for their benefit. They want to make sure that when the entity is formed they'll be able to tell it apart from another entity on their records. It does not mean that you have carte blanche free use of that name. In other words, a name availability, even though you might have a name in a certain state, does not mean that you might not possibly be infringing on a trademark.

If you have a name that you're going to be marketing or selling a product or a service, it's always good, too, to do a trademark search. We'll mention that again a little while.

What happens if the state tells you that your name is not available? Well, you'll want to obtain this information, and the states are usually pretty quick to offer it up. Obviously, the name of the conflicting corporation, the state where it's incorporated, the date of its incorporation or qualification, the name and address of its registered agent and office, whether this state will accept a consent to use of name, or whether they will accept the use of a fictitious name. We'll talk more about those two points in a minute.

One reason you might want to get or the state will give you the registered agent's name and address is a lot of times that may be the only contact on the state's records. For example, in Delaware, usually in a Certificate of Incorporation, an incorporator signs it's over 18 years old. So, the only address you'll find in the original Certificate of Incorporation for most Delaware entities is that of the registered agent.

So, that might be your first point of contact if you want to approach them about finding out more information about the company. Any good registered agent will not give you any information off their records, but you would at least have a starting point where you could write a letter that the registered agent would pass on to the company about a consent to use a name.

What that is, for those states that permit it, is a form filled out, if the state has an official form, whereby the company that's already in the state gives its consent to the company that wishes to get into the state. Not every state allows consent to use a name, and even those that do, not all the time will they have a form to provide to you.

Where they don't, it's usually that if the company that's giving the consent writes a letter on their letterhead, and gives consent to the company that wishes to get in, the state will allow it through. A good example of that is in the state of Delaware, in Delaware it's not uncommon that you might have a corporation that has the exact same name as a limited liability company that the owners want to have formed. So, there, if the corporation writes on its letterhead, they will permit the LLC to go in.

Who signs the consent is governed by what type of entity it is. And this is pretty much true for every type of corporate execution. An LLC giving consent can be signed by a member, manager, or authorized person. If it's a corporation giving the consent, any officer for the corporation can usually sign. New Jersey requires a vice president or a president. Most states will take any officer.

If it's a limited partnership that's giving consent, it has to be signed by a general partner. And we'll talk about these individual entity types in a little while.


Helena: At this point, what we're going to do is we're going to switch over to document retrieval. Pat has walked us through name availability, name registration, and now what we're going to do is we're going to shift into document retrieval. Pat?


Pat: Thanks, Helena. Document retrieval is another transaction in our industry that's done quite often. Documents filed with a state, county, or any agency, federal … well, as of today hopefully we can get federal … or local agencies, any document that's publicly filed can be retrieved.

Some documents are not public and they cannot be retrieved, but often are required for closings or other financial transactions. Examples of them are bylaws, which are the internal rules of a corporation, or operating agreements, which are the internal rules of a limited liability company.

Probably the most common document that is retrieved is a certificate of good standing. Now why would you order a good standing? Usually, for a closing, a transactional event where you need to show a bank that's loaning you money, or the other side in a deal, that the company is in good standing in the state that it's formed in, and whatever state is involved in the closing.

Another reason you would obtain a good standing is when your company starts to branch out and you go to qualify to do business, which we'll talk about in a while, most states require a certificate of good standing.

The last reason you might get a good standing is just if you're doing a little internal health check-up, and just want to make sure that your company is officially up to date in a given state.

There are also different types of good standings. The State of Delaware calls it a Certificate of Good Standing, and in it, they'll put down that your franchise tax is paid if that's the case. If it is not, you will not be able to obtain the good standing. State of New York refers to it simply as a Certificate of Status, sometimes a Subsisting Certificate. Texas calls it a Certificate of Existence, and the name varies throughout the country.

If you were maybe entry-level or paralegal be asked by an attorney to obtain a standings certificate from New York, and when it gets in his hands and he or she looks at it, the words good standing will not be there. That is not to say that you ordered the wrong certificate. That just means that the states have different parlance depending on what the state is.

Some states, as I mentioned Delaware, will make the statement that taxes are paid. Most states will not. Timeframes vary. This day and age I would say … I haven't tallied it up recently, but I would say that, of the 51 jurisdictions, almost 40 of them allow for electronic good standing certificates. So, we can get them almost immediately.

The last bullet point speaks to the concept of a short form versus a long form, and what the difference there is the language as far as the good standing or existence is the same, but a long-form certificate will list all the documents that are on file in a particular state.

You may ask yourself, "Why wouldn't I then order a long form all the time?" And that would be a good question. There are two reasons. One, in some states the long form is a lot more expensive. For example, in Delaware, a long form costs $175, whereas a short form costs $50. Another reason would be timeframe. We'll say in California, if you order a short form that's usually back in 24 hours, whereas a long form might take 7 to 10 business days.

We've discussed a bit the short form and what's contained in it, the difference between it and a long form. Another thing to note about a long form is that certain states, Massachusetts comes to mind, if you wish, if you specifically order it, they will also provide officer and director information in the certificate of good standing. In most states, if you want that, if the state issues it, you'd have to obtain a copy of their last annual report. We'll talk about annual reports in a little while as well.

Another type of certificate that can be obtained or you might be asked to obtain is a tax status certificate. Those are usually issued by a separate agency. Delaware is unique, as I mentioned, in that they will say in their good standing that the franchise tax is paid. In most states, you'd have to order a separate document from a separate agency.

Just the last bullet point on the right, beware of roadblocks, because a lot of times these certificates, if they can be obtained, will take a long time. A lot of states taxes are confidential and they will not issue a tax status certificate. Some states, where they're available, will issue it to no one other than the company directly on written request signed by a CFO or a financial officer.

For those states where they can be obtained, just be mindful that they may take a long time. An example is the state of New York, where you can get one without a letter or anything else like that, it's public document, but it can take two months. California is a state where their long form, as I mentioned, takes 7 to 10 days, but their tax status certificate is issued the same day.

Another concept that comes into play, especially when ordering a good standing certificates, is that of a bring-down. And basically what that is, is a follow-up to your good standing certificate.

It's been our experience that the most successful financial closings are those that are planned early and where the documents are obtained early. So, it might be that you have certificates of good standing for a closing and they're dated a week in advance of that closing. So, the other side might say, "Well, how do we know something didn't change since you ordered these good standings a week ago?" That's where a bring-down comes into play.

What that is, is a verbal status or a real-time online check with the state the morning of the closing, or the financial transaction, to make sure that that entity is filling good standing in the state. And your service company can issue then a letter just confirming that, as of this date, this company is in good standing in whatever the state is and have that email faxed to you.

Reasons, again, are on the right-hand side for obtaining, due diligence, financial closings, selling assets, or company mergers, etc.

And now we're going to spend a minute just talking about a certified copy and what it is. Any time that you file a document in the state, that's a public document and it begins the history of your company. Whenever you file an amendment, and we'll talk about that in a while, you're going to have to make another filing. All of these documents that the company files are available.

You can either get plain copies, which are just probably what hopefully is in your minute book, or they can be certified by the state. What that is, is a separate page usually added on by the state that certifies that the document is a true and correct copy according to a specific date. So, you would probably get them for closings as well.

There are a few states that require certified copies in order to qualify, although there's not that more. But a lot of times, if you're looking at your minute book and something is missing, a certified copy or a plain copy could be obtained to update the minute book.

Again, like with a good standing, they're called different things. In Delaware, it's called a Certificate of Incorporation. If you're forming an LLC in Delaware, it's called a Certificate of Formation. In New York, an LLC files Articles of Organization. They're all pretty much the same thing, and collectively I guess we call them chartered documents.

That last point there, a Restated Certified Copy, is a very good thing to know, in my opinion. What a Restated Certificate is, is a document that restates and integrates into one document all of the previous charter provisions.

A reason one might do that … it's usually done by the board of directors. You don't need shareholder approval to file a restated certificate for a public company, but it's usually done for a company that's been around for a long time and has built up a big history of documents.

I used the example of General Electric Company, or GE. I think they were formed in the 1800s in the state of New York. I know they were. I've never counted their documents, but I would think it's safe to say that there's probably a minimum of 200 of them on file. Whatever time they have a stock split or an increase in their authorized share, it would require the filing of an amendment.

So, for them, it's not only a cost-effective way, but it also makes it a lot easier to carry documents around to a financial closing. For example, a restated for a closing most times is acceptable. You should always check with the other side to make sure that they will accept the last restated on file, plus any subsequent amendments, in lieu of going back to the beginning.

But a lot of times, it can save extreme amounts of money. Some states charge as much as $50 to certify each document. So, if we're talking 200 documents and the last document on file is a restated, and the other side would take that and you order the whole pile, you're probably not going to be sitting in the catbird seat.

Here, we're going to talk briefly about documents that are used in foreign countries. And that's the concept of legalization and authentication. In our state here, if you're going to qualify to do business in the state of California and you have a Nevada company that's doing this, it's incorporated in the state of Nevada, California will want to see a good standings certificate from Nevada. And they routinely accept it. Every state accepts every other state's certificate of good standing, and they're pretty much acceptable without any bells and whistles.

If you're going to be using a document, a public document or even a private document like power of attorney or a secretary certificate in a foreign country, there are steps that that document will have to go through to make it acceptable in that foreign country. These are listed on our screen.

Authentication is the process of verifying a document that's been certified by a local secretary of state. So, we'll say if a document is being used in a country that requires authentication, you get the Delaware secretary of state to certify the certificate of good standing or the certified copy. And then we'd go down to Washington where it's authenticated by the U.S. Department of State.

Then depending on the country, and China and Brazil are good examples, it would have to go through a process of legalization where it has to go to that country's consulate or embassy to be legalized.

One good thing for expense and time saving is the notion of an apostille, and that's … the majority of countries where documents are sent are members of the Hague Convention, and those countries that are party to The Hague, the document only needs an apostille from the local secretary of state.

So, for example, if you were going to use a document in France that's a member of The Hague, the Delaware secretary of state would just attach what's called an apostille, and it can go directly to France bypassing Washington, D.C., as well as the consulate for France.


Rob:   Two countries to remember that are not party to the Hague Convention are Canada and China, and those actually the documents are required to be sent to their embassies.


Pat: Thanks, Rob.


Helena: And before we move on, one other great thing to keep in mind if you are doing any kind of foreign work, is if you do need to go into the apostille, please allow extra time. The processes can move a lot slower. Certainly, when you're dealing with countries that are not part of the Hague Convention, you can have some considerable delays. So, please plan on that process ahead of time.

Before we go a little further, we did have a question from someone, Pat, who asked that you tell the audience again a New York certificate of good standing, what is that called in New York State?


Pat: It's called a Status Certificate generally, or a Subsisting Certificate for a Domestic State, or a Foreign Bid Certificate if it's a foreign corporation in New York.

So, that's a very good question, Helena. Thanks for bringing it up. Just so you know, good standing certificates are not only obtained from a domestic state, but they can also be obtained from a foreign state where a company is qualified to do business. And that leads to our next chapter here, which we're going to discuss formations and qualifications. So, wherever you guys are ready.


Helena: As we've done, we've gone through name availability, reservation, and registrations. Pat has walked us through document retrieval, and now what we're going to do is we're actually going to form our entity, and then learn about qualifying it elsewhere. Pat?


Pat: Thank you, Helena. This bullet just lists the most popular types of entities that are formed. I think for the most part we have at least the top three listed in the order of their popularity. When I first started in this business, there was no such thing as a limited liability company, but slowly but surely it's crept to the top of the charts as the most popular type of entity, business corporation, limited partnerships, sole proprietorship, on down

This chart here is, as the name implies, a business entity comparison chart. It at the top lists the different type of entities, and then on the left-hand side, different characteristics, like who owns each type of entity, down to the bottom where it's who manages each type of entity and who makes the managerial decisions.


Rob: One thing to note, this chart is available to download after the presentation.


Helena: With that, Pat has now walked us through the name availability, reservation, registration, document retrieval, and formations and qualifications. At this point, we're going to jump into some of the common issues that you may uncover that will be going around throughout the United States. So, we're going to be looking across the country now.


Pat: Thank you, Helena. We will try to give as many examples as we can of the way states work throughout the country, as Helena said, because we realize our audience is very diverse. One common theme, though, a lot of the times will be the state of Delaware, which is kind of like the mecca of corporations.

So, just some rudimentary, or elementary I should say, facts. A domestic state is the state, again, where your business is formed. It's also referred to as the home state. It doesn't really mean where the headquarters of the company is located. You very well may be domesticated or your home state might be Delaware and your headquarters could be in Akron, Ohio.

Foreign, when we talk foreign, now we're talking about a state outside of your state of incorporation. We don't mean France or China or Brazil. You could be a New York corporation and you're foreign in the state of New Jersey. That's just simply the state where you're doing business, the state of qualification.

Qualification is the procedure by which you are entitled to do business in the state, and we'll talk a little bit more about that in a while.

Supporting documents here. If you're going to qualify in a state to do business, they're going to want some proof that you exist as a bonafide business entity, and those we call supporting documents.

So, a lot of our audience here is made up of New York folks, and again we thank you. We're going to talk just briefly about some issues in Delaware and New York. You'll note throughout that the state Delaware is probably the most liberal or customer-friendly state there is, and a good example of that is the first bullet there, cutoff times.

You can have an entity formed in Delaware up until 10:30 p.m. Eastern time. You wouldn't probably get the evidence back if you submitted it at 10:00, but if through your service company, provided they're open those hours, you submit the document, they can get it scanned into the state system up until 10:30 p.m. and still secure that date for you.

Delaware is unique also in that if a document is submitted, the date is locked in, and if for some reason … we hope it wouldn't happen, but if for some reason a document is rejected, once the document is rejected you have five business days from that date to still keep that date in Delaware by getting them back the corrected document.

New York and most states will not allow that. If your document is rejected, you start from scratch again. California will hold the date for, I believe, 24 hours, and in some cases 72. Certain states will give you up to a month. Illinois, I believe, is 24 hours. But the most widespread, best opportunity is in Delaware.

Another thing is filing dates. It's one thing to get a date, but most times people want to get the evidence back, the proof that it's filed, as quickly as possible. Delaware, again, leads the league in that. Their routine service in the summertime, we'll say, when it's quite is usually quicker than most states' expedited service.

At this time of year it's about three to five days. However, they offer six different expedited services, everything from … we mentioned routine service, but they have a 24-hour service, same-day service, two-hour service, one-hour service, and even a 30-minute service.

So, if the board of director is sitting around the room and they're willing to pay $1,500, you can have a document filed in 30 minutes in the state Delaware. And that means from submission to the state to evidence back in your hands, or at least back in your provider's hands, within 30 minutes.

Another thing to be mindful of is what you get back. Most states will give you back a file-stamped copy of the document. Delaware, you can get a certified copy. In New York, it's a filing receipt. So, it's usually a good practice to also order a certified copy from New York. They are only $10 extra. Otherwise, you're going to get this one-page piece of paper that looks like it's just the receipt for payment when in actuality that document does belong in the minute book as it is the official evidence.

Another thing to think about, especially for your more complex corporate filings, is the notion of pre-clearance. Now what that is, is you submit an unsigned document to a state official, and they will review it to make sure that once the signed document is in, and you're ready to file, the document will be acceptable for filing. Most states will give you back a letter and let you know either that it's acceptable as drafted or will tell you what you have to make it fileable.

Another thing to consider when you're forming or qualifying an entity is whether or not there's a publication requirement or a recording requirement. Now we mentioned New York here not to pick on New York, but it's just something that's been in their statutes now for about 20 years, and it doesn't seem to be going away any time soon, although there are rumblings to that effect.

But what that is, is publication for LLCs and limited partnerships. You do not have to publish for a corporation, but for any LLC or limited partnership, whether it's foreign or domestic, you have to publish once a week for six consecutive weeks, in two newspapers assigned by the county clerk. So, that's a total of 12 insertions. That's triggered by the county that's listed in the document that's being filed.

So, if it's New York County it's not unusual to have to pay $3,000 for publication in New York. And it is in the statute. They do give you 120 days, but it's just something to be mindful of.

Here, we're just going to talk a little bit about why people choose Delaware. Its Court of Chancery is unique. It's been around for a very long time, and most of the United State's case law stems from the State of Delaware.

They also have the most flexible statutes in the country, and we notice that if Delaware will come up with something, like series LLCs or something they change their statute, it's not unusual to see other states make a similar change within a few years after Delaware.

Another thing is that their division operates more like a business, like a service company, rather than a governmental agency. They're very approachable, they have long hours, and as we've seen a couple examples already, very willing and able to bend over backwards for the corporate clients of the world.

Now we're just going to quickly review the steps for formation. We discussed at length about checking the name. We mentioned that just because you've got a name locked up with a secretary of state does not mean you have carte blanche usage of that name. If that name is going to be used in marketing or selling a product or a service, a trademark search should be done or at least should be thought to be done.

Another thing, especially this day and age with so many companies having their own websites, is to check your domain name to make sure that it's available and get that registered. There are pirates out there that make a living out of going around and snatching up good names in hopes they can turn a profit by selling it back to the company that's been formed under that name.

Once that's done, you want to prepare and file your formation documents. It's always a good idea to obtain a minute book, someplace to keep the records of the company. A minute book usually contains the bylaws for a corporation or the operating agreement for an LLC, the stock certificates, or the member certificates for an LLC, as well as the seal.

You might have to apply for a federal ID number, and that, again, thanks to the government being open, can be done today. There is the concept of business licenses. Once you've formed your corporation, depending on what it's going to do, let's just say it's a restaurant in Los Angeles, it probably will have to get a permit from the City of Los Angeles. It will have to get a license from the Department of Health. If alcohol is going to be served, it may have to get a license from the Alcohol Control Board or some similar agency like that, so a lot of things to be considered.

In most states, a registered agent is required. And what a registered agent is, is a person or an entity, it can't be the entity itself, but another entity such as a service company that's located within that state. The primary function of a registered agent is to receive and forward service to process. It is a physical presence of the company in that state.

A registered agent is not to be construed as a business office. You can't have your business mail sent there or things of that nature, but it is your legal statutory address and it's where most state communications are flown through.

So, for example, if you take the state of Delaware, you have to file an annual report each year to stay in good standing. It would be through your registered agent that you would receive that annual report, and any other type of communication.

We have our entity up and running, formed in its home state, its domestic state, and now it's branching out. Qualification is the process of registering that existing domestic corporation in a state where it's doing business. This usually or always requires a separate filing, and usually the payment of taxes. As we said earlier, you will want to get the supporting document that has to go with the application for authority, the application to do business, either a good standing or a certified copy, and there may be recording or publication requirements depending.

Now we're going to spend a little time discussing two types of assumed or fictitious names. We'll start with the second one first, the forced assumed name. You formed a company in Delaware. It's doing business in Florida and way up the East Coast, but it gets to the state of New York, and there's a company with a similar name there already. So, the secretary of state says, "You cannot have that name."

A forced fictitious or assumed name is a name, where the state permits, that you choose that circumvents that. So, you are allowed to qualify under that name on the agreement that you're going to do business on that name. It could be as simple as … In the example I gave you in New York, the first question on the application for authority is the true name of the company, and then there is a second line that, if the name is not available, is the name you choose to use.

Usually, they'll take anything that just is distinguished. The initials of the state you're out of in parentheses, or you could add of Florida, whatever it is that distinguishes it from the name that it's in conflict. That is a forced fictitious name.

A voluntary assumed name is … we'll take, for example, a company that has its true name in every state that it's doing business, so it wasn't forced to use another name in those states, but decides that it's going to open a division that will do business under a different name than its true corporate name. So, in that case, rather than form a subsidiary with the expenses and taxes with that, they may choose just to file a voluntary assumed name.

  So, an example of that might be if you have Rockland Bakery Industries, Inc., is the true name, and it owns bakeries all over the states of New York and New Jersey, but it all of a sudden comes up with a newfound invention of Pat's Delectable Chocolate Donuts. Rather than sell the donuts as Rockland Bakery Donuts, it's Pat's Delectable Donuts. I hope you haven't hit your head on the keyboard for that bad example, but that's an example of a voluntary assumed name. Thank you.

Now we're just going to hit a little bit on what annual reports are and when they would be filed. These annual reports we talk about are not the annual reports for shareholders that pubic companies distribute once or more a year. These are the documents that most states require you to file to keep your entity in good standing.

And usually what it is, is just an update. You update your current officers and directors if you're a corporation, and maybe your managers if you're an LLC. If there's been a change to your registered agent, sometimes that can be changed or reported in the annual report. Your principal officer derives some information like that.

Not every state has them, but a great majority do. Some states, like the state of New York, it's a biannual filing, so once every two years. Some states, that's when they collect your franchise tax. In Delaware your tax assessed on your authorized number of shares is collected at the time you file your annual franchise tax report.

Another thing is most states, these go to the registered agent. So, if you use a registered agent, it's very important to keep your address with them up to date so they know who to send these reports to that keep the company in good standing.

From our experience, if there's one thing that can halt or slow down a successful closing, it's where you can't obtain certificate of good standing, and 90% of the time when you can't get a certificate of good standing, it's because an annual report has not been filed.


Rob: Nowadays, most … I shouldn't say most states, but a lot of states will allow you to e-file your annual reports, making it a lot easier. Delaware, leading the league since 2007, has made it mandatory. And now there are five other states where it's also mandatory that you e-file your annual reports as well. Again, most states will allow you to e-file, so that takes care of the paper.


Helena: Pat and Rob, before we move on, we have quite a few questions that have come through the chat. One person has a question going back to the apostille slide, and she asks, "Why do certain states affix the term apostille and others do not, such as New York?"


Pat: Thank you, Helena. Hopefully, we addressed that. The apostille is the term given to a document that's affixed by a local secretary of state, but whether or not an apostille can be affixed to a document is triggered by the 1961 Hague Convention. So, if that the country in question where that document is going to be used is party to the Hague Convention, then the secretary of state can attach an apostille. If that country is not party to The Hague, they will not affix the apostille. So, hopefully that addresses that question.


Helena: We have several questions Pat that came through having to do with the New York LLC and LP publishing requirement. So, one person asked the great question of "What, if anything, is the effect of failing to publish for an LLC?" So, what if you don't do it? What happens to you?


Pat: That is a very good question. Statutorily, you're required to publish. When that law was rewritten, it was also written in that if a company failed to publish, they would be revoked by the secretary of state. Now I'm addressing specifically the state of New York. So, if you did not publish it's the statute that the secretary of state can lift your suspension.

The reality is that the Department of State, since this law was tightened up and made more strict with 120-day requirement, the reality is we, at least at CSC, are not aware of any company being revoked or annulled for failure to publish.

With that said, we are in no way recommending that this requirement be overlooked, and I'm sure that most viable entities, LPs or LCCs, in New York are complying with that publication requirement. But what has been brought to our attention, and this is now hearsay category, but what we've been told is that a business entity can always defend itself in a lawsuit.

If a business entity has failed to publish, the other side may bring that up. And we've been told that, in some ways, it may be difficult to pursue an action against another entity if the plaintiff has not complied with all aspects of that statute. That's just what we've been told.


Helena: Pat, we had another question that came through having to do with the publication question. What this person has asked is, "Is there a downside to forming in a smaller county with less expensive publication costs, such as Albany versus New York County?" So, is there a benefit to … is it possible to go to a smaller county that would have a less expensive requirement?


Pat: Again, Helena, that is a very good question, and the costs do greatly vary from county to county. It seems the further you get away from the Big Apple, the cheaper the publication gets. But yet the document that you're filing, either articles of organization or an application for authority, it does say usually … I believe it's the second question. I wish we could put one up on screen. But the question is "The office of the corporation is located in what county?"

If you're using perhaps an agent that's located in Albany County, you could have a nexus there that says, "Albany is the office location," but there should be some logic behind it. You can't just pick Steuben County because the newspapers charge $150 as opposed to $2,000 for the journal in New York County. But that's triggered by what you put in the application.

At the same time, though, you're not required to have an office location in New York. That's listed on some of their forms. If the person who posed that question wants to contact me offline, I can provide better examples and maybe have a one-on-one discussion with them if I have not answered their question right now.


Helena: Pat, we had another great question about Delaware now. They wanted to know, "How do I register my DBA, or doing business as, name in Delaware?" Can you take us through a couple of those steps?


Rob:   I'll handle that, Helena. There are three counties to file a DBA in Delaware: New Castle County, Kent County, and Sussex County. They are the only three counties that you can file the DBA. And it usually takes about 7 to 10 business days to file with those agencies. It's a very simple one-page form. You put in the DBA that you're going to be doing business as in that county, and you submit the documents to the county.


Helena: As a follow-up question to that, someone wanted to know when are Delaware annual reports due?


Rob:   I'll take that, too. Delaware corporations are due March 1, and LLCs and LPs are due June 1. One thing to note is if you miss the LLC payment on June 2, that is entity is in a ceased good standing. The entity is no longer considered in good standing, and you would not be able to obtain a good standing certificate from the secretary of state.


Pat: I'll just chime in that the tax then that was $300 on June 1, on June 2 you now have to pay them an additional $200 and the penalty starts accruing, so it's a minimum of $500 on June 2. Good dates to be mindful of, March 1 for corporations and June 1 for LLCs and LPs.


Helena: Someone else had a question about Delaware, and they asked if they have to live in Delaware in order to have a Delaware corporation or some other kind of entity.


Pat: There is no residency requirement, and most states are like that. To form an entity, you don't have to live in that state. But as we've mentioned earlier, most states, and definitely Delaware, you're required to have a registered agent. So, that registered agent has to be within the state of Delaware.

Now we'll say if that company then branches out and goes to Florida, Florida also has a registered agent requirement. You'd have to have a resident in the state of Florida, and again it cannot be the company itself.

We'll say, for example, CSC. We're headquartered in Delaware, the company, Corporation Service Company, cannot act as its own registered agent. We, in turn, would have to go and get another company to act as our registered agent, as with DuPont or whoever else might be in Delaware.

So, your officers and directors don't have to be in Delaware. I cannot think in this day and age of any state now where there's a residency requirement for offices and directors. There used to be maybe 25 years ago, but I cannot think of any state now where there's a residency requirement for officers, directors, or shareholders


Helena: Thank you very much, Pat. So, now what we're going to do is we're going to transition into amendments, dissolution, and withdrawals. What we've gone through is the name availability, reservation, and registration. We've talked about retrieving documents. We've looked at formation the qualifications, and we've had quite a bit of discussion around common issues that we encounter particularly in Delaware and New York. Let's now move into amendments, dissolutions, and withdrawals.


Pat: Thank you, Helena. We'll just get a couple of definitions out of the way. An amendment is any change or deletion to your existing provisions in your charter, in your Articles of Incorporation, or your Certificate of Formation if it's a limited liability company. So, any time you make a substantial change, and we'll see in another slide in a while that will discuss some of those changes that require an amendment, you have to make a public filing.

That filing that you can make, and we'll say in Delaware where you're incorporated, is fine for Delaware, but it may be that wherever you are doing business, you also have to report that change to them depending on what type of change it is.

So, for example, if you change the name of your company in your domestic state, every state in the union will require you, where you're qualified to do business, to file usually an application for an amended certificate of authority to report to them what your new name is.

On here is listed some reasons why you'd amend. By far and away, the most common one is a change in corporate name, and as we said, every state will want to know if your name has changed.

Another often-used amendment is if you increase or decrease the number of your authorized shares for a corporation. So, let's you say you're a small closely-held company and all of sudden things are going great and you want to go public, you might want to increase your shares to 10 million shares, etc., in order to go public. Not every foreign state will require you to alert them to that fact.

Illinois comes to mind as one that does, and they're pretty tough. When you do increase your authorized shares, you're also going to have to report to them on a separate form exactly what went on and list the differences in the stock from what was last reported to them when you qualified to do business.

You might be creating a class stock. Maybe you have a common stock now and you want to have a series of preferred stocks, so that would be a requirement for amendment.

Most entities that are formed now are formed for perpetual duration, but there are still some out there, or sometimes people just don't have the foresight to look ahead, and they form their entity for a set duration, maybe 25 years, so you might want to have to file an amendment to extend that duration to perpetual or whatever.

Another thing that's not listed on the slide that happens quite often is for limited partnerships. Any time there's a change to your general partner in a limited partnership, you have to file an amendment

The company now has been formed and it's had some changes made during the year that required amendment filings. It may come a time where it's no longer a viable entity, and rather than keep it on the books to pay needless tax, you need to dissolve it. On the left-hand side, we've discussed that concept, and that's a voluntary dissolution, where a company no longer needs to be kept. You would file a voluntary dissolution.

On the right-hand side is usually something that you do not want to happen, and that's an involuntary dissolution, whereby the state revokes your charter for failure to do something that you were supposed to do.

Again, the most common reason a state will involuntarily dissolve you is for not filing your annual reports, or some other type of compliance, payment of taxes. Another reason might be that your registered agent has resigned. That would be known as an involuntary dissolution.

In most cases, that's not permanent. There are ways to remedy that. There are ways to have the company reinstated, usually by some type of reinstatement application, and a payment of whatever taxes or filing of annual reports that were delinquent.

So, we want to do a voluntary dissolution. Every state requires a form be filed, usually called Articles of Dissolution. Once that document is filed, the company is terminated and no longer has a legal existence, is no longer liable for payment of taxes, or anything else.

You would want to be mindful though of states where there is a tax clearance requirement to dissolve, and it can be very complex. The state of Pennsylvania comes to mind. They require clearances from various state agencies. The quickest one takes six months. Their Department of Revenue as a rule can take up to two years to obtain tax clearance to allow you to file Articles of Dissolution.

Dissolution is the term for getting rid of the corporation in a state of formation, and withdrawal is the term given to taking the corporation out of its foreign state, where it was qualified to do business. So, they no longer are doing business in a state. They may be staying in existence in their domestic state, but they closed their plant in Alabama, so they no longer want to pay taxes to Alabama. They would file a withdrawal from the state of Alabama. And that's usually, again, an Application for Withdrawal.

There may be a tax clearance requirement, and again similar to the dissolution of the Pennsylvania company, the withdrawal of a company from the state of Pennsylvania could take upwards of two years, too.

One thing to be mindful of when it comes to a withdrawal is that if … Take for example a company that is dissolved in its domestic state, and then it wants to withdraw from a foreign state, which it should. Once it's dissolved in its domestic state, unless you tell the other states that it's no longer a viable entity, they're going to continue to expect to collect their annual report fees and payment of taxes.

But if it's been dissolved in its domestic state, some states, notably New York comes to mind and Illinois will allow you to do it, they will accept a certificate from the state where the dissolution was filed, i.e. your domestic state, and take that certificate and just file it in the foreign state and you're out. You would not have to obtain a clearance.

So, if you were, say, a Delaware company doing business in New York and you were going to stay a Delaware company, but had to withdraw from New York, it could take two months to get that tax consent. But if you're dissolved in Delaware, you can get out in like 24 or 48 hours by providing proof of it from the state Delaware.


Helena: So, at this point in time, what we're going to do is we're going to move into mergers and acquisitions. Pat has carried us through getting a name, filing a corporation, and then perhaps having amendments, dissolution, and withdrawals, but what happens if we want to be merged, or acquire, or be acquired?


Pat: Thank you, Helena. Mergers and acquisitions are probably the most complex transactional filing that can occur, and quite a bit of preparation goes into these filings.

A merger occurs when two companies get together and one company survives the merger and the other company is absorbed into it. There are two types of mergers predominantly, and the first one is what we call a full-blown merger, and that's where there is no common ownership between the companies. They're totally unrelated two separate companies. Before, there were business reasons. Board of directors gets together and thinks it be a good idea to synergize and become one company.

A full-blown merger not only requires the board of directors to approve it, but also the shareholders of each company, and it could be that other agencies get involved, like the SEC or whatnot, depending on how big the company is and how big the merger is.

The second and probably a more common type of merger, especially at year-end that we just came through, is the notion of a parent-subsidiary merger. So, a lot of times you'll have copies on your books and you don't want to pay taxes for them for the next year. They just outlived their usefulness. The parent will decide that the subsidiary no longer needs to be in existence. That merger is a lot simpler because there's no shareholder approval required, no agency approval required like that.

So, the parents just file what's called a Certificate of Ownership, usually a very simple one-page document as opposed to the certificate of merger, and the plan and agreement of merger that you'd have to do for a full-blown merger. Once that's filed the subsidiary is out of existence and does not have to pay taxes.

The types of parent sub-mergers are usually an upstream merger, whereby the subsidiary merges up and into the parent, or not as common, but done every now and again for whatever tax reasons, is a downstream merger where the subsidiary survives and the parent is merged into the subsidiary.

As I mentioned, they are very complex and involve a lot of planning. As a matter of fact, almost everything we've discussed today can come into play when planning a merger or an acquisition. You might have to obtain tax clearances for the companies that are merging out of existence. If the merger, we'll say, is between companies and not in the exact same number of states, they might have to qualify to do business.

For example, we'll say if the survivor is on the East Coast predominantly and a company that it's merging is thriving in the West Coast and only qualified to do business in those West Coast states, once this merger goes through, if the business that was done on the West Coast is to continue, the survivor would have to qualify in each of those states where the merged out company was.

Obviously, you'd want the name to be available. Then also, that merged out company that no longer exists in its domestic state would have to be withdrawn in one form or fashion.

There also may be an amendment involved in the merger. For example, if the two companies that are coming together decide they want to merge under a new name, then every state where you are either under the survivor's name or the merged out company's name, forms would have to be filed to update them to the new name as a result of the merger.

As we mentioned, the domestic merger has been filed now in the state of formation and there's a lot more still to be done. Those are referred to as post-merger requirements. So, some states, notably the state of Illinois, you have to send a certified copy of the merger to them. You'd also have to file post-merger forms.

The non-survivor would have to be withdrawn from whatever state it was listed in, and that can be in the form of a regular withdrawal or a terminations filing, as I alluded to earlier with that New York/Delaware example. You don't want to maybe fill out form or withdrawal forms and get a tax clearance, but you would have to provide some proof that they would see that the company no longer exists in its domestic state and strike it from their records. And also, in certain states, there will be tax clearance requirement.

Last slide here. We just have a little quick continuum of all the steps that may go through or may be involved in a merger and acquisition.


Rob: Again, this slide is available to download after the presentation.


Helena: With that, Pat and Rob, we've gotten several questions that I just wanted to kind of loop us through. I know we're pretty much coming up to the end of our time, but we had quite a few questions that have come through to the effect of "What are the ramifications of not filing an official cancellation or terminations of a corporation, and just letting the corporation become dissolved by not filing annual reports?" Can you talk a little bit about that? Again, we have quite a few questions on that topic?


Pat: Thank you, Helena. We'll use Delaware as an example. In Delaware, say you're a corporation. On March 1, you do not file your franchise tax report. On March 2, you're still in existence, but you're not in good standing, so if you have need of closing that you need a good standing certificate good for, you cannot get that until that tax is paid.

Let's say you're kind of a dormant company or you decide you don't have the money or I don't want to pay this franchise tax anymore, after the second year, on March 1 of the second year, Delaware will void your corporation, so it no longer has any existence whatsoever.

Now as I mentioned earlier, you can remedy that if you want to, and that would simply be you'd file what's called an Application for a Revival, and pay and e-file the two delinquent annual reports.

If you did not want to, you're in a void status, and I'll leave it to the legal minds to tell us what the ramifications of that could be. But you would not be able to conduct any business in Delaware, you would not be able to get any proof of your existence from Delaware any longer, and you would not have any authority to continue as a business entity.

In my experience, I have not seen the state of Delaware, or any state for that matter, go after an individual shareholder or a director or an officer that had their corporation be voided, but it's just not something to be taken lightly. And it's always best to formally dissolve and go out in good grace and not risk that.


Helena: One other question that we had that was along the mergers and acquisitions line was someone said for a parent-subsidiary merger, you said that you can just file a Certificate of Ownership. Is that for Delaware, or does that also apply with other states?


Pat: Well, almost every state permits a parent-subsidiary merger. I can't think of one that does not. Some states call it a Certificate of Ownership, but that's definitely the name of the document that a corporation would file in Delaware where 80% or 90% subsidiary-owned company wants to go out of existence.

It's simple in that you just say that the board of directors authorized it. You don't have to draft a plan of merger that outlines what's going to happen to the shareholders, or who's going to run the company, all the different things that go into a plan. It's just on a one-page document, and you can file it because the parent owns the subsidiary.


Helena: We have one last question that came through that is very much a general topic interest one. Pat, someone had a question about Delaware LLCs. Does Delaware require that you file amendments to LLC agreements?


Pat: Well, in Delaware, to form an LLC, you only need two pieces of information. That's the name of the LLC, and the name and address of the registered agent, the registered office, and then it's signed by an organizer, and that's all you need. You do not have to tell them who your members are. If you're going to have managers, you do not have to say who your managers are. You could frankly be very sight unseen, anonymous, in Delaware and in most states. New York is like that too.

When you qualify to do business, for example, in Florida now, if you were qualified to do business, they're going to want to know how you're managed, whether it's member managed or manager managed. And when you answer that question, they're going to ask you to list the name and addresses of your members or your managers.

But as far as Delaware, those are the only two pieces of information that you need. Really, the only time you'd have to file an amendment in Delaware for an LLC would be if you change your name, or if you were to change your registered agent.

The other thing is, unlike for corporations in Delaware, on March 1 you have to e-file this franchise tax report. In that document, you have to say who your officers and directors are, so that information is available for a corporation.

But for an LLC, on June 1 when you pay your franchise tax, there's no filing. You just pay $300 and if you pay it on time through the state website or mail in check with your Delaware file number on it, you're good for another year. So, there's no need to divulge any information more than just the company name and the registered agent name. Hopefully, that helps.


Helena: Pat, thank you very much for answering those questions. Anu, would you like to finish our webinar?


Anu: Sure, Helena. Thank you. Thank you, presenters. That was great. We did try to address as many questions and answers as we could during the live session. If we did not get to your question, we will contact you with the response after.