Delaware Franchise Tax: What US Small Businesses Should Know

If your business is incorporated in Delaware, understanding the Delaware Franchise Tax is essential. This annual fee is required to maintain your corporate status and stay in good standing with the state. For US small business owners, it’s a key consideration when planning overall corporate tax services in US, helping you avoid penalties and integrate franchise tax responsibilities into your broader financial strategy. Even if your business doesn’t operate in Delaware, knowing the rules ensures you remain compliant and financially prepared.

1. What Delaware Franchise Tax Means

The Delaware Franchise Tax is a mandatory fee for corporations and certain business entities to maintain incorporation privileges. It is not a tax on income but rather a fee for the legal benefits of being incorporated in Delaware.

Who must pay:

• Corporations (C-Corps, S-Corps): Required to file an Annual Franchise Tax Report and pay the franchise tax.

• LLCs, Limited Partnerships (LPs), General Partnerships (GPs): Pay a flat $300 fee annually; no report filing is required.

Deadlines:

• Corporations: March 1 each year

• LLCs, LPs, GPs: June 1 each year

Penalties for late payment:

• Failure to pay on time can lead to penalties, interest, or even revocation of corporate privileges.

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2. How Franchise Tax Is Calculated

Delaware offers two calculation methods for corporations, while LLCs and partnerships pay a flat fee. Understanding your options helps you plan and optimize your corporate taxes.

2.1 Authorized Shares Method

This method calculates tax based on the number of authorized shares:

• Minimum tax: $175 for up to 5,000 shares

• $250 for 5,001–10,000 shares

• Plus $85 for each additional 10,000 shares

• Maximum tax: $180,000

2.2 Assumed Par Value Capital Method

This method uses gross assets divided by issued shares:

• Minimum tax: $400

• Based on gross assets and issued shares

• Maximum tax: $180,000

LLCs, LPs, and GPs:

• Flat annual tax: $300

• Late payments incur $200 penalty + 1.5% monthly interest

2.3 Filing and Payment

• All filings are electronic via the Delaware Division of Corporations website

• Corporate income tax is filed separately from franchise tax

3. Why It Matters for US Small Business Owners

Understanding the Delaware Franchise Tax helps US small business owners:

• Avoid penalties, interest, or loss of corporate privileges

• Maintain the legal standing of Delaware-incorporated businesses

• Incorporate franchise tax obligations into broader corporate tax services in US planning

• Ensure smooth compliance while managing business finances efficiently

Summary

The Delaware Franchise Tax is an essential annual requirement for all Delaware-incorporated businesses. Corporations must file by March 1 using one of the calculation methods, while LLCs and partnerships pay a flat $300 fee due by June 1. Staying compliant ensures US small business owners avoid penalties, retain corporate privileges, and integrate franchise tax planning into broader corporate tax services in US.

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