When you have a company incorporated in the State of Delaware, there is an obligation to pay an annual franchise tax fee.  All non-profit and stock corporations owe the franchise tax fee by March 1 of each year.  Limited Liability Companies (LLCs) pay by June 1^st.

A non-profit company does not pay a franchise tax fee, but is required to file and pay the $50 annual report fee.

For stock companies, there are two methods that the State of Delaware uses to calculate the amount of franchise tax fees due.  The first method is the “Authorized Shares Method” and the second method is the “Assumed Par Value Capital Method”.

Under the Authorized Shares Method, the minimum amount of franchise tax due is $75.  Under the Assumed Par Value Capital Method, the minimum amount of franchise tax due is $350.  With either method, the maximum amount due is $180,000.  In addition, the $50 annual report filing fee is added to the franchise tax amount due.

You may wonder how the franchise tax bill amount due is determined.  The State of Delaware will always generate the franchise tax notice under the Authorized Shares Method.  Therefore, the total number of authorized shares your company has is used to calculate the franchise tax bill.  You have the option to file the annual franchise tax report under either method.  The company will pay the franchise tax amount that is the lesser of the two methods.

The State of Delaware description of each method and calculation examples are shown here:

Authorized Shares Method:

• 5,000 shares or less (minimum tax) $75.00
• 5,001 – 10,000 shares – $150.00
• each additional 10,000 shares or portion thereof add $75.00
• maximum annual tax is $180,000.00

For Example

A corporation with 10,005 authorized shares pays $225.00 ($150.00 plus $75.00)
A corporation with 100,000 authorized shares pays $825.00 ($150.00 plus $675.00[$75.00 x 9])

Assumed Par Value Capital Method:

To use this method, you must declare figures for all issued shares (including treasury shares) and your total gross assets in the spaces provided in your Annual Franchise Tax Report.  This is a public record document and may be obtained by anyone from the State of Delaware. Total Gross Assets are those “total assets” reported on the U.S. IRS Tax Form 1120, Schedule L (Federal Tax Return) relative to the company’s fiscal year ending the calendar year of the report.  The tax rate under this method is $350.00 per million or portion of a million.  If the assumed par value capital is less than $1,000,000, the tax is calculated by dividing the assumed par value capital by $1,000,000 then multiplying that result by $350.00.  

The example cited below is for a corporation having 1,000,000 shares of stock with a par value of $1.00 and 250,000 shares of stock with a par value of $5.00, gross assets of $1,000,000 and issued shares totaling 485,000.

1. Divide your total gross assets by your total issuedshares carrying to 6 decimal places.  The result is your “assumed par”.Example: $1,000,000 assets, 485,000 issued shares = $2.061856 assumed par.
2. Multiply the assumed par by the number of authorizedshares having a par value of less than the assumed par.Example: $2.061856 assumed par s 1,000,000 shares = $2,061,856.
3. Multiply the number of authorized shares with a par value greater than the assumed par by their respective par value.Example: 250,000 shares with $5.00 par value = $1,250,000
4. Add the results of #2 and #3 above.  The result is your assumed par value capital.Example:  $2,061,856 plus $1,250,000 = $3,311 956 assumed par value capital.
5. Figure your tax by dividing the assumed par value capital, rounded up to the next million if it is over $1,000,000, by 1,000,000 and then multiply by $350.00.Example: 4 x $350.00 = $1,400.00
6. The minimum tax for the Assumed Par Value Capital Method of calculation is $350.00.

If you are in need of help in determining the amount of franchise tax fees due for your company, just let us know.  We offer a franchise tax filing fee service and will gladly review your account and calculate the franchise tax fees due to the lowest legal amount.

Our Franchise Tax Department can be reached via email at franchisetax@delawareinc.com.  Or we can be contacted via telephone at 1-800-345-2677 or 1-302-645-2677, extension 6901.

It is the requirement of every INC incorporated in the State of Delaware to file an annual report every year.  After the annual report is submitted, some clients wonder what happens with the information that is filed.  Here are some more questions frequently received from our clients regarding the annual report.

Who can see the details that are filed on an annual report?

The company must provide some basic internal details on the annual report.  The State of Delaware requires (1) the principal place of business, (2) names and addresses of all Directors, (3) name and address of one Officer and (4) authorization to file the annual report by a Director or Officer.  Some maximum stock companies (those companies with over 5000 authorized shares) must also provide the total gross assets and total issued shares on the annual report.

Every annual report and the information listed becomes part of the official filing history of the company.  The annual reports are electronically stored with the Secretary of State’s office and the reported details cannot be viewed publicly.  Therefore, it is not possible to see a filed annual report online with the State of Delaware.

How can a copy of a filed annual report be obtained?

Perhaps the details of the company Officer and/or Directors need to be provided for banking or contract purposes.  The State of Delaware does not maintain an online database that allows anyone to view a copy of documents on file for a company.  Therefore, in order to obtain a copy of a filed annual report, the document must be requested from the Secretary of State’s office for a fee.  The document is issued in black and white, just like all other State documents, so it can be printed and used immediately.  Even though a copy of a filed annual report can be obtained, any information regarding a company’s total gross assets and total issued shares will not be disclosed.  Therefore, for the specific companies that must provide this information on their annual report, those details will still remain private.

What if the information on an annual report needs to be modified?

Sometimes the details that are listed on an annual report can change throughout a year.  For example, a Director may resign, a new Secretary may be elected, or there could be a change of principal place of business address for the company.  In this case, an amended report needs to be filed to update the information previously filed.  A completely new annual report must be filed in its entirety to replace the previous annual report on file.  It is not acceptable to file a partial amended annual report that simply indicates the new details to be updated.   The State of Delaware will allow an amended report to be filed up to one year after the date of the originally filed annual report.

Harvard Business Services can assist in obtaining a copy of a previously filed annual report or file an amended annual report for a company.  Contact our office and we would be happy to help with any questions or requests.

See other Common Delaware Annual Report Questions HERE.

If you have an incorporated company, then you probably are filing some type of annual report with your state government on yearly basis.  Just about every state requires companies to file a report and/or pay a fee annually or bi-annually, which is commonly called a “Franchise Tax”.

Every company that is incorporated here in the State of Delaware is required to file an annual report and pay a franchise tax fee each year.  This annual report filing applies to the following types of companies:  General, Close, Non Stock and Exempt/Non-Profit. While Exempt/Non-Profit companies do not pay a franchise tax, they must still file an annual report.

What information must be provided on the actual annual report? 

The State of Delaware asks for a few basic internal details about the company.  The items required to be reported are:

• Principal place of business-the physical location of where the company is located
• Name and address of one officer-typically a President, Vice President, Secretary or Treasurer
• Names and addresses of all directors-if none elected yet, then the report can reflect zero
• Authorization-by an officer or director to file the annual report

If the company has more than 5,000 shares authorized then there are couple more items to provide on the annual report:

• Total gross assets-which are reported on the company’s Federal Tax Return Form 1120
• Total issued shares-that can be found in the company’s stock transfer ledger

What happens when you are ready to file the annual report and the information has not changed from the prior year? 

For a lot of companies, the information that has to be reported is the same each year.  Our clients are always asking if they need to fill out an annual report if the information is the identical as the prior year.  As per the Delaware Code, the details must still be provided on the annual report each and every year to keep the company in compliance.  It is unacceptable to file an annual report marked “same as last year”.  Therefore, regardless if there are any changes within the company throughout the year or not, a completely new annual report must be filed.

Where does the annual franchise tax report information get filed?

Our clients want to know what happens with the details listed on the actual annual report.  The report is filed with the Delaware Secretary of State’s office, just like the company’s original Certificate of Incorporation.  It remains part of the company’s official filing history, just like any other type of filing the company had done and every type of corporate document the company ever obtained.   Every annual report that is paid and filed for the company is always kept on record.

Harvard Business Services offers a franchise tax filing service to help you file the annual report each year with the State of Delaware.  Contact us at 1-800-345-2677, or 1-302-645-7400, extension 6901 with any additional questions regarding the annual report filing.  Or send an email to franchisetax@delawareinc.com and we would be glad to assist.