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.

In my last article titled Baseball and Delaware Law we discussed the Los Angeles Dodgers and their owner Frank McCourt’s troubles. In this next article we discuss the latest developments between Major League Baseball and The Los Angeles Dodgers owner Frank McCourt.

On October 25, 2011 in an article on espn.com, “Major League Baseball claimed that the Dodgers owner Frank McCourt took nearly $190 million from the team in what a court filing termed “looting.”

In filings in Delaware Court, MLB said McCourt took $189.16 from the club — $73 million in parking lot revenue through a separate company, $61.16 million to pay personal debts, and $55 million for personal distributions, the Los Angeles Times reported, citing documents.

MLB and Frank McCourt were headed toward a showdown in U.S. Bankruptcy Court in Delaware at the end of November. However, on November 1, 2011 espn.com reported that Frank McCourt and MLB reached an agreement to sell the Los Angeles Dodgers along with Dodger Stadium and the surrounding real estate. The decision not only brings to end a six-month legal battle with baseball commissioner Bud Selig, but, ends McCourt’s seven and one-half year ownership of the team.

McCourt ultimately realized that selling the Dodgers was in his best interest and that of the fans. As previously written in my first article Frank McCourt purchased the Los Angeles Dodgers in 2004 for $430 million. Based on various media reports from espn.com, the team is expected to sell for somewhere between $800 million and $1.2 billion this time.

Recently, Delaware’s governor Jack Markell joined a delegation of Israeli and American chief executive officers in ringing the opening bell to celebrate the fifth annual Israel Day at the New York Stock Exchange.  This event kicked off a full day program highlighting business innovations that can lead to new partnerships and mutual investments, creating business opportunities in both the U.S. and Israel.  Many of these businesses are and will be incorporated in Delaware.  More than 55% of corporations listed on the New York Stock Exchange are already incorporated in The First State.

The conference highlighted the innovative businesses, from leading global companies to smaller startups. It was an opportunity for keynote speaker Governor Markell to present the many advantages of Delaware as a center for business startups, research and development, as well as finance.  Because of Delaware’s modern and flexible corporate laws and friendly business environment, it has an important role in enabling modern business partnerships that were the focus of the conference.

“Israel and Delaware businesses share a great potential for partnership,” said Governor Markell.  “Israel has led the world in finding ways to successfully commercialize research.  Delaware businesses and our universities have focused increasingly on finding ways to commercialize academic research.  We are becoming a strong national leader in bio-technology, alternative energy, composites, and electrical engineering.  Delaware welcomes innovation and we want more innovative businesses to call Delaware home.”

Further highlighting the business advantages of Delaware he added, “Though Delaware is a small state, we have the highest per capita concentration of patent holders and Ph.D. researchers in the United States.”

This event and many others continue to showcase Delaware as the highly favored state of incorporation for US as well as innovative world-wide businesses.