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Delaware Franchise Taxes Are Around the Corner

If you are a Delaware corporation, you likely received a notice from the Secretary of State of Delaware informing you that your company’s Annual Report and franchise tax payment are due by March 1, 2020. These notices are sent to the corporation’s registered agent. You are still required to file an Annual Report and pay the franchise tax even if your corporation never engaged in business or generated revenue. Delaware requires these to be submitted online.

There are two ways to calculate your Delaware franchise taxes (the Authorized Shares Method and the Assumed Par Value Capital Method). Delaware defaults to calculating its franchise taxes owed by using the Authorized Shares Method, which almost always results in a higher tax liability for startups with limited assets. However, by using the Assumed Par Capital Value Method, startups are often able to significantly lower their franchise tax burden.

For example, a typical early-stage startup corporation with: (i) 10 million authorized shares of stock; (ii) 9 million issued shares of stock; (iii) a par value of $0.0001; and (iv) gross assets of $100,000, would result in the following franchise tax obligations under the different methods:

  • $85,165 under the Authorized Shares Method

  • $400 under the Assumed Par Value Capital Method

    If you are incorporated in Delaware, but conducting business in another state, you must be qualified to do business in that state – meaning, you might be subject to that state’s franchise tax (if any) as well. For example, a Delaware corporation doing business in Texas must still register for a foreign qualification to conduct business in Texas ($750 filing fee), submit a Texas annual Franchise Tax Report (due by May 15 of each year), and pay the associated tax.

Texas franchise taxes are based on an entity’s margin (unless filing under an EZ computation),

and are calculated based on one of the following ways:

  • total revenue times 70 percent;

  • total revenue minus cost of goods sold (COGS);

  • total revenue minus compensation; or

  • total revenue minus $1 million (effective Jan. 1, 2014).

 

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Alex Allermann Corporate Lawyer Winstead Law Firm
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Alex Allemann concentrates his practice in the areas of mergers and acquisitions, corporate finance, and general corporate and securities matters. Alex has extensive experience counseling issuers, investors and investment banks in public offerings and private placements of debt and equity securities. Alex has also represented buyers, sellers and their financial advisors in a wide variety of transactions, including negotiated and contested public acquisitions, private acquisitions and divestitures, joint ventures and other strategic alliances.

In addition, Alex advises clients...

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Ryan Valenza Corporate Lawyer Austin TX Winstead
Shareholder

Ryan Valenza is a member of Winstead’s Corporate, Securities/Mergers & Acquisitions Practice Group. Ryan’s practice focuses on a variety of corporate and transactional matters, primarily in the context of venture capital financings, public and private offerings, mergers and acquisitions, and general corporate counseling and representation. He represents purchasers and sellers in public and private mergers, stock and asset acquisitions, divestitures, joint ventures and strategic alliances. He also has experience advising entrepreneurs and start-up and emerging growth companies across a wide range of industries on corporate legal matters, raising capital through private and public offerings, and employee matters.

Representative Experience

  • Public and private debt and equity offerings
  • Corporate governance and securities law compliance
  • Mergers and acquisitions
  • New business formation, development, funding and strategy
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Daniel Bell-Garica Corporate Lawyer Winstead
Associate

Daniel Bell-Garcia is a member of Winstead’s Corporate, Securities/Mergers & Acquisitions Practice Group.  Daniel’s practice focuses primarily on corporate transactions including mergers & acquisitions, venture capital financing, public and private offerings, and business restructuring. In addition, he advises his clients on issues that arise at all stages of a company’s development, ranging from entity formation and governance to general corporate counsel work.

  • Public and private equity offerings
  • Corporate governance and securities law compliance
  • ...
512.370.2864