To protect a Delaware Holding Company ("DHC") from the possibility of having its income taxed in the state where the parent company is headquartered, bona fide and substantial nexus must be established in Delaware. To create a bona fide and substantial presence in Delaware, a DHC should confine its principal business functions of making investments and collecting and distributing the income from those investments, as well as ownership and protection of intangible property, to Delaware.

The local managers of a DHC must perform real and meaningful activities relating to the investment and holding of intangible assets including, without limitation, check-signing authority, wire transfer authority from the custody account, and sufficient authority to transact all corporate business between board meetings. Documentation of these corporate transactions, along with a working knowledge of the intangibles managed, is essential to operating the DHC as an entity separate and distinct from its parent and affiliates. The employee(s) and the director(s) must have the necessary education and work experience to manage the DHC.

The checklist below is a nonexclusive list of specific items which a taxpayer should consider when establishing a business presence in Delaware. Omitting any one of the items should not be critical to supporting a bona fide presence in Delaware. However, the establishment of any DHC should be made with a view toward creating a valid and bona fide business presence. Naturally, the presence established should be sufficient to support the DHC's operations.

DHC's should take the following steps to achieve and maintain substantial nexus with Delaware:

1. Have a documented non-tax business purpose for its existence.

2. Own or rent usable office space, furniture and office equipment in Delaware.

3. Establish one or more Delaware bank accounts through which investment income is collected. Any dividends paid should be drawn on the Delaware bank account(s). Loans or equity investments made by the DHC should be originated in the Delaware account(s). In addition, disbursements for the DHC's operations (rent, compensation, Delaware franchise tax, etc.) should be made from the account(s).

4. Use a Delaware address for correspondence and the filing of payroll and other tax returns.

5. Employ individuals who discharge their duties within the State of Delaware.

6. Order and use corporate stationery and business cards with the Delaware address and maintain a telephone number for the Delaware office.

7. Perform all accounting functions and keep all accounting and corporate records in Delaware.

8. Retain Delaware personnel and/or independent contractors to maintain custody and protect and enhance the assets of the investment holding company.

9. Conduct regular Board of Directors, shareholder, and management committee meetings at the DHC office. Maintain minutes, resolutions, and other documentation of the proceedings.

10. Have Delaware employee(s) initiate and/or confirm activity flowing through investment accounts.

11. Originate contracts and orders including investment buy/sell requests in Delaware and use a Delaware address. Additionally, an employee, officer or director in Delaware should be authorized to make such decisions.

12. Meticulously document all transactions between the DHC and any other affiliate on terms that fall within the range of acceptable business practice and economic terms of the transaction (at arm's length).

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