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If you have a company formed in the state of Delaware, you may be interested to learn about the legislation that was approved by the General Assembly in July of 2017. House Bill 175 affects the annual Franchise Tax fees for entities incorporated in Delaware. The changes do not apply to Limited Liability Companies (LLCs) or Limited Partnerships (LPs), only to stock and non-stock corporations.
The first Franchise Tax change for corporations is that the Authorized Shares Method for calculating a Franchise Tax amount due will be modified. This is the method the state of Delaware always uses for the initial tax assessment. This formula arrives at a Franchise Tax Fee based on the number of shares the company has authorized. It is a graduated scale that increases based on the number of shares a company is allowed to issue.
Currently, the rate is $175 for a company with 5,000 authorized shares or less. A company with 5,001 to 10,000 authorized shares owes a fee of $250. Then there is a fee for each additional 10,000 shares or portion thereof—it is this fee that Delaware has increased, from $75 to $85.
For example, a corporation with 200,000 authorized shares owes $250 for the first 10,000 shares and an additional $1,615 ($85 times 19), for a total due of $1,865 (plus $50 for the annual report fee).
Delaware also has an alternative way to calculate the Franchise Tax fees due, called the Assumed Par Value Capital Method. Fortunately, the state allows corporations to pay the lessor amount due via the two methods. You can enter various figures and see the results of each method on our Franchise Tax calculator.
The second change made by the state is that under the Assumed Par Value Capital Method, the minimum amount of annual Franchise Tax Fee that can be paid via this method is increasing from $350 to $400. You also have to add the $50 annual report fee, which makes the total minimum amount due $450 per year under this method. Please note that even with this small increase, the amount is still far less than some other states that charge up to $800 for their annual fees.
To review, here are the Delaware Franchise Tax fees that are changing:
FOR CORPORATIONS ONLY:
PLEASE NOTE: THE $50 ANNUAL REPORT FEE MUST STILL BE ADDED TO YOUR FRANCHISE TAX FEE.
Please remember, these are changes to your corporation’s 2018 Franchise Tax. As always, our experienced Franchise Tax associates are available to help with any questions you may have in regard to your company’s specific needs.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.
There is 1 comment left for Delaware’s New Corporation Franchise Tax FeesEden David Sarfaty said: Tuesday, December 19, 2017
What about non-stock corporations?HBS Staff replied: Wednesday, December 20, 2017
Yes, it applies to non-stock corprorations as well as stock corporations.