How (And When) to Pay Your Delaware Franchise Tax
Posted by Rose Redman
February 15, 2021
Incorporating a business in Delaware has many advantages. Most articles on the web point to tax advantages, but there’s more to it than that. Companies appreciate the state’s effort to keep the “Delaware corporation statute modern and up-to-date” and the “quality of Delaware courts and judges.” As a result, the Delaware Secretary of State imposes an annual tax for the privilege of incorporating in the state. This tax is known as the Delaware Franchise Tax and it accounts for about a third of the state’s annual revenue.
Delaware Franchise Tax Basics
The Delaware Franchise Tax must be paid annually by any business legally incorporated in the state. Deadlines and calculated amounts differ by entity type:
- For Delaware corporations, the tax is due on March 1. The minimum tax amount is $175. The maximum tax amount is $200,000. The actual amount owed is determined by a company’s stock structure. The more shares a company is authorized to issue, the higher their calculated Delaware Franchise Tax. Delaware corporations must also submit an annual report at the expense of $50.
- For LLCs, LPs & General Partnerships, the Delaware Franchise Tax a flat tax of $300 is due on June 1 of each year. An annual report is not currently required.
- For Foreign Corporations, which are defined as companies registered in any state but doing business in Delaware, a Delaware Franchise Tax of $50 plus an annual report is due on June 30.
- For non-profit organizations registered in Delaware, the Delaware Franchise Tax is due on March 1 in the amount of $25. An annual report is required as well.
Side note: the annual reports referenced above typically include the company’s address, phone number, general stock and financial information, the name and address of at least one officer and the names and addresses of all directors.
How Do Companies Pay Their Delaware Franchise Tax?
Taking care of headaches like paying the Delaware Franchise Tax is something we love doing for our clients. You can get started with our Franchise Tax Order Form, or, feel free to give us a call at 800-346-4646. /end-sales-pitch.
What Happens if you Forget to Pay Your Delaware Franchise Tax?
Businesses that forget to pay their Delaware Franchise Taxes can run afoul in a few different ways. Failing to file by your assigned deadline means your business falls out of good standing. The state will assess a $200 penalty. Interest at the rate 1.5% is accrued monthly, on the 6th of each month. If a business fails to file and pay their Delaware Franchise Tax for two consecutive years, they are declared void. They’ll incur more fees and be forced to pay an additional renewal filing to get back in good standing with the state.
As always, the contents of this article should not be considered legal or financial advice. Have more questions about independent managers? We’re here to help.