Delaware has mandated electronic filing of domestic corporations Annual Reports. Any corporation that is incorporated in Delaware (regardless of where you conduct business) must file an Annual Franchise Tax Report and pay Franchise Tax for the privilege of incorporating in Delaware. Although not as common, the Investor Rights Agreement may also make reference to the par value of preferred shares. This document outlines the rights of the investors, including anti-dilution protections and information rights, among others.
Method #1: Authorized Share Method (default method)
The total tax will what are assurance services that cpa firms provide never be less than $175.00, or more than $200,000.00. Under this method, your franchise tax is based on how many shares your corporation has authorized. 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. If you have a Delaware C-Corp which was in existence during any calendar tax year (1st January to 31st December), then yes you must file the Annual Report and pay the Delaware Franchise Tax.
Note that a single additional authorized share will cause this startup to pay an extra $85. When using the ‘Assumed Par Value Method,” you must provide numbers for all issued shares (including treasury shares) AND total gross assets. Keep in mind, this number could be different from the number of shares your company has actually issued. Your authorized share number is the maximum number of shares your corporation could sell based on your corporate bylaws or charter. Incorporating a business in Delaware comes with certain advantages.
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Roughly, if you’ve raised $500k to $1M in venture funding, you are likely to owe between $500 to $1,000. If you’ve raised $10M in VC funding, you are going to owe closer to $4,000. If you’ve received a bill for $75K, it is because Delaware has calculated the tax using the Authorized Shares Method. Don’t freak out; recalculate using the Assumed Par Value Capital Method.
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Ask your accountant if you can use the assumed par value method to reduce your tax bill. To use this method, you must give figures for all issued shares (including treasury shares) and total gross assets in the spaces provided in your Annual Franchise Tax Report. Total Gross Assets shall be those “total assets” reported on the U.S.
- Don’t panic – your Delaware Franchise Tax is likely so high because your accountant has used the wrong calculation method.
- All Delaware-incorporated businesses must, however, still pay the annual franchise tax, submit an annual report, and pay a filing fee.
- You’ll need to know your corporation’s gross assets and authorized shares.
- So, with $5,000,000 in gross assets and 500,000 issued shares, your “assumed par value” works out to be $10 per share.
- The tax rate under this method is $400.00 per million or portion of a million.
- You’ll also pay 1.5% per month applied against any unpaid tax and penalty.
The Assumed Par Value Capital method
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. Missing the due dates results in a $200 penalty, with interest on the overdue amount (including the penalty) accruing at 1.5% per month. This can significantly increase the financial burden for businesses that delay their payments. The Annual Franchise Tax assessment is based on the authorized shares.
Not paying the Delaware Franchise Tax and failing to file the Annual Report for two consecutive years will lead to the State of Delaware’s automatic administrative dissolution of the corporation. The least amount you’ll pay using this method is $400, and there’s no cap on the maximum. Stay ahead of federal and state tax filing deadlines while staying compliant. Since 1981, Harvard Business Services, Inc. has helped form 427,231 Delaware corporations and LLCs for people all over the world. The magic happens when our intuitive software and real, human support come together.
While our focus at Kruze is on C-Corps, it’s worth noting that Delaware has different requirements for other business structures. Limited Liability Companies (LLCs), Limited Partnerships (LPs), and General Partnerships face a June 1st deadline for their annual payments. Learn more about this deadline on Delaware’s website; this calculator may not be the best calculator for LLCs / non-C-corps.