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What Is The Delaware Franchise Tax?

Delaware law requires that companies incorporated in the state pay The Annual Delaware Franchise Tax. These payments are essentially “privilege fees” needed to keep a company in Good Standing. For corporations, this also includes filing a simple annual report online that lists the directors.

Think of this fee as paying “dues” for the privilege of having a Delaware company and the rights and protections that come with it. The fee stays the same no matter how much or how little you use these benefits. Staying current with these payments prevents the administrative dissolution of your company.

The Delaware Franchise Tax is crucial for keeping a company in Good Standing in Delaware. A company’s liability shield is only active when it is in Good Standing. If a company falls behind on paying its franchise tax and loses its Good Standing, this shield is removed, exposing the owners’ personal assets to company creditors. Keeping up with the Delaware Franchise Tax is essential to avoid this risk.

How To Pay The Delaware Annual Franchise Tax

To pay the Delaware Annual Franchise Tax, submit your payment to the Delaware Division of Corporations. You can make this payment directly through the Division of Corporations website at corp.delaware.gov.

Alternatively, you can use a filing service, like defrantax.com, to help you submit your payment. These services can simplify the process and ensure everything is done correctly.

When Is The Delaware Franchise Tax Due?

Delaware companies must pay their Annual Franchise Tax on time each year to maintain their Good Standing. Here are the important dates you need to know:

Delaware Corporations File Franchise Tax By March 1st

March 1st is the deadline for Delaware corporations to submit their Annual Franchise Tax payments. The Division of Corporations will assess a $125 late fee and a 1.5% monthly interest penalty for late payments.

Delaware LLCs File Franchise Tax By June 1st 

Delaware LLCs must pay their Franchise Tax to the Division of Corporations by June 1st each year. The Franchise Tax fee for Delaware LLCs is $300 per year. Failure to pay on time will result in a $200 late fee and a 1.5% monthly interest penalty.

How Much Is The Delaware Franchise Tax For A Corporation?

The Delaware Franchise Tax fee for corporations varies based on the number of shares listed in the company’s Certificate of Incorporation. The minimum fee is $175, which applies to “minimum stock corporations”. These are companies that authorize up to 5,000 shares or less.

The Delaware Division of Corporations uses the “Authorized Shares Method” to calculate franchise tax payments for corporations. Here’s how to calculate the franchise tax using this method:

  • 5,000 authorized shares or less: $175
  • 5,001-10,000 authorized shares: $250
  • Each additional 10,000 shares or portion thereof: add $75

The maximum Annual Franchise Tax amount is $180,000 for corporations. 

A business’s income in a given year does not influence the calculation of the Delaware Franchise Tax. Even companies with no business activity must file the Annual Report and pay the Annual Franchise Tax to maintain their Good Standing Status and remain active.

How Much Is The Delaware Franchise Tax For An LLC?

The Delaware Annual Franchise Tax for LLCs is $300. This flat fee remains constant regardless of the business’s income.

If a company fails to pay its Franchise Tax on time, the Delaware Division of Corporations imposes late fees. These penalties also accumulate interest, which must be paid to restore the company’s Good Standing.

How To Lower Your Delaware Franchise Tax

Sometimes a Delaware corporation may receive a large franchise tax bill despite being a small company with not much income. This is because the state calculates the Annual Franchise Tax amount based on the number of authorized shares in the company.

In such cases, a corporation can potentially lower its franchise tax payment by recalculating using the “Assumed Par Value Method.”

The Assumed Par Value Method, also known as the Issued Shares and Assets Method, is another way to calculate the Delaware Franchise Tax. This method considers the total amount of gross assets that the company owns, which can result in a lower tax bill for smaller companies.

Delaware Assumed Par Value Method Explained 

To calculate the franchise tax using the Assumed Par Value Method, the corporation needs to provide the total number of issued shares (including treasury shares held by the company) and the total gross assets for the corporation’s fiscal year ending the calendar year of the report.

The tax is calculated at $350 per million or portion of a million of assumed par value capital. If the assumed par value capital is less than $1,000,000, you calculate the tax by dividing the amount by $1,000,000, then multiplying that number by $350.

What Is The Delaware Annual Report?

Delaware corporations must submit Annual Reports to the Delaware Division of Corporations by March 1st each year to comply with state laws. Corporations file the Delaware Annual Report at the same time as their Delaware Annual Franchise Tax payment.

The Delaware Annual Report requires details about a corporation and its leadership. Specifically, the Annual Report includes the following information:

  • The company’s principal office address,
  • The name and address of one senior officer,
  • The names and addresses of each director. 

Once filed, a company’s Annual Report becomes part of Delaware’s public record, and copies of the report can be purchased from the state.

Do Delaware LLCs File Annual Reports?

Delaware LLCs do not have an Annual Report requirement. Only Delaware corporations are required to submit an Annual Report.

What Happens When You Don’t Pay The Delaware Franchise Tax?

If a Delaware LLC or corporation fails to pay its Franchise Tax on time, the company will immediately lose its Good Standing status with the state. This means the company is no longer compliant with Delaware law, and its limited liability protection is no longer enforced.

If a Delaware company goes more than three years without paying its Franchise Tax balance, the state will administratively cancel the entity, putting it into “void” status. To be reinstated and return to business, the company must undergo a Revival process.

Do Delaware LLCs Pay Tax In Delaware? 

LLCs pay taxes in the states where they generate income. If your Delaware LLC does not conduct business physically in Delaware, you likely will not owe Delaware taxes. Delaware LLCs operating outside of Delaware are not even required to file Delaware tax returns.

 

IncNow.com can help you calculate and pay your company’s franchise tax along with the annual report for a $300 fee. Please call 1-800-759-2248 for assistance.

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