Alerts

Phony Government Correspondence

Beware of solicitations masquerading as government correspondence! Unscrupulous operators are sending misleading, official-looking letters to businesses in many states asserting that the business must pay a hefty fee for certificates, filings and other compliance services that they may not need. Many times they mislead a company into mistakenly changing its registered agent.

The National Association of Secretaries of State (NASS) and the Federal Trade Commission (FTC) are working together to combat these deceptive practices and have recently released briefings describing the scams and how to avoid falling prey.

We want to assist their efforts by spreading the word and providing the following helpful tips:

1.   Be aware of the three most common types of misleading solicitations as reported by NASS:

    • Reporting Requirement Solicitations
    • Certificate of Status Solicitations
    • Annual Minutes Solicitations

2.   Read the fine print, look for statements like: “This is not a governmental agency”

3.   Be especially vigilant when receiving correspondence from the following companies that NASS has identified as senders of misleading solicitations:

    • Business Compliance Division
    • Business Services Division
    • CPFS
    • CT Certificate Service
    • Georgia Certificate Service
    • Workplace Compliance Services & Filing Labor Compliance

4.   Review corporate officer, registered agent, and address information on prepopulated forms to look for suspicious changes
If you spot a scam, alert the FTC at ftc.gov/complaint. When in doubt, email us at regagent@capitolservices.com. We’ll help you chunk that junk and get on with your day.

Social Enterprise Businesses Now Recognized

With business success no longer defined by profit alone, the number of social enterprise businesses continues to grow. In addition to financial performance, businesses today are valued by their impact on society. As a result, one or more social enterprise business entities are now recognized in most jurisdictions.

Benefit Corporations

Making an initial appearance in 2010, benefit corporations are a fairly new type of business entity. This type of social enterprise entity is currently recognized in 41 states as well as D.C. and Puerto Rico. Benefit corporations pursue a mission that goes beyond that of the traditional corporation of solely making money for the shareholders. A benefit corporation’s leadership is required to achieve a public purpose while balancing shareholder interests with those of the employees, community, and environment.

In jurisdictions where benefit corporations are recognized, formation is achieved by filing traditional articles of incorporation that include a statement that the corporation is formed to provide for a general public benefit. With shareholder approval, an existing corporation can morph into a benefit corporation by filing amended or restated articles of incorporation. A corporation in a jurisdiction with no legislation permitting benefit corporations can domesticate to become a benefit corporation or form a new benefit corporation altogether in a jurisdiction where benefit corporations are recognized.

A “general public benefit” is defined as one having a material, positive impact on the environment or society. Several jurisdictions require a more stringent “specific public benefit” and define or give examples of permissible specific public benefits in their statutes. Other jurisdictions permit a combination of general benefit and one or more specific benefits.

In addition to meeting the same legal requirements as other for-profit entities, benefit corporations have to voluntarily and formally meet higher standards of corporate purpose, accountability, and transparency. One such transparency provision requires benefit corporations to publish annual benefit reports of their social and environmental performance as assessed by an independent, third-party standard. There is no legislative standard, but guidelines require it to be comprehensive, credible, transparent, and developed by an independent entity that has no material or financial interest in the use of the standard. Some jurisdictions have dropped the third-party standard requirement entirely. Currently there are several companies available to perform these third-party standard assessments, including some that cater to benefit corporations only.

Furthermore, some jurisdictions have an additional requirement that a benefit corporation file its annual benefit report at the Secretary of State along with its regular annual report. This extra filing often includes a fee. When the additional filing is required, noncompliance ranges from no penalty whatsoever to loss of status as a benefit corporation.

Delaware Public Benefit Corporation

Due to the importance of Delaware corporate law, it is worth noting that Delaware’s benefit corporation law differs from the majority. Not only does Delaware’s statute refer to a benefit corporation as a public benefit corporation (“PBC”), it mandates that a PBC pursue not only a general public benefit but designate a specific public benefit in its charter as well. Delaware also requires that a benefit report be made available biennially to shareholders rather than made publicly available. Delaware’s statute also allows the board to define its own standard for assessment of corporate activities and does not require a third-party assessment.

Social Purpose Corporations

A more flexible type of social enterprise entity is the social purpose corporation (“SPC”). SPCs are currently only recognized in a handful of states. Much like the benefit corporation, an SPC is required to consider factors other than shareholder profit. However, unlike the benefit corporation, the SPC does not require a general public benefit and is only required to consider special purposes as stated in its articles of incorporation, giving directors more flexibility in assigning different weight to factors as they deem appropriate. An SPC does not have a third-party assessment requirement but is required to post its annual social report on its website as well as distribute it to its shareholders.

Benefit LLC

The benefit LLC (“BLLC”), a lesser-known social enterprise entity type, also emerged in 2010 with analogous requirements to that of the benefit corporation. With a much slower adoption rate, BLLCs were only recognized in four states until 2018 when Delaware enacted its own public benefit LLC (“PBLLC”) legislation. Delaware’s PBLLC statute closely tracks its PBC statute, mandating both general and specific public benefits. While there is currently no pending BLLC legislation, it is reasonable to expect other jurisdictions will follow Delaware’s lead.

B Corps

Benefit corporations are often referred to as “B Corps.”  However, a benefit corporation and a Certified B Corp are not one in the same. A benefit corporation is a business entity created under state law, similar to a traditional corporation. A Certified B Corp is a business that has been certified by B Lab, a non-profit organization. A business does not need to acquire a B Lab certification to form or convert to a benefit corporation. Additionally, any type of business entity in any jurisdiction can apply for B Lab certification.

Continuing to gain momentum, with legislation introduced in several states, social enterprise business entities provide a safe harbor for directors to pursue social benefits over profit. Additionally, they allow for the duration and protection of company values through unforeseen leadership change or acquisition. However, because not all jurisdictions recognize the different types of social enterprise entities, and because of the varied laws of those that do, there is still much unchartered legal territory in the world of social enterprise entities.

Jurisdictions that recognize (or have recently enacted legislation) benefit corporations or public benefit corporations are AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, MT, NE, NH, NJ, NM, NV, NY, OK, OR, PA, PR, RI, SC, TN, TX, UT, VA, VT, WI, and WV. Jurisdictions that recognize social purpose corporations are CA, FL, TX, and WA. Jurisdictions that recognize BLLCs or PBLLCs are DE, MD, OR, PA, and UT.

Capitol Services has you Covered

Over the past few years, Capitol Services has taken every opportunity through our newsletters, webinar offerings, and educational social media posts to promote the value of comprehensive searching when it comes to litigation and bankruptcy due-diligence. There are over 3,000 counties in the U.S., and within those counties there are multiple courts hearing civil cases. Because there is no nationwide search database, those hunting for cases and judgments must determine which courts need to be researched. Regardless of where an entity is domiciled, they may be sued in multiple jurisdictions across the states. Entities filing for bankruptcy may forum-shop to determine which jurisdiction will be most beneficial in regard to their situation. Researchers must have a firm grasp on the details of all courts available so they may make an educated decision on how deep they wish to dig.

It is our understanding that some other search providers in our industry are including state courts with general jurisdiction on their lien search estimates, but omitting some local courts that may be equally important to our customers. Though this might make a competitive estimate look great on its bottom line – what are you missing that could have dire consequences when details are later reviewed? Don’t forget the old adage you get what you pay for.

Superior and Chancery courts in Delaware with general jurisdiction are often searched, but we regularly see competitors omitting the Court of Common Pleas within the state of Delaware. Not only do these courts hear civil cases with damages up to $50,000, but Delaware’s popularity for incorporation means that a wide variety of entities would find a nexus for litigation here.

In Texas, our District courts have general jurisdiction, hearing civil cases with no limit to their damages. Our county courts at law hear civil cases up to $200,000 in total damages. Because we feel this is significant, we include these courts on our client estimates and give you the option to include or omit before proceeding with the search process.

Mississippi’s Circuit courts hear general jurisdiction cases, as do their Chancery courts. Are both included on the estimates you might be comparing? Because Mississippi’s county courts hear cases with damages up to $200,000, Capitol Services feel they are significant enough to include on our estimates to you. But our competitors are not offering nor searching these lower court jurisdictions.

With countless jurisdictions to keep track of across the nation, we want our customers to rest assured that we make it our business to know what is happening within each court’s purview and to put the power of choice into your hands when determining how robust you wish to make your lien and litigation search profile. Look beyond the bottom line when comparing competing estimates and give us an opportunity to share our valuable research with you so that you can make the most informed decisions possible.

Lien Reporting Revamp

Recently, Capitol Services revamped the way we report civil litigation results to our customers resulting in a more robust product to better serve their due diligence needs. Previously, when a customer was interested in which cases resulted in a judgment, we would provide a listing of all closed cases so that clients could make this determination for themselves. Now, our litigation specialists are helping to conclude the nature of the case dispositions — saving our customers valuable time when reviewing search results! We are still providing the value of a quick glance at all closed cases (whether by dismissal or other reasons), but we are also providing an additional report pointing to all cases resulting in a judgment. We will also continue to provide reports reflecting recorded judgments at the county recorder’s office. Full, complete, and organized litigation results are available to our customers in both easy–to–read .pdf and easy–to–sort Excel spreadsheet formats.

MORE INFO

Publication Requirements

In the world of corporate filings, publication is a bit of a holdover. Only a small number of states still require this step, and it is usually only done for certain entity or filing types. For example, New York and Pennsylvania require publication of certain formation and foreign registration documents. In other states, such as California, Florida, and Georgia, fictitious/assumed/trade name filings must be published.

Differing from the examples above, Nevada has an annual publication requirement for foreign corporations conducting business in the state.  The statute indicates that these entities must publish certain corporate information in two issues of a Nevada newspaper by March 31 of each year. As a result, newspapers will often send out their solicitations for publication during the first few months of the year.

It may be unclear under which circumstances publication is required and that is where we come in! Our knowledgeable and experienced Client Service Representatives are equipped to handle both the filings and any necessary publications.

Several States make Changes

Texas

2019 proved to be a busy year for legislatures across the nation. The Texas Business and Commerce Code was amended to eliminate the duplicative assumed name certificates for business entities required to register with the Secretary of State. Effective September 1, 2019, corporations, limited liability companies, limited partnerships, limited liability partnerships, and foreign filing entities are no longer required to file an assumed name certificate at the county level. Businesses not requiring registration with the Secretary of State, such as general partnerships, real estate investment trusts, and joint ventures, are still required to file an assumed name certificate at the county level.

North Dakota

North Dakota joined the masses and changed the way it determines whether a business entity name is available. Effective April 26, 2019, North Dakota’s name availability standard changed from the “deceptively similar” standard to a less restrictive “distinguishable in the records” standard. This change should result in a wider range of names available for new domestic entities and a greater chance of legal name registration for foreign entities.

Florida and Montana

Both Florida and Montana recently passed comprehensive revisions to their corporate laws. The modified and new provisions regarding corporate governance, largely based on the 2016 Model Business Corporation Act, bring uniformity, making it easier for corporations to operate in those states. Florida’s new legislation took effect January 1, 2020, while Montana’s goes into effect June 1, 2020.

Maine and Oklahoma

Lastly, the benefit corporation movement continues to sweep the nation. Maine and Oklahoma both passed legislation allowing companies to register as benefit corporations. This corporate designation gives greater legal protection for companies pursuing for profit business models while maintaining a primary objective to generate a public benefit. Nearly all states now recognize some type of public benefit business entity.