Every year, Delaware S corp filing obligations include submitting an Annual Franchise Tax Report.
Every year, Delaware S corp filing obligations include submitting an Annual Franchise Tax Report. The amount of your real franchise tax might vary depending on a number of variables.
What to Think About Before Starting a Corporation
There are many considerations to consider when incorporating a S company in Delaware, including the expense of sustaining your business. All companies in this state are required to file an Annual Franchise Tax Report and pay the franchise tax. Even if your company does not do business in Delaware, you must file this report.
The value of your firm’s capital stock is used to determine how much franchise tax you owe, and this tax is owed even if your company generates no money.
There are two things to bear in mind when it comes to franchise taxes. First, you should be aware of the state limits on how much you may pay in franchise taxes. The State of Delaware has raised its Franchise Tax Cap. The yearly ceiling is currently $200,000, with some major corporations paying up to $250,000. Partnerships and limited liability corporations pay just $300 per year.
Second, you should be aware that there are two ways for determining franchise taxes, the simplest of which is the Authorized Share Method. The amount you owe is determined by the number of shares approved by your company:
You owe $175 if you have less than 5,000 authorised shares.
You owe $250 if you hold 5,001 to 10,000 authorised shares.
You must pay $85.50 for each extra 10,000 permitted shares.
Another method for calculating your Delaware franchise tax is the Assumed Par Value Capital Method.
Assumption of Par Value Capital Method
If the Assumed Par Value Capital Method results in cheaper franchise taxes than the Authorized Shares Method, certain firms may opt to employ it. The disadvantage of adopting this second approach is that making computations may be quite tough. If you wish to pay your taxes simply, the Authorized Shares Method is the superior alternative.
If you utilise the second approach, you must provide two items of information on your Annual Franchise Tax Report: your corporation’s gross assets and the total number of issued shares, including treasury shares. Your gross assets should be the same as what you stated on your federal tax return. You’ll have to pay $400 for every million dollars in assets you hold. Whatever way you select, be sure you submit and pay your franchise taxes on time, since there is a $250 late penalty.
Maintenance Requirements for Delaware Corporations
There are various standards that you must complete each year in order to keep your Delaware company in good standing. For example, you must pay a $90 fee to your registered agent each year. Corporations must submit a Franchise Tax Report, and limited liability companies must file an Annual Report. Every firm in this state is required to submit an income tax return each year, even if the company hasn’t generated any money.
You must always submit a federal tax return, but if your company does not maintain a primary Delaware office, you are exempt from filing a state return. Every year, Franchise Tax Reports are due by March 1. The Delaware Secretary of State should receive your corporation’s report.
Every year, LLCs must pay a minimum franchise tax of $300. This tax payment is required by June 1st, however you may pay it sooner if you choose. An LLC will send its Annual Report to its registered agent rather than submitting it with the state. The state of Delaware will impose a penalty on businesses that fail to submit their mandatory reports. Every month that the reports are not submitted, interest will be charged.
LLCs and corporations in Delaware are also obliged to follow corporate governance regulations in addition to completing these yearly paperwork. Corporate governance essentially implies that your firm is running in such a manner that it is in compliance with its legal duties. This implies that you conduct and document meetings to address corporate concerns on a regular basis. This would imply convening board of directors and shareholder meetings for a company.
Corporate governance rules might vary based on the state in which your firm was incorporated. Specific regulations should be available from your Secretary of State.