The High-touch Legal Services® Blog…for Startups!

© 2009-2019 Dana H. Shultz, Attorney at Law

Delaware’s Franchise Tax – A Tale of Two Methods

Seal of the Delaware Division of Corporations, symbolizing this post about two methods for calculating Delaware's franchise taxIn an earlier post, In Delaware, No Par Value Can Cost a Bundle, I discussed the two methods by which Delaware’s franchise tax for a corporation may be calculated. This post discusses the history of those two methods.

To some extent, this post is educated guesswork. It is based on a Quora question that I answered. Please see What is the rationale/reason (not math) behind the two methods of calculation for Delaware’s domestic franchise tax fee?

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$800 Franchise Tax is Due Even if LLC is Canceled

Logo for Quora, where Dana Shulltz answered a question about California's $800 franchise taxThis post about California’s $800 franchise tax is based on my recent answer to a Quora question.

Q.: In California, can someone shut down an LLC before the $800 franchise tax is due on the 15th day of the 4th month?

A.: One can cancel a California limited liability company before the 15th day of the fourth month. However, such cancellation will not eliminate the obligation to pay the $800 annual franchise tax. (more…)

IncNow Joins Hall of Shame

Logo for IncNow, the subject of this blog post

Almost two years ago, I wrote about how Delaware corporations with no-par-value stock can find themselves obligated to pay extraordinarily high franchise taxes (In Delaware, No-Par-Value Can Cost a Bundle). Yesterday, a reader of this blog pointed out that IncNow, an online incorporation service, virtually lures naive customers into this tax trap.

Here is what the reader reported to me:

  • IncNow’s default assumption is that no-par stock will be issued.
  • IncNow does not invite the user to specify a par value (in contrast to LegalZoom, for example, which does).
  • IncNow’s representative said that the reader “could assign a par value to shares, under special requests at the bottom of the checkout form” [emphasis added].

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In Delaware, No Par Value Can Cost a Bundle

Delaware Division of Corporations logo for post about shares without par value

In “How Many Shares Should My Corporation Authorize and Issue?“, I warned that “If you are forming a Delaware corporation with a large number of shares, be sure to specify a low par value, such as $0.0001 per share, to avoid having to pay excessive annual fees to the state.” This post gives more details about this issue.

There are two methods for calculating Delaware’s annual franchise tax. (more…)

How Many Shares Should My Corporation Authorize and Issue?

Sample certificate showing number of shares owned by a corporation's shareholderThis post discusses the number of shares that a corporation should authorize, and the number of authorized shares that a corporation should issue.

On a couple of occasions, I have worked with founders whose corporations (prior to retaining me) issued a small number of their authorized shares.

In one instance, four founders formed a corporation that was authorized to issue 50,000 shares, but had issued (to themselves) fewer than 400. They asked me to help reallocate shares among them because, as time had passed, they saw that their respective contributions to the business differed from what they initially had expected.

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