Delaware Corporations and the Annual Report/Franchise Tax
By March 1 of each year, Delaware corporations must submit an annual report to the Division of Corporations and pay any applicable franchise taxes to the State. Similarly, a corporation domiciled in another state, but which files (or “qualifies”) to do business in Delaware (referred to under Delaware law as a “foreign corporation”), must file its annual report with the State by June 30 of each year and pay the required fee to continue its qualification (rather than a franchise tax which is paid to the state of domicile).
This article discusses the required contents of an annual report, the methods of answering certain questions, and related information useful for its completion and submission. Note that this discussion only applies to the franchise tax payable by corporations. LLCs and LPs pay a $300 flat fee per year, rather than a variable franchise tax depending on the number of shares.
The Filing and Mechanics of the Annual Report
Means of Filing the Annual Report
A Delaware corporation must file its Annual Report electronically. Often, that task is addressed by a corporation’s registered agent, who files the report and makes the tax payment directly to the State’s system as part of its suite of services. For persons filing their corporation’s Annual Report without assistance, however, the Delaware Division of Corporations’ website accepts the electronic filings.
Annual Report Filing Fees
For both Delaware corporations and foreign corporations, the State charges a filing fee for submitting an annual report. For a domestic corporation, the annual report filing fee for a Delaware corporation is $50, or $25 for an exempt Delaware corporation. Foreign corporations (companies incorporated in another state but qualified in Delaware) must pay a higher fee of $125.
Timing of Annual Report and Payment
Generally, registered agents receive franchise tax information from the State with respect to their customer companies in December, which they then pass on to customers. As noted above, Delaware corporations must file their Annual Report and pay their franchise tax by March 1 of each year, and quality registered agents generally provide copious notices of the upcoming deadline by mail and by electronic means, along with many reminders to ensure the filing is completed on time.
Failure to File – Penalties and Loss of Good Standing
If a Delaware corporation fails to file a timely annual report, the State will assess an immediate penalty of $200, with interest at 1.5% per month, which is added to any unpaid tax balance. For a foreign corporation, the penalty for failing to file is $125. Further, in failing to file or to pay the appropriate remedial fees, the corporation would be out of “good standing” with the State. Most parties involved in a significant transaction or agreement will require a Certificate of Good Standing as a precondition to the deal. This could include banks and other lenders, suppliers, and distributors. Many companies find that they cannot complete a deal on time because of a late report or payment that prevents them from obtaining an attestation of good standing from Delaware.
The Content of the Annual Report
Biographical and Contact Information
The Annual Report requires certain contract and personnel information to be maintained and updated. The Annual Report must include:
- The address and name of at least one officer of the corporation,
- The address and name of each Director, and
- The company's physical address.
Franchise Tax Calculation
Franchise tax represents a corporation’s payment for the State’s recognition under its corporate law and the limited liability and separate personhood such recognition confers, among other special rights and obligations. The term “franchise” is not referring to, for instance, ownership of a McDonald’s or Subway franchise. Think of the franchise tax as the price paid for the right or privilege to have a Delaware Corporation.
The franchise tax for a corporation in Delaware is determined through one of two means, depending upon the number of shares issued by the corporation. Harvard Business Services offers a valuable franchise tax filing service to help with calculating and submitting a corporation’s annual franchise and annual report Harvard Business Services also offers a Franchise Tax Calculator to help companies looking to incorporate determine what the annual Delaware franchise will be for their situation.
Our Assistance at Harvard
We at Harvard Business Services are happy to assist with your annual report / franchise tax filings. Feel free to reach out to our helpful team of specialists at 800 345 2677 ext 6904, payments@delawareinc.com, or live chat.
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