The Franchise Tax is the fee imposed by the state of Delaware for the right or privilege to own a Delaware company. The tax has no bearing on income or company activity—it is simply required by the state of Delaware to maintain the good standing status of your company. The term “Franchise Tax” does not imply that your company is a franchise business.
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, 2022.
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.
The annual report fee for a corporation is $50 and the minimum tax is $175 as of July 1, 2022, for a total of $225 per year. The maximum tax is up to $200,000.
There are two methods to calculate a maximum stock company’s Franchise Tax. They are:
The state of Delaware allows you to pay the lower of the two calculation methods. Therefore, if you receive a bill from Delaware for tens of thousands of dollars, it may be in your best interest to try calculating your Franchise Tax with the assumed par value capital method.
Don’t forget to add the $50 annual report fee to the Franchise Tax after it is calculated.