What is Delaware Corporate Franchise Tax?

All corporations incorporated in the State of Delaware are required to pay a franchise tax.

Taxes for these entities are due on or before March 1st of each year.

What is Delaware Alternative Entity Tax?

Limited Partnerships, Limited Liability Companies and General Partnerships formed in the State of Delaware do not file an Annual Report, however they are required to pay an annual tax of $300.00.

Taxes for these entities are due on or before June 1st of each year.

I am not a Franchise why do I owe Franchise Tax?

Title 8 Chapter 5 § 501 of the Delaware code requires that every corporation now existing or hereafter to be incorporated under the laws of this State, shall pay an annual tax, for the use of the State, by way of license for the corporate franchise as prescribed in this chapter.

I haven’t started doing business yet do I still have to file a report and pay taxes?

Title 8 Chapter 5 § 503 states that all corporations accepting the provisions of the Constitution of this State and coming under Chapter 1 of this title, and all corporations which have heretofore filed or may hereafter file a certificate of incorporation under said chapter, shall pay to the Secretary of State as an annual franchise tax whichever of the applicable amounts as prescribed by Title 8 Chapter 5 § 503 (1) and (2).

Where do I get my total gross assets?

Title 8 Chapter 5 § 503 (i) states such total assets and total gross assets shall be those “total assets” reported to the United States on U.S. Form 1120 Schedule L, relative to the company’s fiscal year ending in the calendar year prior to filing with the Secretary of State pursuant to this section. If such schedule is no longer in use, the Secretary of State shall designate a replacement. The Secretary of State may at any time require a true and correct copy of such schedule to be filed with the Secretary of State’s office.

No corporation shall consolidate with its assets the assets of another entity for purposes of this section. If such schedule or its replacement reports on a consolidated basis, the reporting corporation shall submit to the Secretary of State a reconciliation of its reported total assets or total gross assets to the consolidated total assets reported on the schedule.

Where are my notices sent and how do I get a duplicate?

All Tax Notices are printed in December of the year that tax is due and sent to the Registered Agent. The Registered Agent is designated by the corporation through the initial formation or a filing submitted by the corporation that designates another Delaware Registered Agent. Please contact your Delaware Registered Agent if you require another copy of your notice.

Do I have to list all of my officers and directors? Which officer do I have to list?

Title 8 Chapter 5 § 502(a)(4) states that the Annual Report shall list “The names and addresses of all the directors as of the filing date of the report and the name and address of the officer who signs the report.”

Who is authorized to file the report?

Title 8 Chapter 5 § 502 (a) states that the report shall be made on a form designated by the Secretary of State and shall be signed by the corporation’s president, secretary, treasurer or other proper officer duly authorized so to act, or by any of its directors, or by any incorporator in the event its board of directors shall not have been elected.

Why are there penalties and/or interest on my account?

Title 8 Chapter 5 § 502 (c) states that a penalty of $125.00 is assessed for failure to file the Annual Franchise Tax report by March 1st. Title 8 Chapter 5 § 504 (c) states if the tax of any corporation remains unpaid after the due dates established by this section, the tax shall bear interest at the rate of 1.5 percent for each month or portion thereof until fully paid.

My company has a credit how can I request a refund?

Please complete the Refund Request Form, have it signed by the authorized person listed on the Annual Franchise Tax Report and mail the refund request to: Division of Corporations – 401 Federal Street – Suite 4 – Dover, DE 19901; Attention: Franchise Tax.

Which methods of payment can be used on PayDelawareTax?

You can use either our PayPal Standard gateway or Authorize.Net for your Alternative Entity Tax, Franchise Tax, or Registered Agent Service payments.

Are there any tax related scams to look out for?

Always be on the lookout for tax scams! For more information on tax scams please visit this article provided by the National Society of Accountants.

What are some reasons to incorporate in Delaware?

Overall, incorporation in Delaware is sought out for protection and predictability.

Any business is eligible to be operated as a Delaware corporation or a Delaware LLC no matter where the owner is located. Delaware has a favorable and fair legal climate; it has often been ranked #1 in the US for state legal systems. Delaware business owners are protected by a corporate veil, which protects business owners from personal liability for business debts and judgments. Incorporating in Delaware also ensure protection of company liability shields; Delaware’s cutting edge laws for corporate governance have been time-tested, allowing for further predictability for updated laws. Lastly, incorporation in Delaware is affordable, even for startups.

For more information about the advantages of incorporating in Delaware, visit this article provided by IncNow.

Where is the PayDelawareTax office located?

Our office is located in Lewes, DE at 16557 Coastal Highway, Lewes, DE 19958.
Call us at (302) 645-7770.
Office Hours: 8:30AM – 5PM (Monday – Friday)

What is a Registered Agent?

A registered agent is a “physical presence” in the state of incorporation for the purpose of “service of process”. As your registered agent we are responsible for any legal paperwork, such as, annual reports and franchise tax forms. These forms are directly sent to your registered agent, which are also responsible for any lawsuit or other legal actions.

What is an Employer Identification Number (EIN)?

An Employer Identification Number (EIN) is a nine-digit number assigned to a business for the purpose of identification with the IRS: it’s the business entity equivalent of a social security number for citizens. An EIN is required for any corporation or LLC that consists of multiple members or employees. An EIN is required to withhold taxes from employees, open bank accounts, and any application that requires a business to validate its authenticity. They are also referred to as the Federal Identification Number (FEIN). It usually takes about 2-5 weeks to get a hard copy of your EIN from the IRS.

The EIN system was created by the IRS in 1974 by Treasury Decision (TD) 7306, 39 Fed. Reg. 9946. The provision was first enacted as part of the revision of the Tax Code in 1954. An EIN is usually written in the form 00-0000000 whereas a Social Security Number is usually written in the form 000-00-0000 in order to differentiate between the two. There are EIN decoders on the web that can identify in what state the company registered the EIN.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is the United States variant of a private limited company; a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not considered a corporation, but a legal form of a company that provides limited liability to its owners in various jurisdictions that do not necessarily need to be organized for profit. The first Delaware LLC was formed on October 1, 1993 when the Delaware Limited Liability Company Act first made the LLC a legitimate business entity. Keeping a Delaware Limited Liability Company (LLC) compliant is very simple and usually inexpensive. The only annual fees that are typically required are: Delaware Franchise Tax (due every year on June 1st) and A Delaware Registered Agent Fee.

In 1998, 87,729 LLCs were formed in Delaware. That number increased to 145,630 in 2006. In 2014, the number of Delaware LLCs had grown to 168,966.

Characteristics of a Limited Liability Company (LLC):

  • The number of shareholders is unlimited
  • Members enter into an operating agreement governing the management of the LLC, distribution of profits, etc.
  • No Annual Report Required
  • An LLC can elect to be taxed as a sole proprietor, partnership, S corporation, or corporation, providing much more flexibility.
  • Because profits are taxed only at the shareholder level, there is no double taxation.
General Corporation

A General Corporation is an independent legal entity that is separate and distinct from its owners, for it is owned by its shareholders. Corporations possess most of the rights and responsibilities that an individual carries, in which it has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. Therefore, the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. General Corporations have three tiers of power: shareholders, Directors and officers. Each group has different rights and responsibilities within the corporation itself.

1899 The Delaware Corporation Law is passed. In time this law will make it easier for businesses to incorporate in Delaware than in other states.

Characteristics of a General Corporation:

  • No limit to size
  • Directors are elected by the shareholders
  • Shareholders own the company
  • Clear separation of rights and responsibilities
  • Directors manage the company
  • Minority shareholders are not responsible for the company
  • Three tiers of power: shareholders, Directors, officers
Nonprofit Corporation

A Nonprofit Corporation is a special type of corporation that has been organized to meet specific tax-exempt purposes; a legal entity which has been incorporated under the law of its jurisdiction for purposes other than making profits for its owners or shareholders. These type of Nonprofit Corporations do not have to pay federal or state income taxes on profits it makes form activities in which it engages to carry out its intentions. The IRS believes that the benefits that come from these organizations will better help the public and in turn qualifies them to a special tax-exempt status.

Examples of this type of corporation is the Red Cross, Salvation Army, various religious groups and government agencies. Profit remains in the Corporation to do more public good.

Characteristics of a Nonprofit Corporation:

  • Owned by the public
  • Board members are usually unpaid volunteers
  • Money earned over and above that needed to pay expenses is retained as surplus and should be spend soon on meeting the public need
  • Conventional wisdom suggests that the Chief Executive Officer (Often called the Executive Director ) not be on the Board, but attends Board meetings.
  • Success is meeting needs of public
Limited Partnership (LP)

A Limited Partnership (LP) is a form of partnership where it must have at least one general partner (GP) and at least one limited partner, unlike a general partnership that requires at least two GPs. Within an LP, the GPs are in the same legal position as partners in a conventional firm; they have management control, share the right to use partnership property, share the profits of the firm in predetermined percentage, and have joint and several liability for the debts of the partnership. As with a general partnership, a limited partnership is a flow-through entity. Income and loss are reported and recognized by the partners on their personal tax returns. However, a federal tax return must be filed by the partnership. When forming a Limited Partnership (LP) a partnership agreement is not required, but is highly recommended.

The forming of a Limited Partnership is reasonably easy and effortless! PayDelawareTax will manage this procedure for you, although the filing will require a signature from the General Partner (GP).

Characteristics of a Limited Partnership:

  • Ended if Member dies, withdraws or retires, or becomes incapacitated.
  • Ended on the admission of new member
  • Ended via bankruptcy
  • Ended if formation purpose is over
C Corporation

C Corporations are considered a tax status not a business entity type. Unless a Form 2553 is filed with the IRS for S corporation status or file a 501(c) application with the IRS in order to request non-taxable status then they are all considered to be C Corporations. All C corporations offer limited liability protection to Directors and shareholders because it is a separate entity from its shareholders. Just like a General Corporation a C Corporation has three structural tiers. These three tiers must comprise of shareholders, Directors and officers. Shareholders are the owners of the company; the Board of Directors oversees the corporation and makes major decisions, such as hiring officers; the officers actually run the company on a daily basis. When running a C Corporation they have regulations they must follow to be compliant, such as, holding shareholder and Board of Director meetings; filing annual reports; maintaining proper corporate records, such as meeting minutes, these meeting minutes must be kept separate from owners’ records; and paying annual fees. With a C Corporation they must file a Form 1120 business tax return to the IRS (federal) annually.

A C corporation is the entity of choice for venture capital and angel investors. In 2014, nearly 89% of new IPOs were undertaken by Delaware C corporations.

Characteristics of a C Corporation:

  • No limitations on the number of qualifications of the shareholder
  • More favorable Federal Income Tax deductions for health insurance & other fringe benefits to the owner/employee
  • Can issue more than one class of stock
  • Continuity of life of business entity
  • Ease of transfer-ability of ownership interest
  • Taxed on earnings at corporate level
  • Board of Directors-overall management, officers-day to day responsibility
S Corporation

An S Corporation is a corporation that has elected to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The shareholders of an S Corporation do not report their income and losses through federal taxes but in turn report them on their personal tax returns and are assessed taxes at their individual income tax rates. S Corporations then avoid double taxation on the corporate income level. Although, S Corporations are responsible for tax on certain built- in gains and passive income at the entity level. Before becoming an S Corporation the corporation must submit Form 2553 Election by a Small Business Corporation, this document must be signed by all shareholders.

The S Corporation was formed by Congress, for use by small business owners, offering the best characteristics of both a C corporation and a partnership becoming the most popular business entity type in recent years.

Characteristics of an S Corporation: 

  • Have no more than 100 shareholders
  • Have only one class of stock
  • Be a domestic corporation
  • Self-employment tax advantages
  • Raise capital more easily
  • The S Corporation is not taxed on it profit, the shareholders of an S-Corporation are taxed on their proportional shares of S-Corporation’s profit.
  • The loss from S-Corporations flow through shareholders can be deducted limited to the shareholder’s basis. The shareholder’s basis must first be determined.

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