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Just a reminder to those who have Delaware corporations,
report and franchise tax payment are both due on March 1. At this point,
you should have already received from Delaware your notification of annual
report and franchise tax due, which is sent to a corporation's registered agent
in December of each year (although sometimes it does not arrive until January).
Delaware requires these reports to be filed
As you will notice, there are two methods that you can
use to calculate the amount of Delaware franchise tax due for your corporation
(i.e., the "Authorized Shares Method" and the "Assumed Par Value Capital
Method"), which result in vastly different amounts due. The default payment
amount listed on your notification is set by Delaware using the Authorized
Shares Method, which method will almost always result in a much high amount due
for startups with limited assets. The minimum franchise tax is $75 and the
franchise maximum tax is $180,000.
Here are some examples showing how the different methods
can dramatically impact the amount of Delaware franchise tax due:
Authorized Shares Method
The franchise tax rate for the Authorized Shares Method
is as follows:
For example, under the Authorized Shares Method, a
corporation with 15 million authorized shares would pay $112,575 (i.e.,
$150 plus $112,425 [$75 x 1,499]).
Assumed Par Value Capital Method
To use this method, you must give figures for all issued
and outstanding 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. Form 1120, Schedule L (Federal Return) relative to
the corporation's fiscal year ending the calendar year of the report. The tax
rate under this method is $350 per million or portion of a million. If the
assumed par value capital is less than $1 million, the tax is calculated by
dividing the assumed par value capital by $1 million then multiplying that
result by $350.
Under this example, using the same corporate above having
15 million authorized shares of stock with a par value of $0.01, gross assets
of $1.2 million and issued shares totaling 10 million, the Assumed Par Value
Capital Method of calculation would result in a franchise tax due of only $700.
Here is a helpful "Franchise Tax
Calculator" spreadsheet provided by Delaware to assist in estimating your
franchise taxes. Note, in addition to the franchise tax, there is also a $50
filing fee for the annual report.
If you have yet to form your startup (or are considering
reincorporation), see our prior post comparing incorporating in Washington versus Delaware. As you
will note, the annual licensing fee for Washington corporations is a flat $69
(which is Washington's equivalent of the Delaware franchise tax).
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