Understanding Delaware Franchise Tax Requirements for New Companies

The franchise tax in Delaware is a significant concern for businesses, particularly for those newly formed, such as LLCs and corporations. Understanding the timing and requirements for paying this tax is crucial. In this article, we will explore the specific tax obligations for companies formed in June 2020 and the implications of paying the tax in March 2021.

Delaware Franchise Tax Overview

Delaware, as a popular corporation-friendly state, heavily relies on its franchise tax revenues. This tax is an essential element of maintaining business entities in good standing within the state. Whether you formed your LLC or corporation in June 2020, there are specific tax requirements that must be met. For corporations, the annual franchise tax is due in March, while LLCS have a June deadline.

LLC Franchise Tax

For LLCs, the franchise tax for the year 2020 is due no later than June 2, 2021, regardless of when the LLC was formed. This is a crucial point because even if your LLC was formed on December 31, 2020, the tax for that year is still due on June 2, 2021. If you form the LLC on the first day of 2021, then the franchise tax is due no later than June 1, 2022, for the first time.

Corporations Franchise Tax

Corporations have a similar requirement, but the due date is March 1st. For a corporation formed in June 2020, the 2020 annual Delaware Franchise Tax would be due on March 1, 2021. This tax is part of the annual reporting requirement that all corporations must adhere to.

Additional Considerations

The state of Delaware works in arrears, which means the tax is due based on the year to which it applies, not on the month or year in which the company was formed. This rule is universal, regardless of the type of business entity, whether it's an LLC, LLP, or INC. Each entity must file the franchise tax to maintain their good standing status in Delaware.

Location and Tax Obligations

Simply being organized in Delaware is not enough; you must also pay the franchise tax. If your business is organized in Delaware but located outside the state, you still have the added responsibility of paying taxes in Delaware. This principle applies to all business entities, ensuring a fair and consistent tax system within the state.

Conclusion and Additional Information

All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax. Exempt domestic corporations do not pay a tax but must file an Annual Report. The filing fee for filing an Annual Report or Amended Annual Report for exempt domestic corporations is $25. This requirement ensures that all businesses are compliant and in good standing.

If you have a Delaware corporation, the franchise tax and similar taxes are a necessity. Your registered agent plays a crucial role in ensuring that your company complies with these requirements. Deliberation and action are necessary to avoid any penalties or fines.

To learn more about Delaware franchise tax requirements, you can refer to the official state of Delaware's website or contact a professional advisor. Proper management of these tax obligations is key to maintaining a successful business in Delaware.