A franchise tax, sometimes called a privilege tax, is a fee you pay for the privilege of doing business in a certain state. For these reasons, more than a million businesses are incorporated in Delaware, including more than half of all publicly traded and Fortune 500 companies. If so, that document can be sent directly from the Delaware Secretary of State. This document certifies the date the company was formed, that the company is current, and that the company is in good standing. This article focuses on businesses that are operating solely in Delaware.
- The Delaware Franchise Tax has no bearing on income or company activity; it is simply required by the State of Delaware to maintain the good standing status of your company.
- If you’re ready to file and pay your Delaware Franchise Tax now, please visit our online Franchise Tax payment form.
- A corporation with 5,000 authorized shares or less is considered a minimum stock corporation.
- Foreign corporations, those that are formed outside of Delaware, cannot file online.
- Although not as common, the Investor Rights Agreement may also make reference to the par value of preferred shares.
- That’s because the state of Delaware doen’t know how many outstanding shares you have or what your asset base is until you fill out that information.
The Delaware Franchise Tax and the Registered Agent Fee are two separate, unrelated fees. The annual Franchise Tax is imposed by the State of Delaware and varies with comprehensive income the size of your business. The annual Registered Agent Fee is a fixed amount paid to Harvard Business Services, Inc. to act as an agent for your entity in the state.
After paying their Delaware Franchise Tax, many business owners require a Delaware Certificate of Good Standing. This method is a bit more complicated, because it involves calculating your business’s assumed par value—i.e. The actual value of your business as estimated by the State of Delaware. Delaware lets you use whichever method amounts to the least tax owed. Delaware also has no personal property tax or value-added taxes.
Do I Need to Submit Anything Else With My Delaware Franchise Tax Payment?
Payment can be submitted with an electronic check or credit card. When completing the calculation, you must round up to the next million. If your APVC is $1,000,001, you do not owe $350, you must round up to $2,000,000, which means you owe $700. Since 1981, Harvard Business Services, Inc. has helped form 387,888 Delaware corporations and LLCs for people all over the world. Harvard Business Services, Inc. guarantees your annual Delaware Registered Agent Fee will remain fixed at $50 per company, per year, for the life of your company. Since 1981, Harvard Business Services, Inc. has helped form 387,741 Delaware corporations and LLCs for people all over the world.
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How do I pay my franchise taxes and file the annual report?
If you’re not working with an accounting firm, you’ll need to total up your asset base and enter that number. Then you need to hit the “recalculate” button and wait while the system generates a new balance. The new number will very likely be lower than the original number you saw. Most of our startups pay between $400 – $10,000 in DE Franchise taxes. Roughly, if you’ve raised $500k to $1M in venture funding, you are likely to owe between $500 to $1,000.
Do I need to file Delaware Franchise Tax?
The limited partnership (LP) Franchise Tax is also due by June 1 of every year. If the tax is not paid on or before June 1, the state imposes a $200 late penalty, plus a monthly interest fee of 1.5%. Franchise Tax is the fee imposed by the State of Delaware for the right or privilege to own a Delaware company.
Let Cleer File your Delaware Franchise Tax
The Delaware franchise tax for foreign corporations is due by June 30 every year. The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurs, startups and general business topics. The methods of calculating Delaware Franchise Tax are detailed below. Read on to find out how much you’ll pay, or visit our Delaware Franchise Tax calculator app for a quick answer.
Reasons to consider using Delaware Franchise Tax
Therefore, if you receive a tax bill for tens of thousands of dollars, it may be in your best interest to try calculating your Delaware Franchise Tax with the assumed par value capital method. The Delaware franchise tax is collected every year by the Delaware Department of State. They mail your official business address an annual reminder to pay your franchise taxes.
How Do I Calculate My Delaware Franchise Tax?
Certain exempt domestic corporations like charities, civic organizations and religious organizations do not have to pay the franchise tax. However, they must still file an annual report and pay the filing fee. In addition to paying the franchise tax, businesses incorporated in Delaware must also file an annual report and pay a small filing fee. The most commonly used business structure that is subject to corporate taxes is a C-Corporation. Non-stock or non-profit companies are considered exempt from tax in Delaware.
If you’ve authorized 5,001 to 10,000 shares, your franchise tax is $250. The annual Registered Agent fee is paid to Harvard Business Services, Inc. for you to act as an agent of your business in the state of Delaware. When you file your Delaware franchise tax, an annual report must also be filed. 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. To file as a foreign corporation, mail in the necessary documents.
In order to utilize this filing method, you will need to provide the company’s total gross assets (as reported on Form 1120, Schedule L) and the total number of issued shares. The tax is then often calculated to the minimum payment of $400 tax plus the $50 annual report fee, for a total of $450 due per year. The Delaware Division of Corporations provides two methods to calculate Delaware franchise tax. The first method is based on the authorized share count, and VC-backed startups with option pools can quickly get to thousands of dollars in taxes due.