Please consult professionals for advice tailored to your specific situation. The author and publisher assume no responsibility for any errors or omissions or for any actions taken based on the information presented. When forming a Delaware corporation, one significant detail you will need to consider is the number of shares the entity will have authorized, and the corresponding par value of those shares.

• Taxpayers owing $5,000 or more pay estimated taxes in quarterly installments with 40% due June 1st, 20% due by September 1st, 20% due by December 1st, and the remainder due March 1st.
• At any moment, executives or team members may own public or private stock in any of the third party companies we mention.
• To help your Delaware corporation annual report filing process go smoothly, we’ve got some answers to the most frequently asked questions we receive this time of year.
• Thus, if the stated interest rate on a bond is 10% and the bond par value is $1,000, then the issuing entity must pay $100 every year until it redeems the bond.
• If the state requires a copy of the Schedule L, there will be a note added to the record and the entity will show that the report was submitted but not accepted and will therefore not be in Good Standing.

The above calculations must be done for each class of stock that is authorized by a corporation. Taxpayers owing $5,000.00 or more must 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. The amount of the par value of a share of stock is printed on the face of a stock current liabilities definition and example certificate. If the stock has no par value, then “no par value” is stated on the certificate instead. Corporations owing more than $5,000 should make estimated payments with 40% due June 1st, 20% due September 1st, 20% due by December 1st, and the remaining due March 1st. We set startups up for fundrising success, and know how to work with the top VCs.

The assumed par value capital method

The tax under this method is $400 per $1,000,000, or portion thereof, of assumed par value. All Delaware-incorporated businesses must, however, still pay the annual franchise tax, submit an annual report, and pay a filing fee. Here’s how to figure out how much you need to pay, how to file, and what happens if you don’t. Assumed Par Value Capital Method
With this method your Delaware Franchise Tax bill is calculated based on issued shares, authorized shares and total gross assets. If DE sent your startup a huge tax bill for their annual franchise tax, don’t panic – you can likely reduce your Delaware Franchise Tax by using an alternative calculation method.

• This includes LLCs, corporations, limited partnerships, and limited liability partnerships doing business or organized in California.
• To help you understand how franchise taxes work in different states, here are a few examples of how businesses are taxed.
• Franchise taxes can be confusing to business owners, especially when the tax obligations vary from state to state.
• Note that a single additional authorized share will cause this startup to pay an extra $85.

That’s right; Delaware wants its share even if you’re just using its name. The Delaware Franchise Tax is a fee that the state charges companies simply for the privilege of saying, “Hey, I own a Delaware company! ” It doesn’t poke its nose into how much you earn or what your business activities are. Think of it as a membership fee to the elite club of Delaware-incorporated entities. In addition to paying the Franchise Tax, Delaware requires every corporation to have and maintain a registered agent in the State. This is a person or a representative that is physically located in Delaware.

What is the New Beneficial Ownership Information (BOI) Reporting and How Does it Affect Your Business?

To use this method, you must provide 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 US 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 (to be increased to $400 effective for the 2018 tax year) per million or portion of a million. This method calculates the tax based on your corporation’s total gross assets and the ratio of issued shares to authorized shares. Your corporation will owe an estimated $400 for each $1,000,000 in gross assets. The minimum tax when using this method is $400, and the maximum tax is $200,000.

How is franchise tax calculated in Delaware?

The default payment amount listed on your notification is set by Delaware using the Authorized Shares Method, which will almost always result in a much higher amount due for startups with limited assets. There is a helpful Franchise Tax Calculator on the Delaware website to assist in estimating your franchise taxes (note there is a different calculator for each of the 2017 and 2018 tax years). In addition to the franchise tax, there is also a $100 filing fee for the annual report. There are several variables that enter into the Assumed Par Value Capital Method including the corporation’s gross assets, issued shares, number of authorized shares and their par value. Delaware provides a Microsoft Excel worksheet that can be used to show the tax based on various assumptions.

Delaware franchise tax due March 1: two methods of calculation, two vastly different results

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). 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]). Under this method, your franchise tax is based on how many shares your corporation has authorized.

While the corporation may not have an income tax imposed simply for incorporating in the state, the corporation remains subject to Delaware’s franchise tax. For every additional 10,000 shares authorized after that, you pay another $85 in franchise tax, up to a maximum of $200,000. If you’re trying to figure out if you owe Delaware franchise tax, Bench can help. Our all-star team does your monthly bookkeeping for you and sends your financials to trusted tax professionals for a stress free filing experience. These include a business-friendly court system, flexible incorporation rules, and the fact that businesses operating only outside of Delaware don’t have to pay state corporate income tax.

Delaware franchise tax example

If the Company has dissolved it must be properly dissolved with Delaware, otherwise the Company will continue to be liable for the Annual Franchise Tax. At any moment, executives or team members may own public or private stock in any of the third party companies we mention. Help us have a productive first consultation by providing some additional information.