Delaware’s HB 175 Could Affect Some NC Companies Incorporated in Delaware

By Jeff Wolfe and Cory Howes

Many companies headquartered around the country choose to incorporate in Delaware, because the state provides a climate favorable for businesses, especially its well-developed statutes in business law (the Delaware Code) and business courts, which often set precedents for other states to follow.

The state of Delaware levies franchise taxes on businesses incorporated in the state, whether companies operate from there or not. The state calculates these taxes on the number of authorized shares or another measure of the company’s capital, rather than assessing taxes on a corporation’s income. These franchise taxes are subject to caps.

Facing a revenue shortfall, the Delaware legislature has acted with an increase to the franchise tax with HB 175. One of the changes to the tax code included in HB 175 is an increase in the maximum tax payment from $180,000 to $200,000 (HB 175 also adds provisions for administrative fees and late payment penalties related to the franchise tax).

Also included in the new law is a new bracket for larger corporations with either more than $750 million in revenue and at least $250 million in assets or $250 million in revenue. The state also increased the par value multiplier for companies with greater than 10,000 shares for the calculation of the franchise tax.

While much of HB 175 takes effect on August 1, the changes to the franchise tax and associated administrative fees and late penalties take effect for the tax year that began January 1, 2017. The changes are expected to currently affect 0.2 percent of companies incorporated in Delaware.

The Forrest Firm’s Corporate Shield service assists companies with compliance and completion of corporate formalities wherever you’re incorporated, including North Carolina and Delaware. Through Corporate Shield, our firm acts as your registered agent in North Carolina and manages your registered agent in any other jurisdiction where your company is registered. Our attorneys ensure proper administration of corporate formalities, such as preparing annual meeting minutes and filing annual reports. In addition, the firm provides for compliant payment of fees, such as franchise taxes in Delaware, annual report fees in North Carolina and other annual fees in other states. Attorneys of the Forrest Firm also provide many other business legal services for companies, business owners and executives.