Delaware Franchise Tax: How to Calculate and Pay

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At any moment, executives or team members may own public or private stock in any of the third party companies we mention. Optional – if you’d like to share anything else to help us prepare for our consultation, please let us know. Grew from a 2-person startup to a NASDAQ listed public company. We set startups up for fundrising success, and know how to work with the top VCs. Becoming a Delaware C-Corp is simple, but there is a lot of legwork.

  • If you own a business that operates in multiple states, you will greatly benefit from the knowledge of a tax professional.
  • With this type of business, your business income will be distributed to you as the sole proprietor.
  • Along with your business’s annual Delaware franchise tax, your business is required to submit a Delaware annual report.
  • The minimum payment using the Assumed Par Value Capital method is $400, and there is no maximum.
  • The Delaware franchise tax for a corporation is slightly more complicated.

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. When paying the annual report fee, corporations are sorted into two categories. If you pay your Delaware franchise tax late, you’ll be charged a late fee. The late fee is $125.00 and a 1.5 percent monthly interest afterward.

Reasons to consider using Delaware Franchise Tax

To use this method, you must supply the company’s total gross assets and the total number of issued shares. This foundational document is filed with the state to legally form the corporation. It often includes details about the classes of stock the corporation is authorized to issue, including the par value of each class. For VC-backed startups, it will specifically mention the par value of preferred shares. Any changes to these details typically require an amendment to the Certificate of Incorporation. Most VC backed startups will have very low par value shares, meaning that you’ll end up using the assumed par value in the franchise tax calculation.

  • To locate the exact company for which you want to pay Delaware Franchise Tax, enter the company name in the field below and click the Search button.
  • Your Delaware franchise tax due date depends on the type of business you own.
  • Let’s also imagine it has authorized and issued 100,000 shares at a par value of $2.00 each, and 100,000 shares at par value of $10.00 each.
  • We’ve seen startups get a huge tax bill when this calculation method is used; let’s do an example of a typical, venture backed startup.

Delaware Franchise Taxes for corporations are due by March 1 of every year. If the tax is not paid on or before March 1, the state imposes a $200 late penalty, plus a monthly interest fee of 1.5%. 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.

What are Delaware franchise taxes?

A franchise tax, sometimes called a privilege tax, is a fee you pay for the privilege of doing business in a certain state. You will also be charged a 1.5 percent monthly interest on the amount due. Your Delaware franchise tax due date depends on the type of business you own. This article focuses on businesses that are operating solely in Delaware. If your business is operating in multiple states, your business may have “nexus” with those other states. This means that you’re likely to need to pay taxes in those states.

Make sure to use the recalculate button on the Delaware Franchise Tax website

The State of Delaware allows you to pay the lower of the two Delaware Franchise Tax calculation methods. Let’s imagine a Delaware-incorporated company reported total gross assets of $1,000,000 on their federal taxes this year. Keep in mind, this number could be different from the number of shares your company has actually issued.

Why is my Delaware Franchise Tax so high?

If your business was formed or is located in another state but generates income in Delaware, you may need to pay Delaware taxes. If you own a business that operates in multiple states, you will greatly benefit from the knowledge of a tax professional. Multistate taxes and determining interest rate in united states nexus can be very complicated. 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.

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.

Why is Cleer the best accountant to prepare Delaware Franchise Tax?

Delaware corporations, whether foreign or domestic, are required to pay an annual Franchise Tax. When you submit your Delaware franchise tax payment, you’ll also need to submit an annual report. The Delaware franchise tax is beneficial to corporations because it is a simple process to submit and calculate payment. The Delaware franchise tax is also beneficial to businesses as it is a small fee in comparison to other states.