What Happens when You Don’t Pay Your Franchise Tax?

Tfto maintain a Delaware Corporation, Delaware LLC or Delaware LP, the State of Delaware has just a few requirements. 

  1. Maintain a Registered Agent physically located within the State of Delaware. A Registered agent handles all official correspondence from the Secretary of State, as well as, any service of process.
  2. Pay your Delaware Franchise Tax. Delaware LLCs and LPs pay $300/year on or before June 1st of each year, regardless of income. Delaware Corporations pay a minimum of $225/year, due March 1st of each year if you have less than 5,000 Authorized Shares. If you have more than 5,001 Authorized Shares Delaware Corporations pay a minimum of $400/year or a maximum of $200,000.
  3. File an Annual Report (Delaware corporations only). You are required to report the principal place of business, names, titles, and addresses for ALL Directors, and the name, title and address for ONE Officer. The State of Delaware also requires the up-to-date figures for gross assets and issued shares.

What happens if you don’t meet all these requirements? Well, hopefully it never comes to that, but if it does, here’s what will happen to the company. 

If you don’t keep a Registered Agent active and pay your Delaware Franchise Tax annually, eventually your company will be marked void or administratively canceled by the Delaware Division of Corporations.

Registered Agent Not Maintained

If your Delaware Registered Agent resigns, there is now nowhere for the Delaware Division of Corporations to forward official correspondence. Since this is a requirement, the company will then be marked void and go inactive. This is not to be confused with a formal closure

Unpaid Delaware Franchise Tax

What if you don’t pay your Delaware Franchise Tax or file your Annual Report? Again, hopefully you never miss a Franchise Tax payment or Annual Report filing for your company, but what if you do?

For starters, if you miss a Franchise Tax payment for your Delaware Corporation, LP or LLC or do not file the Annual Report for your Delaware Corporation, this will always be on the record with the Delaware Division of Corporations. It stays on the record, even if you pay all the past due Franchise Tax and/or file the reports and bring the company back into good standing. So if anyone were to research the company, a missed Franchise Tax payment is there on the company’s history. This may be unappealing to potential investors, lenders, etc.

Furthermore, if you don’t pay the Delaware Franchise Tax for your Delaware LLC or Delaware LP for three consecutive years, the State of Delaware will administratively cancel the LLC/LP.

The same goes for your Delaware Corporation. If you don’t pay the Delaware Franchise Tax and file the Annual Report for two straight years, the State of Delaware will administratively dissolve the Corporation.

For more Franchise Tax FAQs

If you have any questions about forming your new Delaware LLC, LP, or Corporation, give us a call today. I can be reached directly at 302-644-6265 or andrew@delawareinc.com

*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.

More By Andrew Millman
Leave a Comment
* Required
* Required, will not be published