Delaware Annual Report & Franchise Tax Requirements

Gabrielle Sinacola | Feb 10, 2024

Delaware Annual Report & Franchise Tax Requirements

Delaware is a beacon for businesses seeking a favorable incorporation environment. Often hailed as the “corporate capital,” Delaware’s allure for businesses, ranging from sprouting startups to established multinational corporations, is undeniable.

This preference is rooted in Delaware’s business-friendly laws, a well-established legal system, and favorable tax regulations. In fact, a significant number of businesses, including over 60 percent of Fortune 500 companies, choose Delaware as their legal home.

What Is the Crucial Role of Delaware Annual Report and Franchise Tax Compliance?

Compliance is key when reaping the benefits of incorporating in Delaware. Each year, corporations registered in the state must pay the Delaware franchise tax and file their annual report. These requirements are essential for maintaining good standing with the Delaware Division of Corporations.

Whether you’re a domestic corporation or a foreign entity doing business in Delaware, understanding and adhering to these obligations is paramount. The franchise tax isn’t a measure of income but a fee for the privilege of incorporating and operating under Delaware’s advantageous legal framework.

The annual report, a comprehensive document filing, plays a key role in keeping the state informed about critical corporate details like issued shares, total gross assets, and key personnel.

Enter Mosey, the modern solution to Delaware’s corporate compliance demands. Mosey works to revolutionize franchise tax payments and annual report filings, making the process much simpler.

By automating and streamlining compliance tasks, Mosey ensures that your business stays in good standing without the cumbersome administrative burden.

What Is Delaware’s Franchise Tax and Annual Report?

The Delaware franchise tax is a mandatory fee, not based on corporate income but on the privilege of being a Delaware-incorporated entity. This franchise tax fee varies depending on the chosen calculation method — the Authorized Shares Method or the Assumed Par Value Capital Method.

While the former considers the total number of authorized shares to determine the tax, the latter bases it on the corporation’s total gross assets and issued shares. We’ll discuss these further in a moment, so stay tuned.

The Annual Report

Beyond the franchise tax, Delaware corporations are required to submit an annual report. This is a detailed account of the corporation’s structure and operations over the past year.

The Delaware annual report includes information about the registered agent, principal business location, directors, and officers, ensuring transparency and up-to-date records with the state.

Filing this report is not just a matter of regulatory compliance — it’s a reaffirmation of your business’s commitment to corporate governance and operational clarity.

Franchise Tax vs. Income Tax

It’s important to note that the Delaware franchise tax is distinctly different from an income tax. While income tax is levied on earnings, the franchise tax is a fee for the benefits and privileges of incorporation in Delaware. This distinction is important for financial planning and compliance as it influences how businesses allocate resources for tax obligations.

Who Is Required To Comply?

In Delaware, the franchise tax and annual report requirements cast a wide net, encompassing a diverse array of business entities. Understanding who falls under this compliance umbrella is crucial for maintaining legal and operational integrity.

For-Profit Corporations

Every for-profit corporation incorporated in Delaware, irrespective of whether they actively conduct business in the state or not, must comply with the franchise tax and annual report filing.

This includes both domestic corporations and foreign corporations authorized to do business in Delaware. The due date for these requirements is a date no business entity should miss: March 1st annually. If you fail to file your annual report on or before March 1st, the penalty is $200.00 with interest at 1.5% per month.

Non-Profit Corporations

Non-profit corporations, though generally exempt from the franchise tax, aren’t off the compliance hook. They are still required to file an annual report with the Delaware Secretary of State, accompanied by a nominal filing fee. This ensures their continued good standing and operational transparency within the state.

Like for-profit corporations, failing to file your annual report on or before March 1st can lead to a penalty of $200.00 with interest at 1.5% per month.

Does an LLC Need To Pay Franchise Tax in Delaware?

Unlike for- or non-profit corporations, limited liability companies, limited partnerships, and general partnerships formed in Delaware do not file an annual report. They are, however, required to pay an annual flat fee of $300.00, with taxes due by June 1st of each year. A fine of $200.00 is imposed for non-payment or late payment, with an interest rate of 1.5% per month applied to the outstanding balance.

What Should You Know About Delaware Franchise Tax?

The Delaware franchise tax is a mandatory fee that is calculated annually based on one of two methods. Each method takes into account different aspects of a corporation’s structure and assets.

Authorized Shares Method vs. Assumed Par Value Capital Method

Under the Authorized Shares Method, the franchise tax is calculated based on how many shares a company is authorized to issue, as stated in its certificate of incorporation. It’s important to note that any stock amendments with the state are included in tax calculation, as any changes are legally part of the certificate.

This method is the default for the State of Delaware, and the tax fee scales with the number of shares:

  • 1 to 5,000 shares: $175 minimum tax.
  • 5,001 to 10,000 shares: $250.
  • For every 10,000 shares thereof, an additional $85 is added.
  • The maximum tax under this method can reach $200,000.

Alternatively, consider the Assumed Par Value Capital Method. This one calculates the tax based on the corporation’s gross asset total and issued shares. This method often favors corporations with a high number of shares but lower asset values.

The minimum tax under this method is set at $400, scaling up to a maximum of $200,000, except for large corporate filers.

Special Considerations for Large Corporate Filers

Large corporate filers, typically those with significant assets and revenue, fall under a special category. These entities, often with stock listed on national securities exchanges, are subject to an annual tax of $250,000. This category is designed for corporations that meet specific revenue and asset thresholds detailed under Schedule L of the tax instructions.

Payment and Due Dates

Corporations can use various methods to pay these taxes, including credit cards, through the Delaware Division of Corporations’ online portal. Remember, the annual franchise tax is due on or before March 1st each year, and failure to comply can lead to penalties and loss of good standing.

The entity’s file number, available through the website or from your Delaware registered agent, is required when submitting your tax and report. This ensures accurate recording and tracking of your compliance status.

The Role of the Delaware Registered Agent

A Delaware registered agent plays an important role in this process. They facilitate communication with the Division of Corporations and assist in maintaining compliance and meeting filing deadlines.

What Is the Annual Franchise Tax Report?

The Delaware Annual Franchise Tax Report is an essential document that makes up a corporation’s structure and operations. There are several key components that go into making this report.

We’ve broken them down below:

  • Corporate Details: Information on the registered agent, principal place of business, and the certificate of incorporation.

  • Financial Data: Details related to the authorized shares, issued shares, and total gross assets.

  • Governance Information: Names and addresses of directors and key officers.

  • Entity Tax Information: Specifics about the franchise tax calculations and payments.

The annual report’s comprehensive scope captures your business’s essentials, from core operations to finer financial specifics.

The Online Filing Process

The annual franchise tax report filing has been streamlined into a user-friendly online process. Available on the website, this digital platform allows corporations to submit their reports efficiently, pay taxes, and even receive immediate confirmation of submission and payment.

Role of Registered Agents in Filing

As with the franchise tax, registered agents are vital cogs in annual report compliance. Many registered agents offer filing services and make sure your filings are accurate, complete, and timely. Their involvement is important for maintaining the corporation’s good standing within the state.

Embrace Simplicity in Compliance With Mosey

Understanding and adhering to Delaware’s franchise tax and annual report requirements is important for any business incorporated in the state. Mosey stands out as an invaluable ally in this journey, offering a blend of automation, expert guidance, and tailored features to ensure seamless compliance.

Whether you’re a startup or a growing business, Mosey offers the tools and insights to navigate Delaware’s regulatory landscape efficiently.

If you’re ready to transform your compliance experience, turn to Mosey for an efficient, accurate approach to meeting your Delaware franchise tax and annual report obligations. Book a demo today to learn more and take the first step toward streamlined compliance.

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