You will need your business’s Delaware Entity File Number to search for its status. In the end, the costs of starting and maintaining a Delaware LLC should be seen as an investment in your business’s future. The initial and ongoing costs are a small price to pay for the benefits and protections of operating an LLC in Delaware. With this detailed guide, you now have a clear understanding of the financial needs of starting and running a Delaware LLC.
- The Franchise Tax for a Delaware LLC or a Delaware LP is a flat annual rate of $300.
- After paying their Delaware Franchise Tax, many business owners require a Delaware Certificate of Good Standing.
- Non-profit organizations are exempt from the tax, but they still have to file a return with the state showing their gross receipts.
- In addition, businesses that have less than $50,000 in gross receipts are also exempt from the tax.
- When he’s not writing, James enjoys spending time with his family and playing golf.
The franchise tax is calculated based on the company’s authorized shares, issued shares, and the par value of those shares. While the formula for calculating the Delaware Franchise Tax may seem complex, it’s important to understand the details of this tax in order to avoid any penalties or fines. All businesses formed in Delaware, including tax-exempt businesses, need to file an annual franchise tax report by March 1st of each year, and pay a filing fee of $50. Tax-exempt businesses do not pay the Delaware franchise tax or penalties, but they still need to file and pay the annual report fee to remain in compliance.
Recalculation: The Assumed Par Value (Issued Shares and Assets) Method
Failure to pay on time will result in a $200 late fee and a 1.5 percent monthly interest penalty. The Delaware Franchise Tax is a tax imposed on corporations for the privilege of doing business in the state. The tax is based on the value of the corporation’s franchise, which is the sum of the value of its capital stock, surplus, and undivided profits. The tax rate varies depending on the value of the franchise, but it is generally lower than the corporate income tax rate. Example – So if your assumed par value capital from Step 2 comes to $1,001,000, your franchise tax would be $800 ($400+$400).
- With that, Delaware LLCs do not have to file annual reports in the same way as corporations do.
- A corporation with 5,001 authorized shares or more is considered a maximum stock corporation.
- There are 2 methods that DE C-Corporations can structure their annual franchise tax.
- Many people pay this tax in April, since they’ll be paying other taxes as well at that time.
You can reduce your Delaware franchise costs in certain circumstances if you use the Assumed Par Value method. This calculation saves taxes by total assets, as long as issued shares constitute a third to half of the authorized ones and it will save money for undercapitalization: definition causes and examples startups with this technique. The annual report fee is $50 and the tax would be somewhere between $200 and $200,000 per year, as shown below. The Delaware Secretary of State charges an additional filing fee of $50 for a Delaware corporation annual report.
Due Dates and Penalties for Delaware Franchise Tax
The report is due by March 1st and must include information about the corporation’s assets and liabilities. Note that only one Delaware annual report is required to be filed by March 1st, even for corporations paying quarterly franchise taxes. Delaware business taxes can include a franchise tax, a corporate income tax, and other annual taxes and fees. If you own a traditional LLC, you will pay personal taxes on your business’ profits in addition to the $300 annual LLC tax.
You’ll leave 300,000 shares for investors, employee option pools, and for yourself in the future. Authorized shares are the maximum number of shares that can legally be issued to shareholders. This number is established by the company’s articles of incorporation. The term “Franchise Tax” does not imply that your company is a franchise business. All companies pay a Delaware Franchise Tax, regardless of their business income, business model, or company structure.
Delaware Franchise Tax FAQ
Whether you want to incorporate or choose the LLC route, remember that fees and maintenance requirements depend on the structure you choose. A non-stock/non-profit company is considered exempt by the State of Delaware. This type of company does not pay the standard annual Delaware Franchise Tax, but must still file and pay the annual report fee of $25 per year. It is important to note that the Delaware Franchise Tax is separate from the federal and state income taxes that corporations are required to pay.
For corporations using the Assumed Par Value Method, the minimum tax is $400. The tax rate using this method is $400 per $1,000,000 (or part thereof) of assumed par value capital, with a maximum annual tax of $200,000. Delaware domestic corporations must file a fully completed annual report and pay both the annual report filing fee and franchise tax by Tuesday, March 1st, 2022. The Franchise Tax Department will be available to assist on Saturday, February 26th, by email and chat from 8 am to 4 pm. Don’t forget about your Delaware franchise tax and annual report filings!
For corporations with over 10,000 shares, the tax is $250 plus $85 for each additional 10,000 shares (or portion thereof) to a max annual tax of $200,000. Like most states, Delaware taxes some types of income earned by businesses. The method for determining which taxes apply and the amount depends on the type of business entity you operate and the filing status you choose.
LLCs and LPs
Unlike many other states, Delaware does not require the names of members or managers to be listed in the formation documents. This lets business owners keep their personal information private. A Delaware Certificate of Good Standing is a document that shows your LLC is up-to-date with all state requirements, like paying all necessary fees.
You might need to show this certificate when opening a business bank account, or in other business dealings. Every Delaware LLC must pay its franchise tax each year to stay in Good Standing with the state. In addition to offering lower taxes compared to other states, Delaware is considered a tax shelter. The definition of a tax shelter is any method used to reduce the amount of income that is taxable.