If your company has authorized 5,000 shares or fewer, your total Delaware franchise tax amount is $175. The annual franchise tax is required and paid to the state of Delaware. Delaware provides a favorable tax shelter for U.S. corporations. This leads to a high number of businesses being incorporated in those tax shelter states. If the tax is not paid on or before June 1, a late fee of $200 and a monthly interest of 1.5 percent will be charged.
- When you file your Delaware franchise tax, an annual report must also be filed.
- Franchise Tax is the fee imposed by the State of Delaware for the right or privilege to own a Delaware company.
- All Delaware-incorporated businesses must, however, still pay the annual franchise tax, submit an annual report, and pay a filing fee.
- The annual franchise tax is required and paid to the state of Delaware.
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. Incorporating a business in Delaware comes with certain advantages. These include a business-friendly court system, flexible incorporation rules, and the fact that businesses operating only outside of Delaware don’t have to pay state corporate income tax. When filing a franchise tax in Delaware, all the must be submitted is the physical address of the business and the name of the registered agent. Often, the tax is then calculated to the minimum payment of $350, with a $50 annual report fee.
Determining Whether You Are Required to Pay Delaware Franchise Tax
Since the tax payment process is simple, businesses are more likely to want to be incorporated in Delaware. If you don’t want to pay your Delaware franchise tax yourself, you can hire a registered agent to do it for you. The registered agent will charge a small fee to complete the filing of your Delaware franchise tax.
If you’ve raised $10M in VC funding, you are going to owe closer to $4,000. If you’ve received a bill for $75K, it is because Delaware has calculated the tax using the Authorized Shares Method. Don’t freak out; recalculate using the Assumed Par Value Capital Method. For every additional 10,000 shares authorized after that, you pay another $85 in franchise tax, up to a maximum of $200,000.
What is Delaware Franchise Tax?
This means that if you receive a high bill that was calculated under the first method, you can request a recalculation using the second method. Delaware franchise tax is a tax charged by the state of Delaware for the right to own a Delaware company. The tax is required to maintain the company’s good standing financial accounting standards board in Delaware. The ASM is based upon the amount of stock a corporation has authorized (as opposed to the number of shares it has actually issued to shareholders). Stock is generally authorized on the Certificate of Incorporation (whereas stock is issued in the bylaws or sold on a public exchange).
Delaware Franchise Tax Assumed Par Value Method
The second method is the “assumed par value” method and is a more complicated formula based on shares issued and the company’s gross assets. This second method often results in lower tax bills for VC-backed startups. Basically, a company pays $400 per million dollars of par value, but the way par value gets calculated is a bit complex. All Delaware-incorporated businesses must, however, still pay the annual franchise tax, submit an annual report, and pay a filing fee. Here’s how to figure out how much you need to pay, how to file, and what happens if you don’t.
Who has to pay the franchise tax?
A corporation with 5,000 authorized shares or less is considered a minimum stock corporation. The Delaware annual report fee is $50 and the tax is $175 for a total of $225 due per year. S-Corporations and other flow-through entities aren’t subject to the double taxation of revenue imposed on a C-Corp, because they aren’t required to pay corporate taxes on their revenue. However, the owners or members of the corporation must report their share of the corporation’s income on their personal tax returns and pay Delaware and federal income tax. If DE sent your startup a huge tax bill for their annual franchise tax, don’t panic – you can likely reduce your Delaware Franchise Tax by using an alternative calculation method.
What other taxes do Delaware corporations need to file/pay?
A non-stock/non-profit company is considered exempt by the State of Delaware. 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. Delaware corporations, whether foreign or domestic, are required to pay an annual Franchise Tax. Any Company incorporated in the State of Delaware, regardless of ownership, must file every year on March 1st, or receive an automatic $200 penalty. 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.
Although not as common, the Investor Rights Agreement may also make reference to the par value of preferred shares. This document outlines the rights of the investors, including anti-dilution protections and information rights, among others. If you incorporated in Delaware, yes, you need to file and pay the Delaware Franchise Tax. Most VC backed startups are Delaware C-Corps, which means that most VC-backed startups DO need to file.