Liability Exposure for Delaware Incorporated Companies – The Risk of an Escheat Audit and Delaware’s New Voluntary Disclosure Program to Avoid Penalties
Wilmington, DE (April 2, 2013) – Jeff Wolters, Morris Nichols Corporate Law Counseling Group partner, and Mike Houghton, Morris Nichols Unclaimed Property Law Counseling Group partner, co-authored Liability Exposure for Delaware Incorporated Companies – The Risk of an Escheat Audit and Delaware’s New Voluntary Disclosure Program to Avoid Penalties appearing in the April 2013 issue of TerraLex Connections.
Summary: Companies that are incorporated in Delaware are subject to audit and potential liability under U.S. abandoned property laws. Often referred to as "escheat" laws, these rules generally provide that if a company holds intangible property (such as dividends owed to stockholders, or rebates owed to customers) that cannot be delivered because the address of the rightful owner is unknown (or, in some cases, is in a foreign country), then such property is owed to Delaware as the company's state of incorporation. Delaware has instituted a system of auditing companies to determine such liabilities. However, Delaware also recently announced a "limited amnesty" initiative that will allow companies that enter into a voluntary disclosure agreement with the State to avoid potential fines and penalties for not having previously reported and remitted such unclaimed property.
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