January 27, 2021

Volume XI, Number 27

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California and Delaware Franchise Taxes Are Similar In Name Only

Recently, I came across a proxy statement filed a California corporation seeking shareholder approval to reincorporate in Delaware.  In the midst of a lengthy disquisition on the pros and cons of reincorporation, the issuer noted that the franchise taxes payable in Delaware may be greater than the equivalent or other similar taxes currently payable in California.  The problem with this assertion  is that what Delaware denominates as a "franchise tax" is not the same as what California styles as a "franchise tax".   

The Delaware franchise tax is a fee imposed by the State of Delaware for the right or privilege to be a Delaware entity.  It is not based on income or company activity; it is a tax that must be paid to maintain the entity's good standing status.  California's franchise tax is quite different.  It is basically a tax on California source income.  In general, reincorporation will not result in Delaware's franchise tax being substituted for California's franchise tax.  Rather, if it will be an additional tax imposed on the corporation.  

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© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 335
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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