Delaware Annual Report and Franchise Tax

Overview

Every Delaware corporation must file an Annual Report and pay franchise tax by March 1st each year. This is a strict deadline with no extensions, and late filing results in immediate penalties.

Due Date

March 1st - No exceptions, no extensions

The March 1 deadline applies to all Delaware corporations regardless of when they were incorporated or their fiscal year end.

What's Required

Annual Report

The Annual Report provides Delaware with current information about your corporation.

Information Required:

Names and addresses of all directors

Names and addresses of officers (at minimum: President, Secretary, Treasurer)

Principal place of business

Name of registered agent

Franchise Tax

Delaware franchise tax is calculated using one of two methods. You pay the LOWER amount.

Franchise Tax Calculation Methods

Method 1: Authorized Shares Method

This method is based solely on the number of authorized shares in your Certificate of Incorporation.

| Authorized Shares | Tax |

|-------------------|-----|

| 5,000 or less | $175 (minimum) |

| 5,001 - 10,000 | $250 |

| Each additional 10,000 | Add $85 |

| Maximum | $200,000 |

Example:

100,000 authorized shares

First 10,000 shares: $250

Next 90,000 shares: (90,000 ÷ 10,000) × $85 = $765

Total: $1,015

Method 2: Assumed Par Value Capital Method

This method considers your authorized shares, issued shares, and total gross assets.

Formula:

1. Calculate Assumed Par Value = Total Gross Assets ÷ Total Issued Shares

2. If Assumed Par Value < Stated Par Value, use Stated Par Value

3. Calculate Assumed Par Value Capital = Assumed Par Value × Authorized Shares

4. Tax = (Assumed Par Value Capital ÷ 1,000,000) × $400

5. Minimum tax: $400

Example:

10,000,000 authorized shares

1,000,000 issued shares

$100,000 total gross assets

Par value: $0.00001

Step 1: Assumed Par Value = $100,000 ÷ 1,000,000 = $0.10

Step 2: $0.10 > $0.00001, so use $0.10

Step 3: Assumed Par Value Capital = $0.10 × 10,000,000 = $1,000,000

Step 4: Tax = ($1,000,000 ÷ 1,000,000) × $400 = $400

Using Authorized Shares Method for the same company:

10,000,000 shares would result in approximately $85,000 in tax

Always calculate both methods and pay the lower amount!

Filing Fee

In addition to the franchise tax, there is a $50 filing fee for the Annual Report.

Total Payment = Franchise Tax + $50 Filing Fee

How to File

Online (Recommended)

1. Go to corp.delaware.gov

2. Click "Annual Report/Franchise Tax"

3. Enter your file number or search by corporation name

4. Review pre-filled information and update as needed

5. Calculate your tax (the system calculates both methods)

6. Pay via credit card or e-check

7. Save your confirmation

By Mail

1. Complete the Annual Report form (mailed to registered agent in January)

2. Calculate your franchise tax using both methods

3. Write the lower amount on the form

4. Include check payable to "Delaware Secretary of State"

5. Mail to:

Delaware Division of Corporations

P.O. Box 898

Dover, DE 19903

Recommendation: File online to ensure timely receipt and immediate confirmation.

Penalties for Late Filing

Immediate Penalties (March 2 onwards)

$200 late penalty

1.5% interest per month on the unpaid tax amount

Voiding (After 3 Years)

If you fail to file for 3 consecutive years:

Corporation is declared VOID

Cannot conduct any business

Cannot file or defend lawsuits

Cannot transfer property

Reinstatement

To reinstate a void corporation:

File all past-due Annual Reports

Pay all past-due taxes

Pay all penalties and interest

Pay reinstatement fee ($209 minimum)

Common Issues

Issue 1: High Tax Using Authorized Shares Method

If your tax seems unusually high, you're likely a startup with many authorized shares but few assets.

Solution: Use the Assumed Par Value Capital Method instead. Provide your:

Total gross assets (from your balance sheet)

Number of issued shares

Issue 2: What Are "Total Gross Assets"?

Total gross assets means:

All assets wherever located

Use figures from your most recent financial statements

Include cash, equipment, inventory, receivables, investments, etc.

Do not subtract liabilities

Issue 3: Forgot to File

If you realize you've missed the March 1 deadline:

1. File as soon as possible

2. The longer you wait, the more interest accrues

3. Penalties are assessed immediately but total amount grows over time

Issue 4: No Activity/No Assets

Even if your corporation:

Had no business activity

Has no assets

Had no income

You STILL must file and pay the minimum franchise tax ($175 or $400 depending on calculation method, plus $50 filing fee).

Planning Tips

Reduce Your Authorized Shares

If your corporation has many authorized shares but doesn't need them:

Consider filing a Certificate of Amendment to reduce authorized shares

This can significantly reduce your franchise tax

Amendment fee: $200

File Early

Don't wait until March 1:

File in January when you receive your reminder

Avoid last-minute technical issues

Ensure payment processes in time

Set Calendar Reminders

The March 1 deadline is strict:

Set reminders for January 15, February 1, and February 15

StartCorp sends automatic reminders 60, 30, and 7 days before

Conclusion

The Delaware Annual Report and Franchise Tax is a critical annual obligation. By understanding both calculation methods and filing on time, you can minimize your tax burden and keep your corporation in good standing.

StartCorp automatically calculates your Delaware franchise tax using both methods and reminds you well before the March 1 deadline. Sign up for free to simplify your Delaware compliance.