Skip to main content

​
Overview

The Delaware franchise tax is a fee that companies pay to Delaware each year to keep their legal status. It’s not a tax on profits – it’s a cost of being incorporated there. The state collects billions in fees from this system every year. Many startups incorporate in Delaware because VCs require it, as Delaware’s business-friendly laws make it easier for investors to navigate legal issues.

​
Who needs to pay and file?

Every company incorporated in Delaware must pay the franchise tax and file an annual report, even if it doesn’t do business there. Some founders assume they don’t need to pay if they have no revenue, no activity, or operate in another state, but the obligation exists regardless unless you formally dissolve the company.

​
Deadline and late penalties

The franchise tax and annual report are due March 1st every year and must be completed together.
If tax amount is ≥ $5,000, payment and filing is required every quarter. Missing the deadline results in a $200 late fee plus 1.5% interest per month on the unpaid tax. After months of nonpayment, Delaware could classify the company as “not in good standing”. And if multiple payments are missed, they may shut it down completely.

​
How to pay and file

Finta helps customers with this entire process.
  1. Get Delaware File Number - If you don’t know your company’s Delaware File Number yet, go to the Delaware Name Lookup page, enter your company’s legal name in Entity Name and click Search. Get the File Number from the results.
  2. Go to input page - Go to the filing page, click Click Here to Pay Taxes / File Annual Report, enter your Delaware File Number, solve the captcha, then click Continue. In the correct tax year row click File Annual Report. (If it says File Amended Annual Report then it’s already been filed.)
  3. Enter cap table info - In the Stock Information table enter:
    • Issued shares: issued amount for this share class from cap table.
    • Gross assets: assets or cash balance at the end of last year.
    • Asset date: “12/31/yyyy”. (yyyy = tax year you’re filing for.)
  4. Recalculate tax amount - The Amount Due will likely show an insanely high number. It’s ok, click Recalculate Tax and the amount should be much lower. Check the section below to see how this is calculated.
  5. Enter Directors info - Complete the remaining sections on this page:
    • Principal place of business: enter your headquarters address.
    • Officer information: typically this is the CEO. Enter their info.
    • Directors information:
      • Enter Total Number of Directors: enter the number of directors. Typically this is the founders.
      • Click Enter Directors Info, then complete the information for each row.
    • Checkbox: certify to Terms and conditions
    • Last row: entering addresses three times isn’t enough, just one more time.
    • Click Continue Filing
  6. Proceed to payment - On the confirmation page, scroll to the bottom and click Proceed to Payment. Enter your payment information and click Submit. If tax amount is ≥ $5,000 then only ACH is accepted.
If ACH and you have whitelist/blocking, add Delaware’s ID: 1225092400 first.
  1. Keep confirmation records - Download and keep the payment and filing confirmation. You’re all set!

​
How the tax is calculated

The minimum amount is 450(450 (400 tax plus $50 filing fee).
This is the general methodology: ⌈Assets÷(OutstandingAuthorized)$1,000,000⌉×$400+$50\left\lceil \frac{\text{Assets} \div \left(\frac{\text{Outstanding}}{\text{Authorized}}\right)}{\$1,000,000} \right\rceil \times \$400 + \$50 Formula: =CEILING(Assets / (Outstanding / Authorized) / 1000000) * 400 + 50 And replace the variables:
  • Authorized: total shares authorized
  • Outstanding: total shares outstanding
  • Assets: assets or cash at the end of last year