Delaware S corp filing requirements include filing an Annual Franchise Tax Report every single year. The amount of your actual franchise tax can depend on several different factors.

What to Consider Before Forming Your Corporation

Before forming an S corporation in Delaware, there are multiple factors that you need to consider, including the cost of maintaining your entity. In this state, all corporations must submit an Annual Franchise Tax Report and pay the franchise tax. You must submit this report even if your corporation doesn't do business in Delaware.

Your company's capital stock is used to calculate the amount that you owe for your franchise tax, and this tax is due even if your company doesn't generate any income.

There are two factors you should keep in mind related to your franchise taxes. First, you should understand the state caps on how much you will pay in franchise taxes. Recently, the State of Delaware has increased its Franchise Tax Cap. The cap is now $200,000 annually, and some large businesses may pay $250,000. Limited liability companies and partnerships only pay $300 a year.

Second, you need to know that there are two methods for calculating your franchise taxes, with the easiest being the Authorized Share Method. The amount you owe depends on how many shares your company has authorized:

  • If you have less than 5,000 authorized shares, you owe $175.
  • If you have 5,001 to 10,000 authorized shares, you owe $250.
  • For every additional 10,000 authorized shares, you must pay $85.

The Assumed Par Value Capital Method is another way that you can calculate your Delaware franchise tax.

Assumed Par Value Capital Method

Some corporations may choose to use the Assumed Par Value Capital Method if it results in lower franchise taxes than the Authorized Shares Method. The problem with using this second method is that making calculations can be very difficult. Choosing the Authorized Shares Method is the better option if you want to be able to easily pay your taxes.

If you want to use this second method, you'll need to enter two pieces of information on your Annual Franchise Tax Report: your corporation's gross assets and the total number of issued shares, including treasury shares. The gross assets you report should be the same as what you reported on your federal tax return. You'll need to pay $400 for every million in assets that you own. Whichever method you choose, be sure that you file and pay your franchise taxes are on time, as there is a late penalty of $250.

Delaware Corporation Maintenance Requirements

To maintain your Delaware corporation's standing, there are several requirements that you'll need to meet every year. For example, each year you will need to pay a $90 fee for your registered agent. Corporations must file a Franchise Tax Report, and LLCs need to file an Annual Report. Every company in this state should file an income tax return every year, even if the business hasn't actually earned any income.

You will always need to file a federal tax return, but if your business does not have a principal Delaware office, you won't need to file a state return. Franchise Tax Reports are due by March 1 every year. Your corporation should file its report with the Delaware Secretary of State.

LLCs will pay a minimum franchise tax of $300 every year. This tax payment is due no later than June 1, but you can pay it earlier. Instead of filing Annual Reports directly with the state, an LLC will mail its report to its registered agent. Business entities that fail to file their required reports will incur a penalty by the state of Delaware. Interest will accrue every month that the reports are not filed.

In addition to filing these annual documents, LLCs and corporations in Delaware are also required to follow corporate governance rules. Basically, corporate governance means that your company is operating in such a way that it complies with its legal obligations. This means that you are regularly holding and documenting meetings to discuss company issues. For a corporation, this would mean holding board of directors and shareholders meetings.

Corporate governance requirements can differ depending on the state in which you formed your company. You should be able to find specific rules with your Secretary of State.

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