Do Delaware LLCs Have To Pay Franchise Tax?
If you’ve formed a Delaware LLC but haven’t conducted business this year, you might be wondering if you still need to pay the Delaware Franchise Tax. Here’s what you need to know.
What Is The Delaware Franchise Tax, Again?
The Delaware Franchise Tax is an annual requirement that all companies registered in Delaware have to complete. The State of Delaware requires every registered LLC to pay a flat fee of $300 each year to remain in good standing, regardless of business activity.
The term “Franchise Tax” can be misleading, as it suggests the fee is based on profits or capitalization. However, for Delaware LLCs, the franchise tax is better understood as a flat “maintenance fee” for the privilege of enjoying the legal protections of an LLC in Delaware.
How Much Is the Delaware Franchise Tax?
All LLCs, Limited Partnerships, and General Partnerships formed or registered in Delaware must pay an annual franchise tax of $300, which is due on June 1. This fee is a flat rate and is not based on the company’s revenue.
The state assesses late fees for unpaid franchise tax at $200, plus 1.5% interest per month. This fee is applied automatically.
When Is the Delaware Franchise Tax Due for LLCs?
The Delaware Annual Franchise Tax for LLCs starts the year after you form your LLC and is due on or before June 1 each year.
Failure to pay the tax by the due date will result in a $200 penalty, plus interest, and an immediate loss of Good Standing status. Therefore, it’s important to pay the tax by the due date. You may also pay the franchise tax for the year at any time before it becomes due.
How to Pay the Delaware Annual Franchise Tax
To pay the Delaware Annual Franchise Tax, you need to submit your payment to the Delaware Division of Corporations. You can make the payment directly through the Division of Corporations website at corp.delaware.gov.
Alternatively, you can use a filing service, such as defrantax.com, to assist with your payment. These services can help simplify the process.
What Happens If I Don’t Pay the Delaware Franchise Tax?
If a company fails to pay its franchise tax, it will eventually lose its good standing. This is crucial to understand because a lapsed or void LLC exposes its members to personal liability, which they would otherwise be protected from if they paid the franchise tax on time.
If an LLC goes two years without paying the state franchise tax, the company will automatically be put in “void” status. In this case, the company will require a costly renewal or revival if the members decide they want the business to continue under the same name. A renewal or revival is also the only way to retain the same formation date.
How Often Do I Need to Pay the Delaware Franchise Tax?
You need to pay the Delaware Annual Franchise Tax every year to keep your Delaware company active. Delaware LLCs and corporations need to pay the franchise tax on time to maintain their good standing status.
Do I Need to Pay the Delaware Franchise Tax If My LLC Didn’t Do Any Business?
Yes, all Delaware LLCs must pay franchise tax fees regardless of their business activities. This fee is charged by the state for the privilege of maintaining a business within its jurisdiction. Paying the franchise tax keeps your company in good standing and is not related to the annual revenue of the business.
