Delaware Section 502 Principal Place of Business Compliance

August 01, 2023

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Effective August 1, 2022, Delaware amended the General Corporation Law of the State of Delaware (“DGCL”), affecting several provisions. The State of Delaware is enforcing Delaware Title Code 8. Del.C Sec 502 (a)(3) for the 2022 Annual Report tax year.  Companies are now prohibited from using a registered agent’s address as their principal place of business.  If your entity has done this in the past, then an Amended Annual Report to change to your physical address must be completed at once.

 What is Section 502?

Section 502 clarifies that unless a corporation maintains its principal place of business in the State of Delaware and serves as its own registered agent, the principal place of business of the corporation shall not be the address of its registered office in Delaware.

The State of Delaware has been taking action with entities when they find the entity is in violation.  The sample text of the letter reads:

Pursuant to 8 Del. C § 502(a)(3), companies are prohibited from using a registered agent’s address as that company’s principal place of business. In your company’s most recent Annual Franchise Tax Report filing, you listed 123 ABC Corp. DOVER, DE 19901 as your principal place of business. As you are aware, that is the same address as your registered agent for the service of process. Our records do not indicate that you are acting as your own registered agent; therefore, your Annual Franchise Tax report has been deemed incomplete.

 Accordingly, you have 45 days from the date of this letter to come into compliance with Delaware law by submitting an amended Annual Franchise Tax report for your company listing your company’s actual principal place of business. Failure to comply with the law may result in a restriction of services or other legal action, including loss of good standing with the Division of Corporations. A compliant amended Annual Franchise tax report must be filed, or this entity will be declared void on March I, 2024.

 What is the difference between a principal place of business and a registered agent?

Delaware Registered Agent

Many small businesses, and some larger entities, too, need clarification regarding the principal place of business vs. a registered agent.

A registered agent acts on the corporation’s behalf in the state of incorporation or in a state(s) where the entity is qualified to do business. The registered agent’s primary responsibilities include

  • Receiving service documents in the event of legal action against the entity
  • Acting as a local contact point for the Secretary of State or other government agencies
  • Receiving Annual Report or tax notices in many states

The principal place of business is the main location where the business conducts operations. It is the state and county where the entity was initially formed and filed. According to Investopedia, the principal place of business plays a role not only in taxes but also in litigation. Where a company is based can affect legal jurisdiction and determine which court will hear legal matters involving the company.

The United States Supreme Court has defined the principal place of business as the place where a corporation’s officers direct, control, and coordinate the company’s activities. This is also described as the company’s nerve center, where the enterprise’s primary functions and decision-making activities occur. Under normal circumstances, this is also the location where a company’s headquarters is situated.

Do you need a registered agent for an LLC?

Yes, you do need a registered agent for an LLC. When forming a limited liability company (LLC) or corporation, the entity is required to list a registered agent. A registered agent is a person or entity appointed to handle necessary government, tax, and legal correspondence about your business. The primary purpose of a registered agent is to ensure your business receives essential and time-sensitive information.

If your business is sued or subpoenaed, the opposing party will notify the registered agent listed in your business’s public records with the state. A reliable registered agent will immediately let you know when documents arrive, giving you as much time as possible to respond. Without a registered agent, important correspondence can be lost in the shuffle of your other business mail, causing you to miss deadlines and suffer legal and financial consequences. (Forbes.com)

Should I be my own registered agent at my principal place of business?

You can certainly list yourself as the registered agent, but the process is more complex than you think. It may pose some issues if the office is not staffed during business hours. In addition, an inexperienced member of your company may need help understanding the levity and time sensitivity of receiving Service of Process or other legal and tax documents. Time is always of the essence. It is prudent to rely on a professional registered agent.

Are you looking for a registered agent?

Choosing a registered agent is more than selecting a company to get your mail and receive process.  It is all about experience and processes to ensure your legal documents, annual reporting and tax documents, and correspondence are delivered timely and that there is a contact for you to call with any questions. Since 1989, Corp1 has provided services that include company formations, registered agent services, corporate filing, corporate record retrieval, UCC searches and filings, and other corporate services across the U.S.

Contact us to learn more and experience exceptional service and competitive pricing as we incorporate the world, one company at a time!

 

Resources: Americanbar.org, Investopedia, Forbes.com