Once a year, all domestic Delaware corporations must file an annual report and pay Delaware franchise tax. They have to do so before March 1. Missed deadline will result in a $125 penalty plus 1.5% monthly interest rate on the amount due. Of course, companies can pay their Delaware registered agent, attorney, or accountant to file. However, the process is so simple and straightforward that any startup can handle this on their own.
Here is the process step-by-step:
1. Go to the Delaware Division of Corporations website.
2. You will need to know your entity number. You can search for it by corporation's name.
3. Once you are in, you will need to enter your corporation's EIN.
4. You will need to confirm / enter information regarding the corporation's address, directors, and officers.
5. Most importantly, you will need to correctly calculate the amount of tax. There are two methods used to calculate the franchise tax: the Authorized Shares Method and the Assumed Par Value Capital Method. You can choose the method that results in less tax. The lowest you pay with the Authorized Shares Method is $175 (plus a $50 annual report filing fee). The lowest you pay with the Assumed Par Value Capital Method is $350 (plus a $50 annual report filing fee).
The Authorized Shares Method:
- 5,000 shares or less: $175
- 5,001 to 10,000 shares: $250
- every 10,000 additional shares above 10,000: $75 for each 10,000.
- Maximum payment: $180,000.
The Assumed Par Value Capital Method:
It is based on the number of authorized and issued shares and the entity's total gross assets (as reported on the corporation's tax return - Form 1120, Schedule L). The tax rate under this method is $350 per million or portion of a million. For examples, see DE's page on how to calculate franchise taxes here.
The most useful page is the franchise tax calculator. Using this online calculator provided by the DE Division of Corporation will allow you to try both methods and determine which one results in lesser tax.
For example, a startup has 10 million authorized shares, $0.0001 par value per share, out of which 7 million shares have been issued and outstanding. The gross assets value is very low, $20,000.
Using the tax calculator, we see that the Authorized Shares Method results in a $75,175 franchise tax. Oouch!
Using the Assumed Part Value Capital Method results in a $350 tax. Much better. So, the total amount to pay would be $400 because you have to add a $50 filing fee.
As you can see, the entire filing takes about 5-10 minutes. Just don't miss the deadline:
March 1 - domestic corporations, including nonprofits ($25 annual report fee) and PBCs (PBCs pay according to one of the two methods discussed above)
June 1 - LLCs, LLPs, LPs, and GPs ($300 annual report fee)
June 30 - foreign corporations ($125 annual report fee).
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of corporate, securities, and intellectual property law.