Business entities in the state of Delaware have various reports and filings they must submit to the Delaware Division of Corporations each year. Delaware Limited Liability Companies don’t have to file an annual report, but they do have to file to pay an Annual Tax each year by June 1. Businesses that are registered as a corporation in Delaware must file a Delaware Annual Report every year by March 1, and most must also pay a Franchise Tax fee yearly. These requirements apply whether a Delaware corporation operates in the state of Delaware or somewhere else.
In this post, I’ll cover information to help you understand the requirements that Delaware LLCs and corporations must pay attention to. For legal and tax guidance on how these compliance responsibilities affect you, talk with your accountant and attorney.
Delaware LLCs
Domestic and foreign LLCs (and also Limited Partnerships and General Partnerships) formed or registered in Delaware must pay an annual tax of $300 tax each year. The tax is due by June 1.
Delaware Corporations
According to the Delaware Divisions of Corporations website (delaware.gov), “All corporations incorporated in the State of Delaware are required to file an Annual Report and pay a franchise tax. Exempt domestic corporations do not pay the Franchise Tax, but they must file an Annual Report.”
Non-exempt and exempt domestic corporations must file their Annual Reports and pay their Franchise Tax fees by March 1 of each year.
Foreign Corporations, corporations that are conducting business in Delaware but are incorporated in another state, must file an Annual Report by June 30 of every year.
Delaware Corporations that are reinstating their status to good standing with the state or that are ending their existence (dissolution) must file an Annual Report and pay any state taxes that are due.
What is an Annual Report?
Some of the information a corporation must provide in a Delaware Annual Report include:
The corporation’s physical address
The names and addresses of corporate officers
The names and addresses of all directors on the corporation’s Board of Directors
Authorization by a corporate officer (necessary for filing the report)
Exempt domestic corporations (non-profit, civic, and charitable organizations) pay $25 to file their annual reports. Non-Exempt domestic corporations pay $50 to file their annual reports.
The Annual Report filing fee is $125.00 for Foreign Corporations in Delaware.
What is an Annual Franchise Tax?
The Delaware Division of Corporations levies a Franchise Tax on non-exempt domestic corporations for the privilege of being incorporated in Delaware. Exempt domestic corporations do not have to pay the annual tax.
The amount a corporation must pay depends on whether the for-profit corporation issues stock and the method of calculating the tax.
For-Profit, Non-Stock Corporations
For-profit corporations that do not issue stock must pay a Franchise Tax of $175.00 per year.
For-Profit Stock Corporations
For-profit corporations that issue stock use either the Authorized Shares Method or the Assumed Par Value Capital Method to calculate the Franchise Tax amount they owe. The Authorized Shares Method is the default method and the simpler of the two. The Assumed Par Value Capital Method is more complex and generally is more favorable for corporations with high-value assets.
Minimum and Maximum Franchise Tax with the Authorized Shares Method
Minimum – $175
Maximum – $200,000
Minimum and Maximum Franchise Tax with the Assumed Par Value Capital Method
Minimum – $400
Maximum – $200,000
Note that corporations flagged as “Large Corporate Filers” will have a maximum Franchise Tax fee of $250,000.
Corporations that expect to owe $5,000 or more must pay estimated taxes in quarterly installments:
40% (due by June 1)
20% (due by September 1)
20% (due by December 1)
The remainder (due by March 1)
Businesses Ending Their Existence
Any Delaware Corporation that is ending its existence or reinstating its status to good standing is required by law to file an Annual Report and pay all tax due. Likewise, an LLC must pay all tax due under those circumstances, as well.
S Corporations Requirements
Companies that have elected to be taxed as an S Corporation must comply with the requirements that the underlying business entity must fulfill.
In other words,
An LLC that has elected S Corp status must pay Annual Tax by June 1 of each year.
A C Corporation that has elected S Corp status must submit an Annual Report and pay Franchise Tax by March 1 of each year.
Penalties for Filing Late
LLCs – LLCs that fail to pay or submit a late Franchise Tax payment owe a penalty fee of $200. An interest rate of 1.5% per month accrues on the tax and the penalty until the LLC pays what it owes.
Corporations – The penalty for not filing a completed domestic corporation Annual Report on or before March 1 is $200. Also, any unpaid tax balance gets hit with interest at a rate of 1.5% per month.
Foreign Corporations – Foreign Corporations must pay a penalty of $125 if they don’t file their Annual Report.
Also, consider that the State of Delaware will deny a Good Standing Certificate to any corporation that doesn’t meet the annual filing requirements. And if a corporation fails to file its Annual Report or pay its Franchise Tax fees for two years, the state may revoke its Certificate of Incorporation, thus losing all of the liability protection and tax advantages that come with being a Delaware Corporation.
How Do You File a Delaware Annual Report and Pay the Annual Franchise Tax?
Delaware has mandated the electronic filing of Annual Reports and Franchise Tax payments. Businesses must use the seven-digit Business Entity File Number assigned to them from the state when paying online. Note that the online application is available from 8 a.m. to 11:45 p.m. EST daily, according to the Delaware Divisions of Corporations website.