Delaware Franchise Tax Frights

Around Delaware franchise tax reporting times, I’ll receive emails like this one:

“Slight problem..…my Delaware franchise tax report says I owe $45,000.”

Or this one:

“The number in this notice is terribly high, is that a mistake? The total amount due is more than 222K? !!!”

Or this one:

“Ummm, how can we owe $126,000 in taxes if we don’t even have a business or revenues yet?
I sure hope this is a misprint…or I am off to Delaware to start serving my prison sentence….”

For some reason Delaware likes to freak people out.

If you do something typical like authorize 10 million shares, the front page of your Delaware franchise tax report will show some outlandish amount of taxes owed. If you’ve never been through this before, you might be alarmed and send your attorney an email like the one above. I’ll respond with:

“Turn the form over. Calculate the tax using the alternative, par value method.”

When you do this, and you recalculate your taxed owed, you’ll email me back and say something like:

“I just recalculated using the assumed par value method, and it brought the bill down to $400. Does that sound right?”

And I will say, “Yeah, that sounds about right.”

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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