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Every company formed in the state of Delaware is required to pay an annual fee imposed by the Secretary of State (SOS). The fee is called a “Franchise Tax,” but it doesn’t mean that the company is a franchise, like a fast food restaurant. “Franchise tax” refers to another definition of word franchise—“the right to be and exercise the powers of a corporation.”
For an LLC/LP company, the Franchise Tax fee is straightforward—a flat amount of $300 due by June 1 of every year. In this case, no Annual Report must be completed. As long as the flat amount is paid by the deadline each year, the company remains in compliance with the state’s office.
For an INC, the Franchise Tax amount varies based on the number of shares the company has authorized. The fees vary from $225 to $180k per year, based on internal company details such as issued shares and gross assets. A non-profit/exempt company owes a reduced Franchise tax rate of $25 per year. An INC must file an Annual Report that presents the principal place of business, the names and addresses of all Directors, and the name and address of one Officer (regardless of how many have been elected). An INC must file the Annual Report and pay the Franchise Tax fees in order to fulfill the annual state requirement. If one or the other is not received by the March 1 deadline, the company is considered delinquent.
For example, if an INC makes a payment of $450 for Franchise Tax fees, but neglects to file an Annual Report, the company is delinquent. Likewise, if the Annual Report is submitted on time to the state’s office, but without the full Franchise Tax amount. In either case, the company is considered delinquent, and must provide the missing component to rectify the situation.
Sometimes an INC would like to file an amended Annual Report due to a change in any of the details listed on the current Annual Report. This can be done at anytime throughout the year instead of waiting until the following March 1 deadline. In some cases, the Delaware Franchise Tax Department may require that an amended Annual Report be filed due to discrepancies listed on previously filed Annual Reports.
In the past, the state has allowed amended Annual Reports to be filed at no additional charge. However, starting September 1, 2019, the Delaware Secretary of State will impose a $50 fee for every amended Annual Report that is filed ($25 for an exempt company). This fee applies to voluntary Annual Report amendments and those required by the Delaware Franchise Tax Department. Harvard Business Services, Inc. can assist with the filing of an amended Annual Report for an additional filing fee.
If your company is in need of filing an amended Annual Report, it should be done prior to the September 1 date in order to avoid any extra fees.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.