Delaware corporation annual report is among the primary duties required for all businesses in this state. The report is necessary to keep the state informed about your business’s annual activities and performance. Delaware’s corporation law requires that this report be filed with the Delaware Secretary of State’s office every year.
Our guide will help you understand what information is required in your Delaware corporation annual report, how to file it, and when it’s due.
About Delaware corporation’s annual report
The Delaware annual report is a document that includes information about the corporation’s activities, performance, and financial conditions, that must be submitted by March 1 annually after incorporation.
All business entities established in Delaware are expected to submit reports each year along with payment of the franchise tax. To properly file the annual report, Delaware corporation must pay keen attention to the following factors:
What type of information should be covered in an annual report?
The Delaware corporation annual report form has already been pre-populated with certain data, including:
- Your organization’s precise legal name
- Total authorized share number
- Par values and classes of shares
- Analysis of franchise taxes and fees
On another note, Delaware corporation annual report requirements also involve the detailed coverage of:
- Phone number and address of your business
- Home addresses and names of all the directors
- Name and home address of an officer
- Signature of a legally authorized signatory
What is the due date for Delaware corporation annual report?
Domestic Delaware companies must hand in annual reports by March 1st, with all filing fees and franchising taxes paid off. Any submission received after March 1 will be listed as overdue.
Keep in mind that these filing and payments are for your preceding calendar year, so if you file your report in 2022, it’s for the year 2021. Exempt companies have no legal obligations to pay for franchise taxes, but annual reports and filing fees are still required.
What will happen if I fail to meet the due date?
Notably, Delaware authorities refuse to issue Good Standing Certificates for companies that did not submit yearly reports by March 1. If two years have passed with no filings and payments, the Certificates of Incorporation might become invalid.
Aside from initial taxes and filing charges ($50), corporations will be subject to US$200 of penalties and an interest rate of 1.5 percent per month for any unpaid amount of tax.
You must submit an annual report along with the franchise tax payment. In the following section, we’ll go over the method to calculate franchise tax in greater detail.
How to estimate Delaware corporation franchise tax
There are two methods for franchise tax estimation, which are the Authorized Shares Method and the Assumed Par Value Capital Method.
The Authorized Shares Method is the calculation based only on the number of authorized shares and is also the default method used by the State of Delaware. Below is how these two calculating methods are processed:
Authorized shares method
The Authorized Shares method is calculated using the number of shares authorized by the corporations, which is set by the State of Delaware’s following formula:
- 5,000 shares or less (minimum tax): $175
- 5,001 – 10,000 shares: $250
- each additional 10,000 shares or portion thereof add $85
- maximum annual tax is $200,000
This approach suits corporations possessing less than 10000 shares without any par value. However, for businesses whose stakes exceed 10000, authorized share methods will lead to a more significant tax amount than the other method.
Also, one important thing to note is that for every added share portion over your first 10000 shares (even if there is only 1), an extra fee of $85 is still compulsory.
Let’s take a look at this example to better understand the calculation
With a 1,000,000 authorized share company, the annual franchise tax is computed as below:
First 10,000 shares are taxed at $250.
For 1,000,000 shares, there are 99 additional sets of 10,000 shares, it is taxed $85 per additional 10,000 shares. This comes to $8,415, plus $250 for the first 10,000 shares.
The total amount of tax this corporation has to pay is $8,665.
In this method, it is important to note that for an additional portion of shares over the first 10,000 shares, even only 1 share, the companies still have to pay $85 of tax for it. The lowest possible amount of tax for this computing is $175.
Assumed par capital value method
There are three factors used in this calculation including:
- The number of authorized shares
- The number of issued shares ( treasury shares included)
- The total gross asset. The total gross assets come from Schedule L to federal tax form 1120 relating to the company’s fiscal year ending the calendar year of the report.
The Par Value is listed on Certificates of Incorporation by the companies but is usually set as lowest as possible; thus, Delaware decided to use Assumed Par Value for all corporations, which is calculated by dividing the gross assets by the number of issued shares.
This calculation sets the tax rate at $400 per million or a portion of a million. There are 5 basic steps to calculate the franchise tax based on Par Value Capital Method:
Step 1: Calculate the assumed par value carrying to 6 decimal places.
Step 2: Multiply the assumed par value by the number of authorized shares with a par value lesser than the assumed par value.
Step 3: With all authorized shares having a par value greater than the assumed par value, multiply the number of those shares by the respective par value.
Step 4: Calculate assumed par value capital by adding results from steps 2 and 3 together and round the sum up to the next million dollars.
Step 5: Divide the assumed par value capital by 1,000,000 even when the figure is less than 1,000,000, and multiply by $400. This is your franchise tax.
What you get will be the total sum of franchise tax to pay. Franchise taxes of more than $5000 means that the business has to make quarterly payments.
Here is calculation for a corporation with 1,000,000 authorized shares having par value of $1.00; 300,000 authorized shares having par value of $5.00; $1,000,000 gross assets and 401,000 issued shares:
Calculating assumed par value by dividing 1,000,000 by 401,000, which is $2.493765
Assumed par value capital is calculated by adding $2,493,765 and $1,500,000, which is $3,993,765, round up to $4,000,000 (multiply 1,000,000 by $2.493765 is $2,493,765; multiply 300,000 by $5.00 is $1,500,000)
Dividing $4,000,000 by $1,000,000, then multiply by $400. This comes to $1,600 as the franchise tax.
The tax rate is computed as the function of the total asset so it could be a great advantage to minimize tax for corporations. However, those with few assets should be careful when determining the number of authorized shares and issued shares; or it could lead to a heavy tax burden.
The method can be utilized to maintain the preferred tax rate if the number of issued shares comprises at least a third to half of the shares authorized.
Calculating annual tax using the assumed par value capital method is the most efficient way to lower tax liability for corporations. The minimum taxable amount using this calculation is $400.
The maximum payment for franchise tax using both methods is $200,000 in Delaware.
How to submit reports and pay required taxes
As per recent Delaware regulations, all yearly franchise tax reports are to be submitted electronically and accepted in U.S dollars only (withdrawn from American banks).
What are the methods of filing an annual report?
To file an annual report, Delaware corporation has two possible alternatives at hand:
- Electronic filings with the Divisions of Corporations
MasterCard, Visa, Discover, and ACH Debit (for more than $5000 transactions) are all accepted methods via Delaware’s official website.
- Electronic submissions via registered agents’ online filing system
These systems preserve basic information required for your reports, meaning there is no need to enter them again in subsequent years – a notable difference from the first approach. Check the site ahead of time to confirm your selected payment method is accepted.
What will occur if I do not pay taxes and submit my reports?
As previously discussed, the State will apply a $200 penalty and 1.5 percent interest each month for late payments. Such delay hinders your firm from getting a good standing certificate. In worst-case scenarios, the State might even declare your business unlawful or void.
To be 100% law-abiding, always remind yourself (or your subordinates) to:
- Have a registered agent (in Delaware)
- Pay franchise taxes before due dates
All-in-one guideline to business formation in Delaware
- Explore Delaware business entities
- Discover incorporation process
- Understand Delaware tax system
- Learn about banking issues and other considerations
This article has detailed all critical requirements of a standard Delaware corporation annual report.
In essence, on-time payment and document submissions are the most straightforward way to secure your company’s lawful status. Certain regulations also vary each year, so be sure to keep an eye on them.
If you have any questions or concerns about annual obligations for your Delaware corporation, don’t hesitate to drop a message via firstname.lastname@example.org, we’ll get in touch the soonest with practical guidance for your case.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
- About Delaware corporation's annual report
- How to estimate Delaware corporation franchise tax
- How to submit reports and pay required taxes
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