The Franchise Tax for a Delaware limited liability company (LLC) or Delaware limited partnership (LP) is a flat annual rate of $300 as of July 1, 2014.
The Franchise Tax for a corporation is a little more complicated. It is based on your corporation type and the number of authorized shares your company has. The total cost of the Franchise Tax is comprised of an annual report fee and the actual tax due.
A non-stock/non-profit company is considered exempt with the state of Delaware. This type of company does not pay the annual tax but must file and pay the annual report fee. The annual report fee is $25 per year.
A corporation having 5,000 authorized shares or less is considered a minimum stock corporation. The annual report fee is $50 and the tax is $175 as of July 1, 2014, for a total of $225 per year.
A corporation having 5,001 authorized shares or more is considered a maximum stock corporation. The annual report fee is $50 and the tax would be somewhere between $200 and $180,000 per year.
There are two methods to calculate a maximum stock company’s Franchise Tax. They are:
Authorized Shares Method
The state of Delaware uses this method to initially calculate your taxes. This method is calculated based on the number of authorized shares. The calculation is as follows:
- 5,000 shares or less: $175 (as of July 1, 2014)
- 5,001 – 10,000 shares: $250 (as of July 1, 2014)
- Additional 10,000 shares or portion thereof: add $75
- The maximum annual tax is $180,000
- A corporation with 10,005 shares authorized pays $325.00($250.00 plus $75.00).
- A corporation with 100,000 shares authorized pays $925.00($250.00 plus $675.00[$75.00 x 9]).
Don’t forget to add the $50 annual report fee to the Franchise Tax after it is calculated.
Assumed Par Value Capital Method
To use this method, you must give figures for all issued shares (including treasury shares) and total gross assets in the spaces provided in your Annual Franchise Tax Report. Total Gross Assets shall be those “total assets” reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report. The tax rate under this method is $350.00 per million or portion of a million. If the assumed par value capital is less than $1,000,000, the tax is calculated by dividing the assumed par value capital by $1,000,000 then multiplying that result by $350.00.
The example cited below is for a corporation having 1,000,000 shares of stock with a par value of $1.00 and 250,000 shares of stock with a par value of $5.00 , gross assets of $1,000,000.00 and issued shares totaling 485,000.
- Divide your total gross assets by your total issued shares carrying to 6 decimal places. The result is your “assumed par”.
Example: $1,000,000 assets, 485,000 issued shares = $2.061856 assumed par.
- Multiply the assumed par by the number of authorized shares having a par value of less than the assumed par.
Example: $2.061856 assumed par s 1,000,000 shares = $2,061,856.
- Multiply the number of authorized shares with a par value greater than the assumed par by their respective par value.
Example: 250,000 shares s $5.00 par value = $1,250,000
- Add the results of #2 and #3 above. The result is your assumed par value capital.
Example: $2,061,856 plus $1,250,000 = $3,311 956 assumed par value capital.
- Figure your tax by dividing the assumed par value capital, rounded up to the next million if it is over $1,000,000, by 1,000,000 and then multiply by $350.00.
Example: 4 x $350.00 = $1,400.00
- The minimum tax for the Assumed Par Value Capital Method of calculation is $350.00.
NOTE: If an amendment changing your stock or par value was filed with the Division of Corporations during the year, issued shares and total gross assets within 30 days of the amendment must be given for each portion of the year during which each distinct authorized amount of capital stock or par value was in effect. The tax is then prorated for each portion of the year dividing the number of days the stock/par value was in effect by 365 days (366 leap year), then multiplying this result by the tax calculated for that portion of the year. The total tax for the year is the sum of all the prorated taxes for each portion of the year.