What it is: The Delaware Franchise Tax is a fee imposed on businesses incorporated in Delaware. It is unrelated to franchised businesses but applies to many startups and large corporations that choose to incorporate as C corporations in Delaware. The tax is paid quarterly or annually, separate from federal and state income taxes.
Why it is important: The Delaware Franchise Tax is important as it is a mandatory payment for companies incorporated in Delaware. It helps fund the state government and maintain the benefits of incorporating in Delaware, such as the state's business-friendly legal environment and well-established corporate laws.
Formulas: The Delaware Franchise Tax calculation is based on two methods: the authorized shares method and the assumed par value capital method. The specific formulas depend on the chosen method and the company's authorized shares or assumed par value capital.
How to use it in the context of startups: Startups incorporated as C corporations in Delaware must comply with the Delaware Franchise Tax requirements. It is crucial to understand the tax calculation methods, filing deadlines, and associated fees. Startups can plan their financials accordingly and ensure timely payment of the Delaware Franchise Tax to maintain their legal status in Delaware.
