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Sometimes business owners who operate Delaware companies neglect one of the most important aspects of their company—keeping their Delaware company current, active, and in Good Standing in Delaware. Individuals can be surprised by the news that their entity is not compliant or no longer active.
Now more than ever, we suggest that our clients pay close attention to the status of their business. Eligibility for pandemic relief in the form of loans or grants is just one reason why. Specifically, consideration for the Paycheck Protection Program, also known as a PPP Loan, requires that your company is current, active and in Good Standing. Providing essential support for companies affected by the pandemic, the PPP Loan has created an uptick in clients who need to formally revive their Delaware company or pay Franchise Tax so that the company can be eligible for important economic relief. Business owners can avoid a costly renewal process and additional fees by staying current. Good Standing is also imperative when dealing with a bank to apply for other types of loans.
A current Delaware Certificate of Good Standing for your company is a letter provided by the Delaware Secretary of State that declares that a company is in good standing with the state. It specifically lists the incorporation date, good standing status for a corporation or LLC, and whether its taxes are current. If your entity is not compliant in Delaware or active, the Certificate of Good Standing cannot be issued.
For Delaware entities, the company must maintain a Delaware Registered Agent and pay the annual Delaware Franchise Tax to remain active and compliant in Delaware. The Delaware Franchise Tax for LLC’s is due by June 1 of each year, while the Franchise Tax and Annual Report for Delaware Corporations is due by March 1 of each year. Franchise Tax is the fee imposed by the state of Delaware for the right or privilege to own a Delaware company. The tax has no bearing on income or company activity; it is simply required by the state of Delaware to maintain the good standing status of your company.
If your company needs to be formally revived in Delaware, a Delaware Certificate of Revival must be filed and any Franchise Tax that remained with the entity at the time of inactivity need to be paid at the time of renewal. If your company is still considered active in Delaware, the entity may need to pay Franchise Tax to become compliant.
Another important reason to keep your entity active in Delaware is so that the company can keep the entity name. When a Delaware company becomes inactive in Delaware, the entity name becomes available to be formed in Delaware once again. During the revival process, it may be discovered that your entity name is not currently available in Delaware and the revival may need to be filed with a new company name. In order to conduct business activities and grow your company, keeping the company compliant and active in Delaware is one of the most important factors in success.
If you have any questions or need assistance determining the status of your Delaware entity, I will be happy to assist. Feel free to contact me via email at firstname.lastname@example.org or I can be reached directly at 1-800-345-2677 or 1-302-645-7400 ext. 6144.
*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 sourceâ€™s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.