Do you own a company in Delaware? Here’s what you should know about Delaware annual report and franchise tax. The journey to operating a company does not terminate at the point of obtaining a certificate of registration. All over the world, there exist several post-registration procedures and regulatory compliances the company must adhere to to stay afloat, and avoid incurring penalties, sanctions, and de-registration. Examples include; filing tax returns, and annual reports with the relevant regulatory agency. This is done to update the records of companies with the relevant regulatory agencies, expose shelled companies used as a covering to carry out financial crimes, etc. The State of Delaware has a similar corporate returns ecosystem. In this article, we will bare it all on the subject of filing annual reports and franchise tax in Delaware.
What is Annual Report and Franchise Tax?
In the State of Delaware, an annual report is the statutory report filed by all corporations except Limited and General partnerships, and Limited Liability Company. The latter are only required to pay an annual tax of $300 and are exempted from filing annual reports. While franchise tax is a State tax that all corporations in Delaware, are required to pay annually to the State of Delaware for operating within the State. Only Exempt Domestic Corporations are exempted from filing franchise tax. These are corporations that are not authorized by the law of Delaware to issue capital. They also include not-for-profit organizations, corporations exempted from filing tax by the United States Internal Revenue Code, organizations established to promote civic, fraternal, religious, and charitable purposes, banking corporations, savings banks, building and loan associations, corporations for drainage, or any captive insurance company registered under the Delaware Code. Depending on the type of corporation, so long as the corporation is registered and doing business in the State of Delaware, it is required to file either an annual report and to pay a franchise tax or both. It is worthy of note that no corporation shall be dissolved, transferred, merged, or converted without paying all franchise tax due.
Format and Content of an Annual Report
Annual reports and franchise taxes are filed in the prescribed form and submitted to the Delaware Department of State. An annual report shall contain the following:
- Address of the registered office of the corporation
- Name of the officer/agent for service of process
- Address of principal place of business of the corporation. This is distinct from the registered office of the corporation
- Details of directors as of the filing date of the report
- Number of shares and par value per share of each class of capital stock
It must be noted that any officer or director who makes any false statement in the course of filing of the annual report shall be guilty of perjury.
When is Annual Report and Franchise Tax Due in the State of Delaware?
Every corporation incorporated in the State of Delaware is expected to file annual reports and annual franchise tax returns on or before the 1st of March. However, for Limited Partnership, General Partnership, and Limited Liability Companies, annual franchise tax is due on or before 1st June. For corporations with a tax liability of $5000 or more, Section 504 of Title 18 Delaware Code provides;
“-(a) The franchise tax shall be due and payable on March 1 following the close of the calendar year, except that with respect to a corporation whose franchise tax liability for the current calendar year is estimated to be $5,000 or more, a tentative return and tax shall be due and payable as follows:—(1) Forty percent of the estimated tax on June 1 of the current year;—(2) Twenty percent of the estimated tax on September 1 of the current year;—(3) Twenty percent of the estimated tax on December 1 of the current year; and—(4) The remainder of the tax as finally determined together with the annual franchise tax report on March 1 following the close of the calendar year.”
What are the Rates/Charges for Each Corporation?
The Annual Report filing fee for all other domestic corporations is $50.00 plus taxes due upon filing of the Annual Report. The minimum tax is $175.00 for corporations using the Authorized Shares method and a minimum tax of $400.00 for corporations using the Assumed Par Value Capital Method. All corporations using either method will have a maximum tax of $200.000.00 unless it has been identified as a Large Corporate Filer, then their tax will be $250,000.00. Limited Partnership, General Partnerships, and Limited Liability Companies are to pay an annual tax of $300. Corporations that are not authorized to issue capital stock and are also not an exempt corporation are required to pay $175; where the authorized capital stock does not exceed 5,000 shares, $175; where the authorized capital stock exceeds 5,000 shares, but is not more than 10,000 shares, $250; and the further sum of $85 on each 10,000 shares or part thereof.
How is Franchise tax Computed?
There are two methods of calculating Delaware franchise tax: The authorised share method and the Assumed Par Value Method. This is succinctly provided by Section 503 (1)(a) and (2)(a) of the Title 18 of the Delaware Code as follows;
“–For the purpose of computing the tax in accordance with paragraph (a)(2) of this section, the corporation’s assumed no-par capital, whenever the phrase “assumed no-par capital” is used in paragraph (a)(2) of this section, shall be found by multiplying the number of authorized shares of capital stock without par value by $100.—To the amount of tax attributable to the corporation’s assumed no-par capital, computed as above prescribed, add $400 for each $1,000,000 or fraction thereof in excess of $1,000,000 of an assumed par value capital, found by multiplying the number of authorized shares of capital stock having par value by the quotient resulting from dividing the amount of the total assets of the corporation, as shown in the manner hereinafter provided, by the total number of issued shares of all denominations and classes. If the quotient shall be less than the par value of any denomination or class of authorized shares having par value, the number of the shares of each class shall be multiplied by their par value for the purpose of ascertaining the assumed par value capital in respect of the shares and the number of authorized shares having a par value to be multiplied by the quotient, as aforesaid, shall be reduced by the number of the shares whose par value exceeds the quotient; and where, to determine the assumed par value capital, it is necessary to multiply a class or classes of shares by the quotient and also to multiply a class or classes of shares by the par value of the shares, the assumed par value capital of the corporation shall be the sum of the products of the multiplications. Whenever the amount of the assumed par value capital, computed as above prescribed, is less than $1,000,000, the amount of the tax attributable thereto shall be the amount that bears the same relation to $400 that the amount of the assumed par value capital bears to $1,000,000.”
It is worthy of note that where a corporation does not file an annual franchise tax report or pay franchise tax, the Secretary of State is mandated by the Code to ascertain and fix an amount as franchise tax for the corporation which amount will stand as the basis of taxation unless the corporation elects to compute the franchise tax by filing the annual tax report
Consequences of Non-Compliance
Failure to file a complete annual franchise report on the prescribed due date attracts a fine of $200 and the same shall be added to the franchise tax. Also, where a corporation fails, neglects, or refuses to pay tax or file a complete annual report for one year, the charter of the corporation shall be void and the powers of the corporation shall be inoperative. Furthermore, a 1.5% interest rate shall accrue on the unpaid franchise tax of a corporation for each month of default until it is fully paid. The Secretary of State reserves the right to issue a certificate of good standing to any corporation that has an unpaid franchise tax or that fails to file a complete annual franchise report.
Are Foreign Corporations Exempted from Filing Annual Report in Delaware?
Foreign corporations are not exempted from filing annual reports in the State of Delaware. Section 374 of the Delaware Code requires foreign corporations doing business in the State of Delaware to file annual reports in the prescribed form on or before June 30. Where a foreign corporation fails to file an annual report within a two-year period, the rights of the corporation will be terminated by the Secretary of State after due investigation.
Conclusion:
The State of Delaware operates a comprehensive returns framework that appeals to both local and foreign corporations doing business in the State of Delaware. This allows for smooth filing and payment of annual reports and franchise tax respectively for business investors and up-to-date accounts on revenue for the State. For enquiries on how we can assist with filing Delaware annual report and franchise tax for your company, please contact us through the Whatsapp icon on this page or HERE and we’ll attend to you.
