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Do I owe a full year of Delaware franchise tax if I incorporated in December?

DelawareFranchise taxAnnual reportCosts

You owe an annual report and a franchise tax payment by March 1 of the following year, exactly as a company incorporated the previous January would, and the $50 filing fee is not reduced. The tax itself is prorated by statute for a corporation that did not exist the whole year, but never below the minimum, and a new startup with little on its balance sheet is at the minimum. Expect the full $400 under the assumed par value method, or $175 under the authorized shares method for a small share count. For a startup at the $400 minimum the tax is small either way, and the filing is the same work, so the practical answer is that a December incorporation buys an extra year of Delaware paperwork for a company that has done nothing yet.

What the statute says

Section 503 of the Delaware General Corporation Law prorates the tax for a corporation that has not existed the whole year, and the state's own calculator prorates by day count when the authorized shares change part way through a year. Proration only matters to a company whose calculated tax is above the minimum in its first partial year, which a new startup almost never is. The amount on your notice is the state's calculation; if it is above the minimum for a short year, ask in chat before paying.

December or January

If nothing forces the date, filing in December with a January 1 effective date, which Delaware allows for up to 90 days after filing, or simply incorporating in the first days of January, saves a full cycle: one fewer report, one fewer fee, one fewer tax payment, and one fewer federal return, because a corporation files Form 1120 for any year it exists, income or not. The things that do force the date are real: a SAFE an investor wants signed before their year end, an accelerator start date, an 83(b) clock that begins when founders' shares are issued, a contract the counterparty will only sign with a corporation. Those are worth a year of filings. A round number on the certificate is not.

Whichever month you choose, the first report is due the March after formation. It is the filing founders most often miss, because the reminder goes to the registered agent and nobody has yet learned to expect it.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.