Sign Delaware Banking Business Plan Template Safe

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good afternoon everyone and welcome to today's webinar today's webinar is brought to you by CT corporation and Wolters Kluwer at this time I would like to go ahead and introduce our guest speaker today our guest speaker today is Lori Ann Fox welcome Lori Ann Thank You Amanda and thank you all for taking the time to be with us today certainly do appreciate it today we're going to talk about Delaware's business energy log now I will tell you this I have put a lot of information in the slides and if we don't look at each slide know that I'm still going to cover the gist of it and you have it as reference material there are also some handouts that I provide it as well and I'll mention those as we go along and what we're going to discuss today is why Delaware is so popular we're going to look at corporation laws the LLC Act we're going to look at alternative interesting those include partnerships and statutory trust and of course franchise taxes because that's always an important thing and it's coming up at least for corporations so let's go ahead and kind of dive into why Delaware is the leading formation state and the first thing that I want to talk about our new entity formations now I know that this is a bit of a struggle to see the numbers so when you get a copy of it you can enlarge it so that you can get a better feel but here's the important part to know Bloo is corporations Green is LLC's partnerships are that kind of creamy yellow and trust or red so if nothing else you can get a feel on entity formations in terms of you know how they compare to one another you'll note that this slide is only good from 2016 there's a reason for that we just got the 2017 numbers in literally after I turned the PowerPoint in so I didn't have time to update it and we're still waiting on the state to complete processing and pulling all of the 2017 numbers together for us so expect that you know later in the year you that information will be available it's just not at the moment so the important part for 2016 is you'll note that there were seventeen hundred and twenty fourth trusts I'm starting with right at the top 10,000 337 partnerships at Stella peas and LLP formed we had 120 9420 LLC's and corporations were at 40,000 to 59 now the police 17 number since I just got them and I will give them to you for trust it was 1383 so there was decreased there from 1724 on partnerships we had an increase from the 1033 7 to 11 for 68 on LLC's it increased from 129 420 to 144 zero eight seven so that's 144 thousand 87 LLC's formed in 2017 now 2016 for corporations we were at forty thousand two hundred and fifty three and 2017 was forty-one thousand three hundred and twenty five so as you can see we had an increase across the board it comes out to about nine percent and total new formations we had just number two hundred thousand new companies formed or entities formed in Delaware last year for a grand total of 198 thousand two hundred and sixty three so we're only going to have total numbers on file through 2016 currently but you can assume that this is probably going to see an increase for 2017 so as you can see for 2016 we had a little over 23,000 trust August 19 1000% Isle 830,000 l.l.bean on file and almost five hundred and six thousand corporations on file so you have over a million well over a million entities I think it was almost 1.2 I'm guessing at 2017 we'll hit at one point two you know you are giving you kind of some statistics and numbers the other thing that's really interesting about Delaware is when you start looking at the fortune 500 in the New York Stock Exchange now I understand New York Stock Exchange may be a little bit of a touchy subject company on your investment portfolios this morning you know after yesterday but I've found articles head says that the markets weren't tested you were tested I took that to heart not okay I'll just take this I'm going to write it out but we do have over 60% of the fortune 500 in Delaware and more than half of the New York Stock Exchange that's a pretty significant concept just in terms of a state that tiny little state if you've ever been here you know exactly how small it is and all of this business there and Twitter has to be a reason so we have our first polling question okay Larry oh thank you so much for at our first polling question here please enter in the pop-up box that is appearing on your screen right now not in the Q&A box and you have to answer these questions for Cle credit and the first question is which factor do you think makes Delaware popular as a formation state number one business entity statutes to the court system three case law for the filing office are five all of the above and again please enter in the pop-up box that just came up on your screen and you need to answer all the polling questions for CLE credit and the question is which factor do you think makes Delaware popular as a formation state number one business entity statute number two court system number three case law number four finally in office and number five all of the above I think almost everybody has voted I think so Lori Ann I'm gonna close the poll and then I don't know if it would let me vote getting speaker CLE credit okay now I'm going to push you the results and you'll be able to see that we have about three-quarters of the people choosing number five all of the above thank you so much Victor and in the story for the humor this morning everybody but I need to do something for myself here we had almost 20 percent say the statutes were really what they rely on and then almost everybody else said everything it's the whole package and that's really what I want to talk about next is the whole package of why we like Delaware because the combination of the statutes the courts are from the case law in vision of corporations under the Secretary of State's office as well and those are all really important factors when you start looking at them together and kind of how they interplay so for those of you who said the statute I totally get it for you know the people who were like no no for me it's important system no for me it's the case law no for me it's secretaries office it's completely understandable because we all have kind of our favorite things so one thing to always keep in mind is that Delaware is not always inexpensive there are some pieces that I'm going to talk about during this session today that will give you some insight especially over on the corporation side about how you can try and manage some of those expenses so for the statutes and for the almost twenty percent who loved those these are probably some of the reasons that you like them the statutes are modern in terms of they stay up to date you'll see an amendment to section 219 that I'll discuss in a little bit regarding distributed ledger and if you don't know what that is we're going to find out more they're flexible and in terms of flexibility I think a great example is LLC and LP laws in terms of what you can prohibit and restrict in the agreement they're liberal and I always look at liberal and non restrictive together so for example they would allow a director to be involved with a corporate business deal but they everybody have to sign off on it they can't be voting it's ever so they really want to give you the leeway to make decisions for the entity and based on the client's situation in circumstances they're efficient no efficient sounds kind of interesting right an easy example of that is alternate committee members so that a committee doesn't have to be stalled if someone is unavailable or if too many people are unavailable now the one word that seems completely contradictory on that slide is predictable but just saying they're going okay well it's modern its flexible its liberal it's not restrictive its efficient these were all fantastic and we get to projectable and a lot of times people see predictable and they're like not exactly would you know in spending my wheels and getting me really excited but part of the reason that was saying that is because the Constitution requires a two-thirds vote of the legislature to amend the corporate laws it's not that we don't see the amendment but we do we do know that they can be a little bit folk at times and sometimes it may take a couple of sessions although typically they're pretty darn quick the guiding principles behind Delaware's in state laws are things like allowing management to act quickly with minimum interference from the state so you know for example a Board of Directors to create preferred stock without a resolution to amend the certificate of incorporation freedom of contract is huge and that's all about the rights and duties that you put your bylaws and your agreement because there's a really contract there's a bias against regulation and it's a huge difference between Delaware's corporate laws and the model business Corporation Act now keep in mind that about 40 states in the country have adopted the model business Corporation Act we also have states now that pattern Delaware they're not always huge states but sometimes they are larger examples that come to mind easily are Oklahoma not not a huge state and not one that you would probably normally think of if they do have a tendency to follow Delaware Nevada has a tendency to follow Delaware I said on a drafting committee in Texas and even though we have what we call a hub-and-spoke law we still look at Delaware to see what they're doing and part of the reason and I can tell you some of the rationale if you're in a nother state is you want to make certain that you're being competitive in other words your laws are allowing for issues to be addressed in a manner that business and lawyers want in other words what do we need to get done and how do we need to get it done and Delaware does a great job with figuring that out and implementing it into statute allowing for pieces now it is a little different just simply because they have some common law that not all states may have in their precedent but just keep those things in mind because digital corporation law is considered an enabling statute where the corporations and the attorneys can really make the rules of the decisions and the model business corporation Act is a bright-line concept where you must do a B C and B so you know just kind of keep those things in life laws are adaptable to new development and that's a big thing too because they want to stay current for you to make certain that you know we're moving in a direction or that the state is moving in a direction that really works for the businesses that have chosen to be there now in terms of how its adaptable you know you look at some of the impetus behind it and one of the things that you'll see is a change in the business environment so if you see technology for example that's an easy one we've had it for a long time now but if anybody on the call is old enough to remember when all we had was snail mail and couriers or fax machines had the paper that disappeared after they printed out if they weren't photocopy because it was just like disappearing ink and paper it was really weird anyway so you want to keep those things in mind there are also unpopular court decisions that will drive changes in the statute and we're going to look at a number of those throughout the seminar today and it's one piece that you'll note is that we have put case law in here for you and a lot of it has to do with not that you're going to give it all today or you may go read it you'll be so excited about it it's hey you know I kind of remember that that thing came up and let me go see what that was and it gives you a good starting point or a basis for any research or reference that you may need in your practice there are annual amendment directed by the corporation law council it takes input from lawyers professors management investors from all over the country there are also requests from the secretary's office how this works is typically the corporate law counsel have a subcommittee they go through pull all of the suggestions together look at what makes sense and during that session in other words does it make sense to implement this now or does it need some more work or where are we a ders the critical piece that we need this year can that wait because we're still wanting to see how certain pieces develop they're going to take that and once it gets through the corporate law council and goes over to the legislature it is extremely rare for us to not see those bills passed that session it has happened so I can't say that it never happened but it is something to be aware of I told you we were going to have cases and ATP tour versus Polk Street insulin is one and it's an example of the legislature reacting to a court decision is for 2014 but it's about you guys may remember this shifting attorneys fees two unsuccessful plaintiffs in inter corporate litigation and what the Delaware Supreme Court said is it's valid for the by law to be adopted by the board okay there was no provision in the gstl General Corporation laws or any anywhere else that or come on the prohibited it so even if the board's intention is to deter legal challenges that's not an improper purpose well that was 2014-2015 the legislature came back in amendment one or two F and 109 D so that it could prohibit a bylaw or charter provision from imposing liability on a stockholder for attorneys fees or expenses of the corporation or any other party for an internal corporate claim and that's a pretty big thing and it's a great example of how they react quickly because you see that it was May 2014 and by 2015 we had that amendment keeping in mind that generally they go into effect in August of each year and they don't begin and oftentimes we don't even see the draft until the spring of that year so it's a pretty big piece just in terms of how all of that works and then how it moves forward you know the courts you know some people since they really like the court and there's a good reason for that they of course have limited jurisdiction as a trial court so that's family justice Common Pleas alderman you have equity in law court Chancery is an equity only court the Superior Court is a law court and there's a diff between those two now I will say that there are many people today who will say that given some of the quarter chanceries decisions over the years and how money it does end up coming down to money because sometimes money is the only thing that you can do after you know the water has been let out of the dam and they feel like it's less of a chance to record at that point and more of a law court so it's kind of an interesting way but everybody eventually ends up at the Supreme Court in Delaware so that's one thing to always keep in mind you know the Chancery courts been around since 1792 and there are no juries and no punitive damages again I'm going to repeat that just in case anybody missed it there are no juries you only have the Chancellor's and the ISIS Chancellor in the Vice Chancellors there are five of them total they're appointed for twelve year times and they're experts in their field before they get to this Court so like in Texas I'm licensed in Texas Oklahoma and Georgia and I can say that in all three of those most of the judges that are going to sit on a bench will probably litigators they weren't corporate legal experts they were business lawyers or corporate lawyers or SEC lawyers or whatever your variation of the corporate business world you want to have so that it is a bit of a difference in terms of how Chancery looks at things now an equitable remedy is one way to get a Chancery and that think in terms of like an injunction or declaratory judgment there's an equitable claim for example of breach of fiduciary duty or if you need to pierce the corporate veil the most important piece is the statute confers jurisdiction and that is a General Corporation law it does to confer that jurisdiction to Chancery it's one of the reasons that people want to have a corporation in Delaware's because then you have the availability of using your course again when we said it's not always an expansion it's not because you're going to have to use local lawyers there or you know have a pro Hogs DJ syst m or you're going to have to have something and it will likely cost a little more but it could be very advantageous depending on the here's another example of a case that just kind of gives you a little flavor for the Chancery versus trial court concept and here it was about the Madoff scandal where a plaintiff lost quite a bit of money and filed suit and chancer a secret equitable apportionment of the defense costs between bond underwriters and director and officer insurers and everybody wanted it heard by Chancery Court but they raised subject matter jurisdiction and said hey we don't have it we can do that so we can't hear it and they said that the heart of the claim it's that they didn't fulfill the obligations under the insurance policies which is a breach of contract for money damages and that's the province in Superior Court they rejected the argument that the director and officer coverage resembles and verification clauses that we'll take a look at a little later under Section 145 of the GCL so they didn't have any any right to hear it so it kept them back over another example of how this can work out if Shaw vs. elting and this is a Supreme Court decision from last year where there was transferred court stepping in to order the sale of a profitable corporation with cheating co-owners and basically what they said is this is seriously dysfunctional and they can't get along we have to step in they did it based on a cone ors motion to appoint a custodian to sell the company and the Supreme Court said you know the sale of a profitable corporation is unusual and should be implemented as a last resort but transferee has the right to appoint a custodian of 2:26 and this situation that the requirements of a deadlock and substantial evidence that the business was suffering irreparable harm because of the dysfunction so you will find example and that's the piece about the laws that you really want to keep in mind is that it is the largest body of corporate case law in the country still so foreign forum selection clauses are a new as a 2015 section 115 kind of coincides a little bit there and these were typically you know in response either you know affirming or overturning court decisions remember I said we would have lots of example one of them was about internal corporate claims being solely and exclusively brought in any or all of the court in Delaware they confirmed chance Murray's holding and Boilermakers on that one prohibiting provisions in the certainty of Incorporation or bylaws to bring internal corporate claims that overrode Chancery the city's Providence case and then of course you had you know an internal claim being defined as a claim including a derivative claim based on violation of a duty by director or officer of stockholder and net capacity and general cooperation logical first jurisdiction so all of those are really important and knowing that they have this expertise they're really quick it's been a long long time invested you may not even remember the old computer company compact but when the HP compaq merger was going on they turn the decision around in under 24 hours that's pretty quick I can tell you the states that I'm licensed and in practice and I would have a hard time seeing the courts being able to respond that quickly you know they're very thorough so that they can really work through all of the issues and they write an opinion this is Chancery the write an opinion on every case they're also very flexible because they do have the Chancellor or vice chancellors and they can step in for one another you know it's not a situation where you have to get a jury together and you know they have these massive dockets that are always on backlog they're also very consistent because they do work with one another and they share the same philosophy and those are the ones that are behind the laws anyway in terms of allowing the flexibility management to act quickly efficiency all of those pieces are there in for a reason so if you ever have an issue where you want to go take a look and be like okay got a direct reliability issue or a hostile takeover well instead of going to the statute this is often times we will go to the case law in order to find out you know what are some of the options that you have available and are there pieces out there that are similar enough that it works for your client the nice thing is that we're seeing more and more case law for LLC's now which is very helpful because if and when we talk about LLC's and limited partnership we will see kind of how those interplay and how it works in a lot of instances to our advantage and LLC's are still a fairly new entity type if you keep in mind that the first one was adopted in this country you know the u.s. in 1977 but really nobody knew what to do with it for a number of years they didn't become popular in terms of the state's amending their statutes to adopt the LLC's until the early night early to mid 90s really 92 to 97 and we had a lot of changes along the way as well so the division of corporations that was the other piece that we were talking about this is part of the Secretary of State's office they process all business filings they maintain all of the official records and of course they take care of all of your franchise taxes as well because that is a very important part of this whole system and what you should know is that and this is where I wish you guys were all actually live for me is because this is when we get into the whole like they have about 40 employees and they process over 10,000 silent a month on average and if you think about what that would look like in your offices if you had 40 employees who were processing over 10,000 filings and keep in mind that the phones are everything from formations to mergers conversions domestication all things we're going to talk about it that's pretty impressive they are modern and technologically advanced in terms of their filing systems they have a complete backup off-site silence campaign completed within a half-hour to generate approximately 25 to 30 percent of the entire state's revenue one year I know it was over 35 percent they meet and work with the user community and they have a really unique relationship or partnership with service companies which I'm going to show you example two kind of how that works so that it makes sense on the expedited service and cut off time now the cut off times I will say those are cut off times that are set for my company because you have to be able to submit it in advance so add half an hour to these in terms of what time with the deadline is to get to the state but however you're getting it to the state keep in mind that you do have a deadline for it they have 30 minutes for $1,500 one hour for a thousand two hours for 500 same-day 24 hour and of course you have cutoff times in order to be able to make those one thing that you want to keep in mind is if for example you're filing a conversion of the conversion requires a formation document you're going to have to pay expedited service on both filing so if you're on a 30-minute you're going to pay trade thousand dollars to go to those filings and on its 13th and expedite just little things like that that you always want to keep in mind state forms aren't mandatory and you have to give one copy of a document corrections of course are allowed if the document is an actor an accurate or effectively executed things effective date as the document is being corrected now you can have a later effective date upon filing or a later date whatever you set for corporations are limited to 90 days all of your other entities get up to 180 days where there is a delayed effective date now a prior effective date is not acceptable unless there's an extraordinary condition now extraordinary conditions are typically things like an act of God think hurricanes tropical storms winter storms things are outside of anyone's control act of terrorism anything that nature where you have no control over it versus a fax machine went down the computers went down Natsumi wrong if the entire country goes down in terms of electricity and Internet well I think we don't not know what to do with ourselves but those are the types of things that we're talking about execution of documents is pretty clear and straightforward there you have signatures either by fax conformed or electronically transmitted they have no limitations you do want to you know pay attention to what other states require for that or allow for corporation is generally any officer for an LLC its authorized person an authorized person can get you into some sticky situations every once in while with another state but most of the other states now understand what that means and they don't require the term member manager though some still will limited partnerships you have some documents or one general partner some or by all general partners for your limited liability partnership it's at least one general partner or authorized person and then statutory trust it's one trustee and sometimes it's all trustee you just have to look to see what's going on what you're filing what the issues are what the statute require and move forward I said that there was a unique partnership between service companies and the state and it really is they allow direct access to the computer system with immediate filing and document for retrieval capabilities so it's a very unique partnership that they have fostered I'm going to show you what that looks like so on the filing cycle you send the document out however you're going to get it over to the service they review it then they create the order in Delaware's computer system and it goes the entity gets suspended so you can't do anything with it while it's suspended because it's pending this document being approved or rejected and scanned into the system the views those images in order of priority those your expedite and checks for act accuracy then it approves the finally and releases evidence to the service company and then it goes out to you if it rejected it tells the service company and then they notify you as well for document ordering you have things like statistics and any other long form it has like a bird or everything in it or short form where it just says you're still in good standing the long form could include every action ever taken so if you have an entry that's old so over a hundred years you can see a lot of pages contributed by standing or depending on what all gone on certain time copies of documents or an r/a like a certain rank merger ahead a works with bead and a survives and you can do those by expedited or standard service as well in terms of retrieval just so that you know how it works on the service company side you send the request over the service company make your check to make sure the entity in good standing they create the oral state reviews and request releases the documents to straight out to the customer so it's a really simple system now the top filing errors with division of corporations or things like the name of the title not not being indicated registered agents name and address aren't correct the dollar corporate laws section number is missing the company name doesn't create a computer so if for example we'll pick on I live in Dallas but we'll say Fort Worth and the name of the entity was included Fort Worth in it and in on the state records it was fo RT but on the document that you were submitted somebody put ft period those would be considered different stock information is incorrect service of process information if they are incorrect and a murder earlier verify taxes to a prior to filing checking availability the copy quality if you do are so using axes and some people arm if it can't be a time-saver you want to make sure that now affects by computer may not do this at the old time you kind of fact some can machines one things you want to watch sometimes they will reduce an image every time it's it's free to system so you just want to know that it's a full-sized system or that it hasn't been corrupted in some way or someone attempts to assume turning on survivor that one's always a good one now we did have a question regarding the pros of using a Chancery Court you know in terms of what are those differences and how that really impact if you think about it a law court is just that so they can hear law claims so if it you're looking for money damages you're going to Superior Court if you're looking for equitable remedies or if the statute confers jurisdiction are going to Chancery because Chancery has no jury and no punitive damages those are usually considered to be big pros and could potentially be considered cons on having go to Superior Court so those are kind of some of the things that can arrive here let's go ahead and turn now to the General Corporation law and I know we have another question regarding franchise hashes and those are at the end of the session and in some handouts and so we will get to that I don't want anyone to think that they're being ignored it's just a matter of kind of staying in order so just to understand where the GCL came from it was based originally in 1899 on the New Jersey General Corporation law because that was the number one state for corporate law and most states had pretty restrictive law laws that they didn't in Jersey well New Jersey passed Seven Sisters Act and became worst or restrictive on the antitrust side so Delaware because they had patterned after New Jersey they popped to the top well then they started noticing in the city that they were getting some competition and other states we're starting to get some of that business and so they went in and you know we wrote regional corporation laws and that July 3rd 1957 effective statute the GCL that's what we have today but with annual amendments now publicly traded corporations in Delaware are subject to federal securities laws of course you always have to keep in mind that some things that were traditionally we're not federal like internal governance now under socks and dodge brain they are because you get things about your makeup and duties the board's prohibitions on loans stay on pay you know golden parachutes you get a lot of these pieces that now start coming up and impacting in ways that we previously were not expecting under the general corporation less we're gonna look at formation stockholders directors and officers and then of course our transactional filings so for formation we're going to prepare and file the certificate of incorporation we're going to protect our desired name we're going to hold an organizational meeting although if I asked you buy a raise of hands I'm fairly certain few you would say that you still hold the organizational meeting most people draft a Consent lieu of organizational meeting adopting all of the provisions they would have met about elect directors and adopt bylaws and issue stock those are all really straightforward section 102 governs formation and in there you're going to need to have your name of the entity your registered office and agents the purpose which it can be any lawful purpose your capital structure and your incorporators now your incorporation fees it's something that you want to kind of keep in mind because this is one where it can get a little on the tricky side the filing fee is based on the authorized shares minimum is $15 but there's no maximum again let's underscore that there's no maximum filing fee limit now receiving an induction of twenty five it's five dollars for an area into the database it's $20 per municipality fee and it's the county assessment of six dollars plus nine dollars per page what the certification page counting is one so you start automatically with fifteen so you're you're starting out with sixty-five dollars right there have another fifteen we're now at 80 if I do my math correctly sometimes I get a little off fifty fifty five so we start there but you can presume that you're going to probably have more than one page now how this works is we have a table here but better than the table is a lovely handout that Victor they look much better than what I provided him because you have no part in part value in Delaware and you have to understand how those worked n order to figure out your feet so as you're figuring out your fees you're going through and you're saying okay I have no car value so for the first 20,000 shares it's a penny from so that's twenty twenty thousand at a penny and then from twenty thousand and one petunia units a half penny and then anything over ten million it's to be fixed of a cent and then with par value you get a similar type scale with a two cent at Tiffany one penny or two fifths of a penny but again notice here our value it's a hundred dollars of capital stock equals one share and the rate is per share so you have to go in and figure out what's your capital stock is and how many shares that equates to but because it can have no limit you have to be careful here when you're doing par value no par value in figuring out how many authorized shares you want to have and if you have multiple classes you want to go through and sort through it so the handout that is available for you to download is really good just to give you that kind of initial look and feel annual franchise taxes are also based on the number of authorized shares and you again you have to be careful with that par value no par value concept because one of the things that can happen is as you're calculating through all of this if you're not doing a good invent so if for example someone is coming in and hey I want start a corporation Delaware and you're like great then what we're going to do is we're going to say okay what are we thinking and then you can look at these quick sheets that are provided as handouts for you on today's webinar and you can say oh look okay I can see that that's what this is gonna be and that's what this is going to be so I have a one-time filing fee to get the corporation on file under it cost me three hundred thousand dollars if I do it this way or it's going to cost me $3,000 if we do it that way but then what's it going to do with all the franchise tax on understanding that the states didn't she would bill but then you have the right to use the alternative calculating method and when you you get to pay the cheaper of those two so you can work on all of this in advance that you're never surprised at that first annual Franchise Tax report stockholder meetings we do have an annual meeting requirement special meetings may be called and of course any of these can be held by remote communications you can also take actions by consent with or without a meeting notice or vote voting requirements remain the same as if you had the meeting you can prohibit this in your certificate of incorporation and election of directors requires a unanimous consent voting is one vote per share class they're series can have greater or lesser or no voting rights cumulative voting can be authorized again these are all things are pretty standard for us nowadays but you just want to know what's available you know most of the voting is done in publicly traded corporations by proxy now just simply because people don't always all take the time to be there dividends are payable if and when declared by the board and then may be paid out of surplus or net profits this is something that is still a little different because GCL has remained retained that legal capital concept and stockholder approval is not needed here remember I said that we had two new amendments on the technology side that we were going to discuss and in last year in 2017 provisions in 219 and 224 were amended to basically allow for stockholder lists to be held by distributed ledger which is blockchain basically and if you don't understand sort of distributed Ledger's or stock blockchain there are tons of cles out there on the subject and there's lots of papers and articles and writings you'll notice that most people will equate blockchain with Bitcoin or any kind of cryptocurrency but it goes beyond that and there are a lot of ways that it's being utilized for corporate records Europe if you're very big on that concept just in terms of being able to utilize a blockchain concepts or distributed Ledger's to be able to protect records and in or accuracy and validity without allowing them to be modified when they shouldn't be in other words hackers so t19 was amended so that the corporation shall prepared a stockholder list whereas previously it said whoever has charge of it would prepare it and make it it was also amended to add a definition of stock ledger so it's now one or more records and they're stirred by on behalf the corporation in which it names all the stock corporation stockholders of Records address number of shares etc etc all the issuances and transfers in accordance to 24 and then to 24 was amended to provide a record administered buyer on behalf of whereas previously it was maintained by what it does it just allows flexibility with Delaware other states are looking at this as well and have begun adopting and are continuing to adopt so you do want to keep an eye on the legislative developments in your state or where your clients are because we are seeing movement in this area now this impacts inspection of books and records 5th oculars have a right to inspect they have to have to make a written demand and state of proper purpose if for the stockholder list it's the burden of proof to the purpose on the corporation for any other records it's on the stockholders Weingarten is another case and this one is about inspecting records and here's what happened and what the important part is that comes down to section 220 under the right to inspect which you have a right to inspect if you're a stockholder at the time and it says that you have to have complied with the requirement so you have to make a written demand with a proper purpose and the corporation here refuse to demand and the legislature made it they didn't do until after person was no longer a stockholder because of that the court said the legislators made it really clear you have to comply with the requirements of statute you have to be a stockholder at the time in order to bring the action in this case they were not they're derivative suits that's that contemporaneous ownership requirement the procedural rules are actually found over in Chancery Court Rule 23 point 1 and in case law now you can have a demand futility argument so what you can say is demand is futile to their courts excuse and here's why mulpus Creation Act states do not have demand futility it's a bright-line rule that you must make a demand and wait your time period typically 60 days Louisiana Municipal is another case and this one's about the fast filers where stockholders are rushing to court to file a derivative suit to control the litigation before investigating if the demand is futile so remember you have to say why it would be filled what this one was on Allergan because they pled guilty to promoting off-label uses for Botox and the derivative suits were filed in the California federal court and over in Delaware Chancery Court and the federal court dismissed for failure to plead demand futility and the transferee Court denied the defendants motion to dismiss on collateral estoppel grounds and they said under Delaware law and the California plaintiff lacked privity until the Delaware Court dismisses and the California plaintiffs were inadequate representatives because they filed - shortly after settlement without reviewing the books and records under Section 220 so Bill were Supreme Court reversed as I said California law applied to determine for cluesive effects and the California federal court's dismissal Pacific faith and credit and federal court's judgment satisfied the requirements of collateral estoppel under California laws and the California pinus were adequate representatives and they rejected Chancery presumption against the plaintiffs who filed a riveted state shortly after corporate trauma without first people you know inspecting all of those books and records because they said there's no record support for such a presumption and remedies for fast filer problems should be directing the lawyers and not the stockholder plaintiffs so demand can be excused when the facts alleged the Board's decision is not entitled the protections and business judgment rule or purpose of a demand requirement to give the corporation's ability to rectify an alleged wrong prior to litigation now our board of directors in Delaware managed the business affairs like they do everywhere else and you can have one or more you can have two one-year term unless you have a staggered board of course they can be removed by majority vote of the stockholders and they can also be removed by Chancery so these are all pieces that you want to keep in mind on election of directors we get into the plurality votes cast by stockholder so it's the director with the most votes elected without regards to the votes withheld not cast or voted again at the plurality plus by Lana that could be adopted requires a director receiving less than a majority of votes or dimes and the bylaw can also give the board discretion to reject the resignation so if they thought that in fact it was a marginal to say it was out a 1-point difference that would be an option so today she area dues are defined by case law and not be statutes here they would be of loyalty they can't be on both sides of transaction they can't compete with the corporation now there is a corporate opportunity doctrine available and of course it's good safe and is not an independent duty but part of the duty of loyalty an accent of stone versus Ritter case they also a duty of care about making informed decisions in a two of the seminal cases in this area would be Smith versus vanwoerkom and Guffey loft if you want to go look for similar cases on duty of loyalty and duty of care there are also their actions are also protected by the business judgment rule which is a presumption that they acted on informed basis in both faith and the corporation's best interest and if you can overcome that than the burden to the director goes to show they now have to show the entire fairness it's a result of fair dealing and a fair price Freedman versus Adams is a derivative suit alleging that the board committed waste by failing to adopt a plan that would have made its executive bonus payments tax-deductible they took it to Chancery and they said the complaint didn't adequately allege the demand on the board would have been futile and the Delaware Supreme Court affirmed what they said was state a claim you have to allege particularity that no reasonable person would have considered it fair and the Board's decision to sacrifice some tax savings to retain some flexibility on compensation with a classic exercise of business judgment and not unconscionable or irrational now Victor it's your turn again I get to take break with some tea okay we're had a question polling question number two please answer in the pop-up box that is coming up on your screen right now do not answer in the Q&A box and again you will need to answer these questions all three questions for CLE credit and the first question here is how often do you include a provision limiting director liability when drafting a surgical certificate of incorporation a always B sometimes he never and again this is for CLE credit please enter in the pop-up box that came up and not the Q&A box question is how often do you include a provision Libertines director liability when drafting a certificate of incorporation a always B sometimes C never just give you a little more time to answer your CLE here today not in the Q&A box for Sealy credit all questions will have to be answered and the final time here I'll run to the question how often do you include a provision limiting director liability when drafting a certificate of incorporation a is always be sometimes and C never I think we have um everybody has responded I'm going to close the poll here I'll push the results DeLorean and you'll see that we have always at 50% and sometimes never kind of split to FF okay you know and that's totally fair because a lot of this really depends on what's up with your client one of the reasons that I ask the question is just to make sure that you're aware of 102 B 7 which was a direct correlation to a case because it now limits that allows you to eliminate the liability for breach of duty of care that was really important when it was hard to get board members after the court case came down so they went in and changed this so if you're not aware of that provision being available to you it is there 141 directors are also protected at they're going good based on an expert opinion 144 provides for a safe harbor for conflict transactions and of course 122 the corporation can renounce the interest in the business opportunity so all of these are things that are you know good for you keep in mind the safe harbor is that they knew about the interest it was authorized it was good fed by a majority of disinterested board members officers you know titles and duties are stated in the bylaws or by a board resolution any a number of officers can be held by the same person so if somebody wants to be everything they certainly can be able to that's a lot of work chosen is prescribed by the bylaws or determined by the board they do Osen fiduciary duties as direct you know similar to directors you want to look at gambler versus Stevens for that under 103 the corporate charter cannot limit or eliminate personal liability for breach of fiduciary duties it's a big difference between directors and officers which is probably going to underscore underscore the concept of having a really good dno policy your director and officer policy you also have identification under 1 3 5 remember that it's not exclusive you have permissive indemnification as long as the actually in good faith and incorporation and best interest it's not allowed in a derivative suit if the defendant is found liable you also have mandatory indemnification if they're successful on the marriage and defense of the claim and then of course you have E which allows for a number of other pieces so attorneys fees expenses incurred and defending can be paid in advance of final disposition its conditioned on the fact that they may have to repay if they weren't entitled to the indemnification for some reason so just know that you have a lot of options to you in because it 145 is not exclusive you can put whatever you need and your bylaws and your agreements to provide for indemnification and advancement there are some interesting court cases on how people try to interpret indemnification in boilerplate language and the miss Roth rights under T for T Challa it's a pretty standard concept that you have in all states you know main purpose that you know authorized shares dividend classes of stock period duration and just about anything else that would be lawful to do as well how you're going to go about that isn't adopting a resolution by the board stockholders are going to vote on it filed a certificate and amendment afford payment of capital can be done by the board since you don't have officers at that time a restated certificate of incorporation can save money especially if we talked about that old hundred plus year entity that had a lot of amendments over the years you may want to get a restated and some what you'll do is you'll file restated and it'll have all the current provisions and so that's the easy document to go to you can also do it with an amendment so that if you want to go ahead get stockholder vote you can do every state in an amendment so that you have all of the current provisions it can reduce certification cost a corporation is allowed to words with any other entity type including a parent or subsidiary consolidations are allowed share exchanges are not allowed then are allowed by model business Corporation Act they are not allowed by the general corporation laws in Delaware in a non-us entity may domestication to Delaware or Delaware corporation can transfer or transfer and continue to an under US jurisdiction so here's the example and this is what I want you to think of think of dual citizenship so like think about having two passports so I've got a passport for Delaware okay I understand it's not a country but go with me we've got a passpo t for Delaware and I have a passport for Cayman Islands or British Virgin Islands or whatever country you want to pick Panama whatever it is you know I have two passports so Cayman Islands can transfer can domesticate into Delaware Delaware could transfer out to the Cayman Islands or they can be in both at the same time there are not a lot of states that offer this but a couple others that are Nevada and Texas and you just want to keep an eye on how that works and what's allowed under the general merger procedure the board's going to adopt the resolution approving the agreement of merger scores are going to vote on it you may have a supermajority requirement so always check to see what you have in your buy log and then you file the agreement or certificate of merger most people are going to file a certificate short form mergers are allowed between corporations only under 253 with other non corporate entities or 267 251 is a really interesting piece you will want to look at that for holding company mergers and tender offer mergers because basically if you have enough if you can get a green that ticket taking up stock then you can just kind of lied to ask the whole context so appraisal rights are available expect under 251 f or g of course there is a market out exception and workout exception being that if you have enough stockholders to say that it's fair so it's over two thousand shareholders then they can set a fair value for it or if your publicly traded that would be considered a market out exception as well otherwise you can ask for appraisal by Chancery but you can't have voted or consented to the merger conversions are also allowed these used to be more limited but now they're not so you can convert with any other entity type either in Delaware or outside of Delaware everybody has to vote favor you file a certificate of conversion remember that you're forming a new entity you also have to file that as well and of course opponent you can convert into a Delaware corporation and very positive conversion into ticket incorporation this solution is approved by the board majority stockholders could also be approved by unanimous written consent so if there wasn't a meeting that he'll sign off on it and corporation incorporators or initial directors to develop before the business begins after it's approved you call this chapter of dissolution you cannot be completely done until you've paid all of your franchise taxes and the secretary state requires that to be filed prior to the dissolution and you can do a revocation within three years basically remain a body corporate there are also public benefit corporations in the state of Delaware now this is a subset of the corporation law in basically what we're talking about is companies doing good and being able to use a portion of the profit toward a philanthropic type interest a lot of states have adopted this about half the states in the country so far they all have a little different variation some sort of patterning Delaware if it's publicly held again you can tell appraisal right but you want to look to see if you good the requirements are to take an existing dollar corporation making a public benefit corporation don't let me govern by the Croatian laws but then there are some extras this sort get may apply or if you want to be involved in the merger either of those are going to take a seat third note about getting us a stock or you can create one to be generous ratification of prospective acts as something that came out in 2014 and that's basically where if something was a lack of compliance you can go ahead and say it's okay but you can't ratifies something it's just wrong in other words let's look at the case that's the easier way to look at it there's the sector corporate Act which can be ratified and there's the unauthorized or backwards cannot be around fun and in this case what you'll note is that the corporation learn pursued preferred stock financing and majority stockholder said no well the corporation went ahead bit and arbitrator hotel man reputation or consent rendering the financing Boyden invalid and the corporation attempted to ratify nor 2:54 the jory stockholder found under two of five putting ratification is improper which court said was you're right it isn't proper you didn't have the authorization you had absolutely no power to pursue the financing because you didn't have them for example or approval and that's a great way to kind of look at that and we're going to turn now to the LLC Act which came about in 1992 this modeled after the limited partnership act not the general corporation laws the reason that that is so important is to just know that they pattern mirror each other as opposed to looking with the GCL and of course the policy is in actual effect the principle the freedom of contract enforceability of LLC agreement here your formation is named with a nifty indicator that has official name check availability reservist have a richard office mister agent and it's a $90 filing fee so we don't have the state tax filing fees anymore for purses purpose except banking so you can do insurance just not painting and you can be profit or nonprofit it's called an LLC agreement and delaware where it's an operating agreement in most places it can be written oral or implied that's an interesting one just in terms of implying an LLC agreement it's kind of like a meeting of the minds that was never spoken except how i try to look at it the LLC's are that covers everything in your corporation's charter bylaws shareholder agreements all of that type of information is what you were an LLC agreement this is where you opt out of any default provisions and all of this applies to the limited partnership as well so typical types of matters of our existence purposes power and authority of number senators officers if they're going to have title initiative members minification because you need to address that allocation of profits and losses installation lining up assignment transfer of interest meeting formalities voting requirements to keep in mind that the standard in Delaware for limited liability companies and limited partnerships is 50% plus of the percentage of profits so how do you W those up it's pretty important if you want to have meetings notice quorum requirements all of that in there and Victor we are back up to you all right we're at polling question number three please enter in the pop-up box your answer not in the Q&A box and it are you familiar with the series LLC one yes to know again this is for sale e credit you need to answer these questions and it's a very simple question yes no point are you familiar with the series LLC one yes and to know and then we're getting a little short on time here so everybody can vote like super quick that'd be wonderful and again here we are polling question number three are you familiar with the series LLC and I believe I'm going to pull close the poll in just a second here because it is so short and I'm gonna send the results over to Lori and and you'll see that we are at a forty seven no 44:57 split or roughly 56 but if I can read it right there and almost for almost a half and half on this note and I know that we're going pretty quickly at this point that recall that I said everything's in here for your reference for later and that we would cover everything even if we didn't look at all of the slides because the lp and LLC are so similar a lot of this applies and you'll note that I've been commenting on that as we go so for those of you who are not familiar to series LLC what we're talking about is establishing one entity now this is in Delaware it is different from what Illinois does what Delaware does is you establish an entity and it can have basically like cells or series within it that have separate rights powers duties with respect to property or obligations profits losses basically let's do it this way here is the graphic big gray circle is what we put on file with Delaware and I use property properties an easy example so we have series ABCD and E and you'll note that we have hotels land malls apartments gas stations the concept is this say I own an interest in Series II a gas station but you all can't stand gas stations now that was a terrible idea and you were right but it turns out that there was a leak the EPA is requiring remediation well that means that series e's assets and monies and whatever is invested in it has to be used for the remediation but a B C and D are all protected and the big gray one is protected only series these assets and investment their monies can be used for the remediation everybody else is okay and safe the concept came up actually out of statutory trust for investment because they were using using it for investment concepts to be able to get in and out of certain types of investments for investors so just knows there are a lot of outstanding questions when you get to the series LLC and you want to really dig in and know a lot about them they're about a twelve fifteen states now that authorized them members you have to have one or more you have limited liability so very similar to a corporation in that sense which is a little bit of difference on your LP new members are admitted upon unanimous consent unless you put something else in your operate in your LLC agreement you can have different classes remember cannot resign unless the LLC says that they can and contributions can basically be anything cash property services future obligations management is automatically defaulted over into the members but you can choose to put it into management decision of the members is 50% more than fifty percent so it's 50 percent plus the percentage profit management can be vested and manager has to be in the LLC agreement managers do not have to be individual natural persons they can be entities and of course you can delegate authority to officers agents and employees everything is done based on what you put in the LLC agreement so how you choose in what offices they hold the responsibilities are whether meetings are required - is a really good case on fiduciary duties of care and loyalty from 2012 the reason it's in here is because they amended the statute in 23 tene to address what was left open in gas by the court and that's basically in any case not provided for in the chapter talking about the LLC chapter the rule of law and equity including the rules of law and equity relating to fiduciary duties and the law nurtured shall govern and this basically just resolved to split between Supreme Court in chancery court over this silence or lack of information amending the certificate it's very similar over to the corporation where we're talking about amending and filing and then that mergers are also allowed conversions are also allowed domestication ZAR also allowed dissolutions and cancellations here you do not remain a body corporate LPS I know we're running right to the end of our time I really like two different franchise taxes if that's okay because we've covered most things in the LP and the LLP and the triple LP the one thing that you want to keep in mind is your limitation and liability and that in triple LP can start from an LP or you can form a triple LP to begin with same thing with the LLP it's either a GP they become a general partnership it becomes an LLP or you can form it directly as an LLP if you started with one and became something else that means you have finally more requirements for both actuary trust used to be called business trusts so if you ever see that old language to keep that in mind it's a governing instrument instead of in agreement here that creates the trust and governs all the business and heirs we have to have at least one trustees either individual Delaware resident or have special place of business in Delaware major centers direction of the trustees and less food is provided otherwise so we've not ever franchise taxes and I will be super quick about this it is a significant revenue producer for Delaware and March 1 is the due date for corporations however it's a bit of a misnomer because it depends on how much you owe for franchise taxes what your scale is in terms of when you have to make the payments because you're going to do them basically on every three months rolling basis and electronic filing is now mandatory I will just tell you this February 28th and March 1st are super busy the Turner's believe in districts not paid with a year of the due date and it's what it you completely report it's not filed within a year of your video sorry there are two ways to calculate franchise taxes there's a minimum pax method which in high or $75 and in this method to which is 400 that was increased by the 2017 there's maximum taxes two hundred thousand that was increased in 2017 as well we also got a large corporate Tyler increase up to 250 in 2017 and the definition for large corporate filer so you'll know women who fall into that category and it is based on being on stock exchange and in what you're reporting in terms of your gross revenues the two message you have based on authorized shares and you have a testing based on a sting par value capital as you do have handouts for these wherever I said if there were state financing or state finally to hand out they're also hand out to both of these which is the state is going to send you a bill and then you have the opportunity to calculate the alternative so that you can figure out if you can lower the taxes and you're just you can pay to lower because you're responsible for sorting through what that is note it in there was an increase effective January 1 of this year from 350 to 400 per million or portion thereof extinct par value capital for all of the other entity types for the LLC and LP if $300 annual tax you don't find any report on those you just pay it on LLP and finally on your report it's $200 per partner June wanted to debate for all of them if you don't file and pay or you take everything seriously then the state will not found the documents for the entity and lawsuits in the state we look at write a little bit of corporation law LLC law of the alternate identities and annual taxes and we found that all super 59 very sorry for going and working with