If you’re ready to file and pay your Delaware Franchise Tax now, please visit our online Franchise Tax payment form. Our tax pros can assist C-Corps, S-Corps, and LLCs incorporated in states across the US. Thousands of startups, small, and growing businesses choose GBS as their trusted financial partner. The Delaware Franchise Tax can be a tricky trap for unwary corporate founders looking to take advantage of being a Delaware corporation. Even if you are a foreigner located out of the U.S., you do not have a foreign Delaware corporation.
This tax is imposed on all Delaware-based businesses that want to maintain their good standing in the state — whether they are dormant or active. Even though Delaware is the second smallest state in size (after Rhode Island) and falls in at number 45 when it comes to population, this state ranks high when it comes to business formations. Close to three-quarters of all Fortune 500 companies are incorporated in Delaware, including the 1.6 million businesses that have formed in the state as of 2020.
I am not a Franchise. Why do I owe a franchise tax?
Delaware assesses an annual franchise tax for the privilege of doing business in the state. This return or “Annual Report” must be filed by March 1st with the state of Delaware each year, regardless on income or activity, as long as the business is registered in the state. Example 2 – If your Delaware corporation has 1 million authorized shares, your annual franchise tax will be approximately $7,675, using this method. Corporations that are formed out of state and registered to do business in Delaware pay a $125 registration fee. However, foreign corporations (corporations formed in another state or jurisdiction) cannot file online.
- If you’re trying to figure out if you owe Delaware franchise tax, Bench can help.
- The minimum tax when using this method is $400, and the maximum tax is $200,000.
- As long as your issued shares constitute a third to half of your authorized shares, this method will save you money.
- At any moment, executives or team members may own public or private stock in any of the third party companies we mention.
- The example cited below is for a corporation having 1,000,000 shares of stock with a par value of $1.00 and 250,000 shares of stock with a par value of $5.00 , gross assets of $1,000,000.00 and issued shares totaling 485,000.
- XYZ Corp’s method of calculating tax is a little for involved.
This method calculates the tax based on your corporation’s total gross assets and the ratio of issued shares to authorized shares. Your corporation will owe an estimated $400 for each $1,000,000 in gross assets. The minimum tax when using this method is $400, and the maximum tax is $200,000. If a corporation receives a large franchise tax bill in the thousands of dollars, but it is a small company, it can “recalculate” the franchise tax to save thousands of dollars and only pay the minimum $400 franchise tax.
Be Sure to File Your Annual Reports
ABC Corp has 3,200 authorized shares and pays a franchise tax of $175, while XYZ Corp has 32,000 shares and pays $505. Keep in mind, this number could be different from the number of shares your company has actually issued. Your authorized share number is the maximum number of shares your corporation could sell based on your corporate bylaws or charter. No corporation shall consolidate with its assets the assets of another entity for purposes of this section. David, unfortunately the authorized shares and Certificate of Incorporation cannot be retroactively changed.
Delaware LLCs do not have to file an Annual Report (like Corporations do), but they do have to pay a flat-rate Annual Franchise Tax of $300 each year. This method is a bit more complicated, because it involves calculating your business’s assumed par value—i.e. The actual value of your business as estimated by the State of Delaware.
Delaware LLC Tax: What You Need To Know.
The corporate laws and cases decided in Delaware are often used by the Supreme Court to influence decisions. Payment can be submitted with an electronic check or credit card. After paying their Delaware Franchise Tax, many business owners require a Delaware Certificate of Good Standing. The due date of your Delaware Franchise Tax payment varies, depending on your company type.
The Secretary of State may at any time require a true and correct copy of such schedule to be filed with the Secretary of State’s office. Delaware LLCs do not file an annual report with the Secretary of State. They only have to pay their annual franchise tax of $300 and maintain a Registered Agent in the Delaware. Delaware LLC and LPs must pay an annual franchise tax to the State of Delaware by June 1. Like Delaware Corporations, LLCs, and LPs may pay early before June 1.
Shares greater than minimum stock corporations
If you’re interested in incorporating your business in Delaware or need to pay your Delaware franchise tax, consider posting a job to receive free custom quotes from one of UpCounsel’s top 5% of attorneys. If so, that document can be sent directly from the Delaware Secretary of State. This document certifies the date the company was formed, that the company is current, and that the company is in good standing.
Fortunately, the state allows corporations to pay the lessor amount due via the two methods. You can enter various figures and see the results of each method on our how is a short term bank loan recorded Franchise Tax calculator. The Delaware Franchise Tax for corporations depends on the number of authorized shares of stock in the Certificate of Incorporation.
Who has to pay the franchise tax?
Startups can usually minimize franchise taxes by using the Assumed Par Value method, since it calculates tax as a function of total assets. The only pitfall to watch out for is that even a company with few assets could potentially owe very large franchise taxes if it authorizes a very large number of shares but then issues a tiny percentage of them. So long as your issued shares constitute at least a third to a half of your authorized shares, the Alternative Par Method should work well for most startups. When we enroll an already existing Delaware corporation into our entity management service, the first thing we do is check the company’s share structure.
- You can print it out and mail or fax it into the state of Delaware with the payment.
- In order to utilize this filing method, you will need to provide the company’s total gross assets (as reported on Form 1120, Schedule L) and the total number of issued shares.
- The annual Registered Agent Fee is a fixed amount paid to Harvard Business Services, Inc. to act as an agent for your entity in the state.
- For instance, a corporation with 5,000 shares or less will pay the minimum tax of $175.
- This type of company does not pay the standard annual Delaware Franchise Tax, but must still file and pay the annual report fee of $25 per year.