What are Delaware Franchise Tax and Annual Report?
Do you ever wonder what the term Franchise tax means?
Well, A franchise tax is a government levy charged by some US states to certain business organizations such as corporations and partnerships. Franchise tax is not based on income. Rather, the typical franchise tax calculation is based on the net worth or capital held by the entity.
In Delaware, the Franchise tax is the annual tax you pay to the State of Delaware for the right to own a company there. If you have a corporation, your Franchise tax is due by March 1st every year and if you have an LLC, your annual tax is due by June 1st every year, irrespective of the company’s activities and whether you conducted any business.
A franchise tax should not be confused with a franchise business, which is a type of retail business where an individual or group is granted the right to market a company’s goods or services. All companies existing in the State of Delaware are required to pay a Franchise tax to sustain the good standing status of the company.
Non-profit companies are only required to file an annual report with a filing fee of $25.
We have covered some Frequently Asked Questions on how to go about franchise taxes below.
The Delaware Franchise taxes are taxes paid by corporations registered in the state of Delaware, irrespective of where you conduct business. Delaware franchise tax and report are due March 1st each year.
If the tax and report are not filed at the State of Delaware by March 1st, a $200 late penalty plus 1.5% interest monthly will be imposed by the State of Delaware and your company will become delinquent.
Delaware will not issue a Good Standing Certificate to corporations that have not met the annual report filing requirements. A corporation’s Certificate of Incorporation will be revoked after two years of non-payment.
There are two methods of calculating the franchise taxes payable by a corporation; the Authorised Shares Method and the Assumed Par Value Capital Method.
Under the Authorised Shares method, a corporation with 5,000 shares or less pays the minimum tax of $175 with the figure increasing as the number of shares increases.
Under the Assumed Par Value Capital Method, the tax rate is $400.00 per million or a portion of a million and the corporation must report its total number of issued shares and total gross assets in its annual franchise tax report.
*We generally recommend that our clients use the Assumed Par Value Capital method due to the commonly large number of authorised shares.
Yes, franchise taxes must be filed by all Delaware corporations or your company will become delinquent. Failure to file the tax two years in a row will cause the company to become void.
Yes, companies must pay their franchise tax and file an annual report whether or not they engage in business for the year. The franchise tax is not an income tax and is not dependent on a company’s income.
Companies that fall under the exempt corporation list for Delaware do not pay franchise tax but must file an Annual Report. The Annual Report filing fee is $25.00 and must be received no later than March 1st of each year.
The registered agent fee is a $50 charge per year and payment is due on the first year anniversary of a company’s formation. This fee must be paid when due in order for the company to not lose its status in Delaware.
Kindly send an email to hello@legaltrunk.com if you are a client and need to make payment for this.
If you wish to dissolve your company, you would still be required by law to pay all due taxes and file the requisite tax reports prior to filing for dissolution. You can find more information on this here.
Legal trunk is readily available until Monday 28th February to provide help in accurately filing your franchise taxes for a fee.
Disclaimer: Please note that nothing in this article constitutes legal or tax advice to the readers. This is merely an informational post and as such is not legally binding advice. Kindly consult with your lawyer or tax expert for tax or legal advice.
