Delaware Franchise Tax

All Delaware C corporations (and some other types of companies) are required to pay a franchise tax and file an annual report. These taxes are based on the corporation’s type and authorized shares, and they include a filing fee and an actual franchise tax.

The amount of the franchise tax depends on how many authorized shares are outstanding and the corporation’s gross assets before and after any financing. It is important to understand these rules in order to avoid paying too much in taxes. For example, a bootstrapped startup that is not planning on bringing on any investors should limit its authorized and issued shares to 5,000 to avoid an expensive franchise tax each year.

One of the reasons that more than a million businesses have chosen to incorporate in Delaware is because of its low franchise and LLC taxes. These taxes are based on the company’s net worth and capital, unlike most other states’ taxes, which are based on earned income. In addition, Delaware does not require that the names and addresses of owners, managers, or members be made public when filing franchise taxes, which makes it easier for startups to maintain privacy.

How to File Delaware Franchise Tax?

To File Delaware Franchise Tax, visit the Delaware website and enter your 7-digit Business Entity File Number (find it on your Gust Launch Company Information page). You will then be prompted to provide some basic information about your company, including the name of your company, directors, and officers.

For corporations, the franchise tax is determined based on the company’s authorized shares and par value capital. This can be calculated using the actual par value listed in the Certificate of Incorporation or an assumed par value based on the company’s gross assets (from U.S. Form 1120, Schedule L).

The online form will automatically use the Authorized Share Method to calculate your franchise tax, but you have the option of using the Assumed Par Value Capital Method instead. It’s worth exploring both methods and seeing which one will result in a lower tax obligation for your company. The Assumed Par Value method is usually much lower for startups and small companies.

Delaware Franchise Tax Due Dates

The due date for Delaware Franchise Tax depends on the type of business you have:

• Corporations: The franchise tax for Delaware Corporations is due by March 1st of every year. This applies to both domestic and foreign corporations.
• Limited Liability Companies (LLCs) and Partnerships: LLCs and Partnerships don’t file a franchise tax report, but they do pay an annual franchise tax of $300. This tax is due by June 1st of each year.

There are penalties and interest for late filing and payment, so meeting the deadlines is important. You can find more information on the Delaware Secretary of State’s website.