Did you incorporate in Delaware and get surprised by the minimum annual franchise tax this year?

Delaware has two ways of computing the annual franchise fee - as long as you have par-value shares. The state uses the more expensive method in its statement to the company, which can choose the alternative method (again, if it avoided the no-par-value trap).

This issue comes up frequently and is discussed in "In Delaware, No-Par-Value Can Cost a Bundle".

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

I believe you can switch to income based, then. If you don't generate profits, your tax should be quite low ($400 maybe).

Assuming you applied a Par Value to your shares when you incorporated, there are two ways to calculate Delaware Franchise Tax. It is often the case that the "Assumed Par Value" method results in the lowest franchise tax calculation.

Unfortunately, the State of Delaware does not have the data necessary to calculate your tax using the "Assumed Par Value" method, so they end up defaulting to the "Authorized Shares Method".

It is relatively easy to calculate the "Assumed Par Value" Method. We did an article on this at www.capgenius.com and will include a link to it below. The article includes an example of how to calculate both methods and step-by-step instructions. We have received multiple comments from companies who saved tons of money by using the alternative method, so check it out and we hope it helps!

If you do not have Par Value assigned, read the article that Dana links to as it is directly relevant to that situation.

http://capgenius.com/2011/03/02/de-franchise-tax/

Hope it helps. Please ping us with any follow-up questions either here or on twitter (@capgenius).