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Taking the mystery out of forming a Delaware LLC…the nuts and bolts from order to formation.

By John Williams | Published November 16, 2011

I thought it would be helpful to explain the Delaware Limited Liability Company (“LLC”
or “company”) formation process after Agents and Corporations, Inc. (“we” or “our”)
receive an order through www.incnow.com.  Our office upon receiving your order will
first log into the State of Delaware Secretary of State Division of
Corporations (the “State”) computer system termed the “Delaware Corporation
Imaging System” or “DCIS” for short. We will first check the name to ensure the
LLC’s name is not in conflict with any other active LLCs in DCIS (this does not
check for conflicts with inactive companies, companies in other states, fictitious
names or trademarks). Only a handful of agents whose offices are based in
Delaware have access to DCIS. (A new web-based system is in the works to
replace this DCIS in about a year’s time. The new system will be called the “Integrated
Corporation Information System” or “ICIS”).

If available, we then enter the LLC name of the company into DCIS for filing. We
then prepare the Certificate of Formation. In Delaware this is the “charter”
for the LLC, termed a “Certificate of Formation”, (whereas in other states it
is sometimes referred to as the “Articles of Organization”).  The Certificate of Formation merely lists the
name of the company, the name and address of its registered agent, the
signature of an authorized person and the date it was signed.

After the document is prepared and entered into DCIS, the authorized person (someone
who works for Agents and Corporations, Inc.) signs the Certificate of Formation
to “organize” the LLC.  Having an authorized person sign the Certificate of Formation avoids disclosing your name
to the State. Once signed, the Certificate of Formation (“filing”) is scanned into
DCIS or faxed directly to the Secretary of State with a cover sheet, indicating
the filing priority. The scanning is an important step, because this determines
the filing time that will be stamped onto the Certificate of Formation. No
original is sent to the State, so the best copy you will receive is an image of
the document. The State has “done away” with original filing documents.

For agents out of state and for lawyers and entrepreneurs who mail or fax or hand-deliver
their filings to the Delaware Division of Corporations, the State’s turn-around
time is typically 2-5 weeks, as a “priority-7” routine filing before the approved
filing is received back. Our advantage being an agent located in the State of Delaware
with access to DCIS, we can file the document under “priority 6” on the cover
sheet for no additional charge which is about a 1-3 day turn-around time most
times of year, except for the end of year rush which delays filings. “Priority-6”
is the way we file all orders unless expedited handling is requested.

Should you require more expedited service, Delaware offers more expedited filings for
higher expedited fees, such as $50 for a “must” approval, which is a “priority-5”
and only Delaware agents can file under this priority, for what is typically a
same-day or next day turn around. To get expedited treatment beyond this, with
or without a Delaware agent, extra fees must be paid. The State charges $50 additional
for a guaranteed 24-hour filing “priority-4”; $100 extra for same-day “priority-3”
(if filed before 2:00 p.m.), $500 extra for a 2-hour “priority-2” filing; $1000
extra for a 1-hour “priority-1” filing; and $1500 extra for a 30 minute “priority-0”
filing. If our office is to assist with these expedited filings, we also charge
additional handling and priority filing fees and would request you call our
staff before ordering this, so we can give the filing immediate attention. The
State of Delaware receives over a million dollars each year, just from
expedited fees. Few, if any, other states offer such expediting. However if you
have a board room full of attorneys waiting for a filing to come back, those
extra fees may seem like a bargain.

Once the State receives the scanned filing and cover sheet, it places the filing into
a cue based on file time and priority. The state also debits our deposit account
the $90 filing fee. The State then manually reviews the document for compliance
and to ensure the documents meets the minimum filing requirements, including
name availability, legibility, valid signature and name and address of the registered
agent.

Assuming the document review is successful, then the State “stamps” and approves the
filing as of the filing time and date when submitted with a unique 7-digit
identification number. The State then sends that stamped-approved document, “the
evidence of filing,” back to our office by email. If the filing is not approved
it goes into a “suspended” status waiting for a corrected document. At this stage
the agent can replace the document and still keep the file time.

Our office then prepares the cover letter to you, the customer, along with any
other services you have ordered, such as an “operating agreement” for the LLC (complete
package) which is an internal document not on file with the Delaware Secretary
of State.  Upon signing the cover letter
the authorized person hands-over authority to the LLC member(s) and management
to manager(s). This cover letter acts like a “statement of organizer”
renouncing any interest of the authorized person in the LLC in favor of the customer
who placed the order to organize the ownership and management of the LLC.

From that point forward the “authorized person” who signed the certificate has no agency
authority over the LLC because the LLC formation process is complete and agency
is handed over to the initial member(s) and manager(s).  The person who ordered the package then is
responsible for having the members sign the LLC agreement detailing who owns
the company and the rights of the respective members. If an LLC does not have a
written signed operating agreement, then the terms of the member agreement can
be determined by an unsigned agreement or verbal agreement. But that is not
advisable, because determining the terms of the agreement will be put on a
judge later, if there is a dispute. We say, “paper is cheap and lawsuits are
expensive”, so it is best to have a signed LLC operating agreement. I also use
the saying, “the only ship that does not float is a partnership.”  It is advisable to have the signed agreement
like a pre-nup to be there when there is a disagreement among the members. The
LLC Operating Agreement is not a public filing, but rather an internal document
that each of the members keeps, like a contract between themselves and the
company. The registered agent does not keep a copy of this filing so it should not
be sent back to the agent. Additionally Delaware does not require the names of
members or manages be kept on file with the state. That is all internal to the
LLC. The registered agent is only required to keep the name of a human contact
at the company and his or her contact name, address and phone number.

That completes the formation process. From that point forward the members and
managers of the LLC operate the business. They only usually hear from the
registered agent if the company is sued and the registered agent is served “service
of process” or when it is time for the LLC to pay its annual fee before June 1
of each year, whether the company is doing business. The statutory job of the
registered agent is limited to receiving state notices and lawsuits filed
against the LLC and to forward them to a contact person for the company. The
registered agent is also available to assist with filings, such as
change-of-name amendments or renewal filings and to obtain certified copies, an
EIN number, good standing certificates, certificate of renewal and revival or a
certificate of cancellation. It is important to keep your registered agent
updated with your current contact information if you move or change contact
persons to keep your LLC in good standing.

Should you wish to form a Delaware LLC, the easiest way is complete an order form at www.incnow.com. We look forward to assisting
you.

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When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go