Delaware’s business-friendly laws make it a popular state for incorporation. This status includes annual compliance duties, such as filing the Delaware Annual Franchise Tax Report, which is important for maintaining good standing with the state. Incorrect filing or payment can lead to penalties, interest, or loss of corporate status. Companies registered in Delaware should understand these requirements and deadlines.
Who Must File
All corporations incorporated in Delaware, both stock and non-stock, must file an Annual Franchise Tax Report. This applies to businesses authorized to issue shares (stock corporations) and organizations without capital stock, like many non-profits (non-stock corporations). The filing obligation exists even if the corporation conducted no business or is dormant.
Other business entities, such as limited liability companies (LLCs), limited partnerships (LPs), and general partnerships (GPs) registered in Delaware, pay a different flat annual tax.1Delaware Division of Corporations. LLC/LP/GP Franchise Tax Instructions Exempt domestic corporations do not pay franchise tax but must still file an Annual Report.
Filing Deadlines
Domestic and foreign corporations must file the Annual Franchise Tax Report and pay the franchise tax by March 1st each year.2Delaware Division of Corporations. Annual Report and Tax Information This deadline covers the preceding calendar year; for instance, the report and tax due March 1, 2025, relate to the 2024 calendar year.
Different entity types have different deadlines. LLCs, LPs, and GPs must pay their annual tax by June 1st. Exempt domestic corporations, while not paying tax, must also file their Annual Report by March 1st. The Delaware Division of Corporations may send reminder notices, but the responsibility for timely filing rests with the entity.
Calculation Methods
Delaware corporations can use two methods to determine their franchise tax: the Authorized Shares method and the Assumed Par Value Capital method. The state calculates the tax using both methods and assesses the lower amount.
The Authorized Shares method bases the tax on the total number of shares a corporation is authorized to issue. For corporations with 5,000 or fewer authorized shares, the tax is $175.3Delaware Division of Corporations. How to Calculate Franchise Taxes If a corporation has between 5,001 and 10,000 authorized shares, the tax is $250. For those with more than 10,000 authorized shares, the tax increases by $85 for each additional 10,000 shares or portion thereof. The maximum annual tax using this method is $200,000. Shares with no par value are treated the same as par value shares for this calculation.
The Assumed Par Value Capital method may result in a lower tax for corporations with many authorized shares but low gross asset value. This calculation uses total gross assets (reported on U.S. Form 1120, Schedule L) and the total number of issued shares. To calculate: first, divide total gross assets by total issued shares to find the assumed par. Then, multiply this assumed par by the total number of authorized shares. If the resulting assumed par value capital exceeds $1,000,000, the tax is $400 per $1,000,000 (or fraction thereof). The minimum tax under this method is $400 if the assumed par value capital is $1,000,000 or less, and the maximum is also $200,000. An online calculator is available from the Division of Corporations to help determine the lower tax amount.4Delaware Division of Corporations. Franchise Tax Calculator
Payment Options
Payments for the Delaware Franchise Tax are handled through the Delaware Corporations Information System (DCIS) online portal. This system allows for electronic filing of the report and payment using major credit cards (which may incur a processing fee) or ACH debit from a bank account.5Delaware Division of Corporations. Annual Report and Tax Instructions
Payment by mail is also accepted. Checks or money orders, payable to the Delaware Secretary of State, should be sent with the appropriate voucher or a copy of the filed Annual Report. Mail payments well before the March 1st deadline and include the corporation’s Delaware file number. Some companies use third-party registered agents to manage filings and payments.
Penalties for Late or Inaccurate Reports
Failure to file the Annual Franchise Tax Report by the March 1st deadline results in a $200 penalty. Interest of 1.5% per month also accrues on any unpaid tax balance from the due date.
Neglecting franchise tax obligations for one year can lead to significant consequences. A domestic corporation’s charter can be declared void, and a foreign corporation’s authority to do business in Delaware can be revoked.6Justia Law. 8 Delaware Code § 510 (2024) – Failure to Pay Tax or File a Complete Annual Report for 1 Year; Charter Void This action results in the loss of good standing and, for domestic corporations, their legal existence in the state. Reinstating a voided charter involves additional processes and costs.
Correcting an Incorrect Filing
If a domestic corporation finds an error in its filed Annual Franchise Tax Report, it can file an Amended Annual Franchise Tax Report. This form allows companies to revise information like officer and director details, principal place of business, or stock and asset information that affected the tax calculation. An authorized officer must sign the amended report.
The Amended Annual Franchise Tax Report is mailed to the Delaware Division of Corporations, and a filing fee is required.7Delaware Division of Corporations. Corporate Fee Schedule If the correction changes the tax amount, any additional tax due should accompany the amended report. If an overpayment occurred, the corporation might be eligible for a refund by following the Division’s procedures.8Justia Law. 30 Delaware Code § 539 (2024) – Limitations on Credit or Refund Corporations should carefully review all information before submitting an amended report.