Taxes & Reporting
🧮 General
What annual reports do we need to submit? What should we do each year to submit them and how much does it cost?
No annual reports are due to Stack, but they will be due to Delaware. The cost will be dependent on a number of variables, and we connect you with a service (Legalinc) to make tax filing easy.
If you haven't yet filed your report, go to https://stacktax.angellist.com/annualreport/1.
Where can I find a Certificate of Good Standing?
We can request this document for you from the state. Our backend provider can obtain it for you. Please note that Certificates of Good Standing are only valid for 30 days after receipt, so only request one when it is needed.
Delaware Franchise Tax & Annual Report
What is the Delaware Franchise Tax?
Franchise Tax is the fee imposed by the state of Delaware for the sole privilege of owning a Delaware company. If you’ve incorporated a company in Delaware, then Delaware law requires you to pay the annual Delaware Franchise Tax - the tax is in no way dependent on income or company activity. These payments are essentially “privilege fees” to keep a company in good standing.
The term "Franchise Tax" does not imply that your company is a franchise business. All companies pay a Delaware Franchise Tax, regardless of their business income, business model or company structure.
In the case of corporations, you must also file a simple annual report online listing the directors to keep a corporation in good standing.
What is the Delaware Annual Report?
The Delaware Annual Report is a set of business information that must be submitted by all Corporations to the Division of Corporations by March 1st every year, each year after incorporation.
This report has to be submitted online and is due at the same time as the franchise tax. The annual report must contain the current physical address of the business, the name and address of one office, and the names and addresses of the directors. The annual report must be filed and franchise tax must be paid for the corporation to remain in good standing. LLCs do not file annual reports.
How is the franchise tax calculated?
The annual franchise tax for corporations can be calculated using two methods: Authorized Shares Method and Assumed Par Value Capital Method.
The minimum tax for corporations using the Authorized Shares method is $175. Your franchise tax amount due will likely be under $550 if you used the Stack default documents and processes.
The minimum tax for corporations using Assumed Par Value Capital Method is $400
The maximum tax for corporations using either method will not be more than $200,000
Assumed Par Value Capital Method (Preferred)
If you have incorporated through AngelList Stack, it is highly likely that your franchise tax will be calculated using this method. To use this method, you need to provide the following details in your Annual Franchise Tax Report:
Total Number of Authorized Shares: This number will be 15M if you’ve used standard Stack docs for incorporation and have not authorized more shares to date. You can check this on your dashboard under “Cap Table —> Share Classes”. It will be the sum of shares authorized under all share classes.
Total Number of Issued Shares (as of the year 2022): If you’ve incorporated through Stack, there can be four scenarios.
If you’ve completed all of the founder stock purchases before the end of year 2021 (all founders have signed their SPAs), this number will be 10,000,000
If only some founders have signed their SPAs and completed that process before the end of the year, the total amount issued is the sum of all shares issued to founders that have signed their SPAs before the end of the year
If you’ve not yet completed any of the founder stock purchase (in other words, if no one has signed the SPA) before the end of year then this number will be 0
If you’ve completed the founder stock purchase and have additionally raised a round or have issued equity to someone else before the end of the year then those shares will be added to the 10,000,000 founder shares
Total Gross Assets
According to Delaware State FAQ - Total Gross Assets shall be those “total assets” reported on the U.S. Form 1120, Schedule L relative to the company’s fiscal year ending in the calendar year prior to filing the report.
Link to the form - U.S. Form 1120, Schedule L
Example (Relative to Stack Structure)
The tax rate under this method is $400 per million or portion of a million.
(As will be the case for most of the companies incorporated through Stack) If the assumed par value capital is less than $1,000,000 - the tax is calculated by dividing the assumed par value capital by $1,000,000 then multiplying that result by $400. Since that number will often be too low in most cases, the minimum tax of $400 will be applicable.
The example shown below is for a corporation having 14,000,0000 shares authorized of stock with a par value of $0.00001 and 1,000,000 shares of stock with a par value of $0.00002 , gross assets of $100,000 and 10,000,000 total issued shares.
StepsCalculations1. Divide your total gross assets by your total issued shares carrying to 6 decimal places. The result is your “assumed par”.
$100,000 divided by 10,000,000 issued shared = $0.01 assumed par
2. Multiply the assumed par by the total number of authorized shares having a par value of less than the assumed par.
(in our case all shares have a par value less than the assumed par)
$0.01 multiplied by 15,000,000 shares = $150,000
3. Multiply the number of authorized shares with a par value greater than the assumed par by their respective par value.
since none of the authorized shares have a par value greater than the assumed par, this will be $0.
4. Add the results of #2 and #3 above. The result is your assumed par value capital.
$150,000 + $0 = $150,000
5. Calculate your tax by dividing the assumed par value capital, rounded up to the next million (if it is over $1,000,000) - by 1,000,000 and then multiply by $400.
$150,000 divided by 1,000,000 = 0.15
0.15 * $400 = $60
6. Since the tax value is coming out to be less than $400 - minimum tax for Assumed Par Value Capital Method will be applicable.
Applicable Tax = $400
Authorized Shares Method
The authorized shares method will always result in the lesser tax. Corporations that don’t have par value stock.
Minimum tax of $175 will be applicable for corporations with 5,000 shares or less
$250.00 for companies with shares between 5,001 – 10,000
$85 would be added for each additional 10,000 shares or portion thereof
maximum annual tax is $200,000
For Example -
A corporation with 10,009 authorized shares will pay $335 ($250 + $85).
A corporation with 10,990 authorized shares will also pay $335 ($250 + $85)
A corporation with 90,000 authorized shares will pay $930 ($250 + $680 [$85 x 8])
I incorporated my company just a couple of months back and haven’t started the operations yet, can I skip paying this?
The simple answer is no, you cannot skip paying the franchise tax.
The franchise tax for a fiscal year gets due automatically for a corporation by March 1st of the following year. So, as long as you even just incorporated the company in 2021, you owe at least the minimum tax to Delaware payable by March 1st 2022.
What happens if I do not pay the tax by March 1st?
If the tax is not paid on or before March 1, the state imposes a $200 late penalty, plus a monthly interest fee of 1.5%.
Are Founders Preferred Shares considered preferred shares or common shares?
Founder’s Preferred are similar to common shares. They can be converted to preferred shares in the future but at incorporation they’re the same as common shares.
Also, this differentiation doesn’t affect your tax value in any way. However, you will have to mention this on your Annual Report.
Does the Founder stock purchase and filing of an 83(b) election affect the franchise tax?
No, it does not affect your franchise tax as most likely, you will have to pay the minimum required tax in any scenario.
If you haven’t yet signed your Founder Stock Purchase Agreement (SPA) and paid the company for your shares as a founder, mark the issued shares as 0.
I received a franchise tax notice from Delaware and it shows a large tax amount, what do I do?
If you received a tax notice from the state of Delaware with a high tax due amount, please do not be alarmed. The state of Delaware calculates the tax owed using the Assumed Par Value Capital Method for authorized shares over 5,000 for which you must provide the issued number of shares and gross asset amount for 2021 in order for the tax to be calculated to a lesser amount. The minimum tax due under the Assumed Par Value Capital Method is $450.00.
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