Frequently Asked Questions about Delaware Corporation Annual Reports & Franchise Tax PaymentsJohn Morrissey
December 6, 2011 — 1,749 views
As reported on the Delaware Secretary of State website, more than 900,000 business entities have their legal homes inDelawareincluding more than 50% of allU.S.publicly-traded companies and 63% of the Fortune 500. Businesses chooseDelawarebecause the state provides a complete package of incorporation services including modern and flexible corporate laws, has a highly-respected Court of Chancery, a business-friendly State Government and the customer service-oriented staff of the Delaware Division of Corporations.
In December, Registered Agents forDelawareentities will begin sending notices of the due dates forDelawarecorporations Annual Report filings and franchise tax payments. This posting will provide an overview of what is due by when in order to maintain good standing status and existence for yourDelawarecorporate entities. The information provided is limited only to Delaware business and nonprofit corporations and does not include information on Delaware foreign corporations and other business entity types like limited liability companies or partnerships that are required to file on or before June 1.
Q: What is due and when?
A: ADelaware domestic corporation must file a fully completed Annual Report, pay the annual report filing fee and its franchise tax by March 1. The franchise tax payment is for the prior calendar year. An exempt corporation does not have to pay its franchise tax, but it must file a completed report and pay the annual report filing fee. The report must be filed online and must be received by the Division of Corporations on or before the March 1 due date.
Q: How is the amount of the Delaware franchise tax calculated?
A: There are two methods to calculate aDelaware corporation’s franchise tax; Authorized Shares method and Assumed Par Value Capital Method. The corporation pays the lesser of the two amounts.
Q: How do I calculate the franchise tax using the Authorized Share method?
A: If the corporation has 5,000 shares or less, it pays the minimum tax of $75. For corporations with 5,001 to 10,000 shares the tax is $150. For corporations with over 10,000 shares the tax is $150 plus $75 for each additional 10,000 shares or portion thereof. The maximum annual tax is $180,000. Go to http://www.state.de.us/corp/frtaxcalc.shtml for additional information on calculating the tax due.
Q: How do I calculate the franchise tax using the Assumed Par Value Method?
A: For corporations using the Assumed Par Value Method, the minimum tax is $350. To use this method the corporation must report its total number of issued shares (including treasury shares) and total gross assets (as reported on U.S. Form 1120, schedule L, for the company’s fiscal year ending the calendar year of the report. The tax rate using this method is $350 per $1,000,000 or part thereof off assumed par value capital. The maximum annual tax is $180,000. To calculate the estimated tax please go to the Division of Corporations Franchise Tax Calculator at http://www.corp.delaware.gov/taxcalc.shtml or go to www.state.de.us/corp/frtaxcalc.shtml for additional information.
Q: Are there any additional fees that are required to be paid at the time of filing my corporations Delaware Annual Report?
A: The Secretary of State of Delaware charges an additional annual report filing fee of $75.
Q: How do I calculate the franchise tax for non-exempt non-stock corporations?
A: All non-exempt non-stock corporations pay a franchise tax of $75. There is no alternate tax method available.
Q: I understand some corporations have to pay franchise taxes quarterly. How does that work?
A: Taxpayers owing $5,000 or more pay estimated taxes in quarterly installments with 40% due June 1, 20% due by September 1, 20% due by December 1 and the remainder due March 1.
Q: Is an Annual Report required to be filed each quarter with payment of the tax?
A: No, the Delaware Annual Report is required to be filed only one time per year, by March 1.
Q: If the tax amount is large, can payment be made by wire to the Delaware Secretary of State?
A: A corporation may pay its franchise taxes directly via DE SOS ACH- this method must be used for all transactions over $5,000. If you prefer to make payment via a wire transfer, check with your registered agent, since most professional registered agent companies will accept the funds by wire, pay the Delaware Secretary of State and follow up with evidence of such payment on behalf of your corporation.
Q: What happens if I missed the March 1 deadline?
A: Reports that were not filed by March 1 will result in the Delaware Division of Corporations assessing a $125 penalty in addition to the tax and annual report fee, plus interest at 1.5% per month applied to any unpaid tax balance.
Also it is important to note that Delaware will not issue Good Standing Certificates for corporations that have not met the annual report filing requirements. After two years of non-filing and non-payment, the corporations Certificate of Incorporation will be revoked.
Q: What information is required on the Annual Report?
A: Your corporation’s Delaware Annual Report is pre-populated with certain information including the exact legal name of the entity, total number of authorized shares, class and par value of the shares and a breakdown of the franchise tax and fees due. In addition, the Annual Report is required to include the principal business address, name, address and phone number of all Directors, name, address and phone number of one officer and an Authorized Signer.
Q: Who can serve as the Authorized Signer of the electronic Annual Report?
A: Any officer or director of the corporation may sign the Annual Report. If the corporation has not elected any officers or directors at the time of the filing of the Annual Report, then it must be signed by the incorporator.
Q: How do I file my corporation’s Annual Report and make payment?
A: Delaware now requires that all Annual Franchise Tax Reports be filed electronically and accepts payment only in U.S. dollars and drawn onU.S. banks.
You have the following options to file your report and pay taxes and fees:
- File electronically at Delaware’s website, http://www.corp.delaware.gov. Your payment options at the state’s site are ACH Debit, Visa, MasterCard, Discover or American Express. Live support is available online Monday through Friday, 8:30 AM to 4:00 PM by clicking the “Contact Us” link. If you require special accommodations, you may contact the Division of Corporations Franchise Tax Section at (302) 739-3073.
- File electronically utilizing your registered agent’s online system for Delawareannual report filing. Agents who offer such systems usually store the information needed to complete the report so that you will not have to re-enter it in subsequent years. (When you file directly with the state, you will have to input all of the information each year.) The payment options at registered agent sites vary, so check in advance to ensure you are able to pay with the options offered.
Q: What happens if the corporation merges or dissolves before the end of the calendar tax year?
A: Delaware requires that annual report(s) be current prior to all dissolution and merger filings. At the time of dissolution or merger, all franchise taxes must be paid through the date of the filing of the Certificate of Dissolution or Merger with the Delaware Secretary of State.
Not being aware of this requirement can cause frustration when time-sensitive filings are delayed for this reason. We recommend identifying the tax due in these cases well in advance of the date of filing for a dissolution or merger. A professional registered agent company should be able to assist with obtaining total taxes due on any given date.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
National Corporate Research, Ltd.
Mr. Morrissey manages a team of researchers who monitor nationwide entity legislation and maintain the company’s reference materials and corporate forms library and development of NCR’s independent director service for bankruptcy remote entities.