The Delaware Annual Franchise Tax Report is a required filing for business entities registered in the state. Its purpose is to update state records and calculate the franchise tax owed for holding a Delaware corporate charter. This yearly filing ensures a company remains in good standing with the Delaware Division of Corporations, as failure to file and pay can lead to penalties and loss of corporate privileges.
Entities Required to File the Delaware Annual Report
All domestic corporations incorporated in Delaware are required to file an Annual Report and pay the corresponding franchise tax. This applies to both stock and non-stock corporations, as well as for-profit and not-for-profit entities, even if they conduct no business. Under Title 8, Section 502 of the Delaware General Corporation Law, this annual filing is a requirement for maintaining a valid corporate charter.1Justia. 8 Delaware Code § 502 (2024) – Annual franchise tax report; contents; failure to file and pay tax; duties of Secretary of State.
Some domestic corporations qualify as exempt and are not required to pay a franchise tax, but they must still file the Annual Report and pay a $25 filing fee. It is important to distinguish this from other entities; while Limited Liability Companies (LLCs), Limited Partnerships (LPs), and General Partnerships (GPs) must pay an annual tax of $300, they do not file the same detailed franchise tax report.
Information Needed for Your Delaware Annual Report
Before beginning the filing process, you must gather several pieces of information. The state requires your seven-digit Delaware File Number, the exact legal name of the corporation, and the physical address of its principal place of business. The principal place of business cannot be the address of the registered agent unless the corporation is physically located there.
You will also need to provide the names and addresses of all directors as of the filing date, and the name and address of at least one officer. The report must be signed by an authorized person, whose name and title are also required. If you plan to use the Assumed Par Value Capital Method, you must have the total gross assets from your U.S. Form 1120, Schedule L, and a record of all issued shares.
Calculating Your Delaware Franchise Tax
Delaware provides two methods for calculating franchise tax, and corporations can use whichever results in a lower payment. The state’s online filing system will compute the tax under both methods if all necessary data is provided, allowing for a direct comparison. The tax is capped at $200,000 for most corporations, though it can be $250,000 for those identified as a “Large Corporate Filer”.2Justia. 8 Delaware Code § 503 (2024) – Rates and computation of franchise tax.
The first option is the Authorized Shares Method, which is based on the number of shares the corporation is authorized to issue. For corporations with 5,000 or fewer authorized shares, the tax is $175. For those with 5,001 to 10,000 shares, the tax is $250. For each additional 10,000 shares or portion thereof, another $85 is added to the tax.
The second option is the Assumed Par Value Capital Method. This calculation requires the corporation’s total gross assets and total number of issued shares. The first step is to divide total gross assets by the total number of issued shares to find the “assumed par.” This figure is then used in a multi-step calculation under Title 8, Section 503, to determine an “assumed par value capital.” The tax rate is $400 for each $1,000,000 or fraction thereof of this calculated capital, with a minimum tax of $400 under this method.
How to File Your Annual Report and Pay Franchise Tax
The required method for submission is through the Delaware Division of Corporations’ online portal. You will need your seven-digit business entity file number to access your company’s record and begin the filing. Once in the system, you will enter or verify the required corporate information, including addresses, directors, and officers. If using the Assumed Par Value Capital method, you will also input the gross assets and issued shares data.
The system calculates the franchise tax owed and the $50 annual report filing fee for non-exempt corporations. Payment is completed directly through the portal, as the state accepts major credit cards and ACH debit. After you submit the report and payment, the system provides an electronic confirmation, and you can later verify the filing by searching the state’s online business entity database.
Delaware Annual Report Deadlines and Penalties
The deadline for filing the annual report and paying the franchise tax is March 1st each year. A $200 penalty is assessed for late filing, in addition to the tax owed. Interest accrues on any unpaid tax balance at a rate of 1.5% per month, as outlined in Title 8, Section 504.3FindLaw. Delaware Code Title 8. Corporations § 504
Failing to file and pay causes the corporation to lose its good standing. This can prevent the company from bringing lawsuits in Delaware courts or create complications in business transactions. If a corporation fails to file and pay for one year, the Secretary of State can declare the corporate charter void under Title 8, Section 510, which dissolves the corporation.4Justia. 8 Delaware Code § 510 (2024) – Failure to pay tax or file a complete annual report for 1 year; charter void; extension of time.