Are you responsible for maintain the existence and good standing of your Delaware Corporation? If so, remember to take care of paying the Delaware annual Franchise Tax and file your annual report! Here’s some information that you will find helpful.
Delaware Franchise Taxes and Annual Report Filing Information
Every corporation incorporated in Delaware and still existing as of December 31st the previous calendar year is subject to the annual Franchise tax and annual report filing requirement. The corporation does not have to be doing business in Delaware or earn any income there- it simply has to exist the previous calendar year. So that means, if your corporation didn’t terminate it’s existence through a dissolution filing, merger or conversion as of December 31st, 2015 you are responsible for this Delaware annual compliance event by March 1st, 2016. A good way to look at this is as a “privilege of existence fee”. You are literally renewing your corporate charter’s existence with the Delaware Division of Corporations. It’s more of an annual licensing fee than what most people consider a ‘franchise’ or ‘tax’.
What does the annual Delaware Franchise Tax cost?
Each non-exempt corporation has to pay a $50 annual report filing fee plus the franchise tax. The franchise tax for corporations can range from the minimum of $175 all the way to the maximum of $180,000. A few things to note about costs:
Corporations owing $5,000 or more make estimated payments with 40% due June 1st, 20% due by September 1st, 20% due by December 1st, and the remainder due March 1st.
Exempt or Non-profit corporations are exempt from paying the franchise tax. However they still have to file an annual report by March 1 and pay a reduced filing fee of $25.
In the end, the actual fee your Corporation will have to pay is calculated based on one of two methods- the “authorized shares method” or the “assumed par value capital method.”
Authorized shares method for calculating Delaware Franchise Tax
In a nutshell, the authorized shares method is a simple formula based on the number of shares of stock and par value you have declared on your certificate of incorporation or any amendment thereto. For corporations having no par value stock the authorized shares method will always result in the lesser tax. Also, you should note that this method is the ‘default’ method that the Delaware Division of Corporations uses to calculate your franchise tax, and is the amount that is listed on the notice you receive.
Assumed par value capital method for calculating Delaware Franchise Tax
The assumed par value capital method also uses a formula, and includes figures for all issued shares (including treasury shares) and total gross assets. “Total assets” reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report. If you use this method to ‘recalculate’ the tax and it is less than the amount stated on your notice, you have the option to fill in the appropriate info and pay the lesser amount.
Want the details on how to calculate Delaware franchise taxes, including a handy franchise tax calculator that you can use to estimate your tax? Check it out here.
Now you know what you have to pay. What about the report?
Delaware Annual Report Requirements
It’s important to note that all annual reports must be filed electronically online. There are no if’s, and’s or but’s about it. There are lots of ways you can get this done- the most cost effective to file the annual report (as well as pay the franchise tax) would be to use the free eCorp application available on the Delaware Division of Corporations’ website.
Here’s a detailed list of the information on the Delaware Annual Franchise Tax Report:
1. The registered agent and registered office,
2. The principal place of business,
3. The number and par value of authorized shares and
4. The names and addresses of all the directors and
5. The name and address of the officer who signs the report.
The last thing you need to know about is the consequences of non-compliance in Delaware.
Delaware Penalties for Non-Compliance
First, there is a $125 penalty for failure to file the report by the due date. Additionally, interest is assessed on the outstanding tax balance owed at the rate of 1.5% per months (usually assessed around the 1st week of the month). Furthermore, Corporations that neglect or fail to pay the franchise tax, or to file a complete franchise tax report, for more than one year will have their charters voided. Bottom line- it can be costly to forget.
That’s about all. Now you are an expert on the March 1st deadline for filing your annual report and franchise tax in Delaware!