If you don’t pay the Delaware franchise tax, your entity is hit with a $200 late penalty the day after the deadline, interest starts accruing at 1.5% per month on the unpaid balance, and your company loses its good standing with the state. Leave it long enough and Delaware will void a corporation’s charter or cancel an LLC’s certificate of formation entirely, ending the entity’s legal existence and opening the door to personal liability for the people still running it. Corporations face a March 1 deadline each year; LLCs, limited partnerships, and general partnerships have until June 1.
The Penalty and Interest Start Immediately
Miss the deadline by a day and Delaware adds a flat $200 penalty to whatever tax you already owed.1Division of Revenue – State of Delaware. Franchise Taxes Interest then runs at 1.5% per month on the combined total of the unpaid tax plus that penalty.2Delaware Division of Corporations. LLC/LP/GP Franchise Tax Instructions
That works out to 18% annually. For an LLC with a flat $300 bill, the dollar impact is small in the first few months. For a corporation with a larger assessment, it compounds fast. A corporation sitting on $10,000 of unpaid franchise tax picks up roughly $1,800 in interest in the first year, on top of the $200 penalty, before anything else happens to the entity.
You Lose Good Standing
Once the tax is past due, Delaware strips the entity of good standing. Good standing is the state’s confirmation that your company is legally compliant, and the loss of it shows up in places you don’t expect until you need it.
You can’t pull a Certificate of Good Standing from the Secretary of State while delinquent. Banks ask for that certificate before approving loans or opening accounts. Investors and acquirers request it in due diligence. A funding round, a credit facility, or a major contract can stall at the signature line because the state won’t certify that your entity is current.
The courthouse door closes in one direction too. A company out of good standing cannot bring a lawsuit in Delaware courts. You can still be sued, but you can’t initiate action yourself to enforce a contract, collect a debt, or protect intellectual property until the tax is cleared. For a company that chose Delaware specifically for its courts, that is a sharp consequence.
Your Entity Can Be Voided or Cancelled
If the balance stays unpaid, Delaware eventually terminates the entity itself. The timeline differs by type.
Corporations: One Year
A Delaware corporation’s charter becomes void if it fails to pay franchise tax or file a complete annual report for one year. The Secretary of State sends a warning to delinquent corporations on or before November 30 each year, and the charter is voided if payment and filings aren’t in by the following March 1.3Justia. Delaware Code Title 8 510 – Failure to Pay Tax or File a Complete Annual Report for 1 Year; Charter Void; Extension of Time Once voided, the powers Delaware law grants the corporation become inoperative. It can’t conduct ordinary business, enter contracts, or sue.
A dissolved Delaware corporation continues as a body corporate for up to three years after dissolution, but only to wind up affairs, settle debts, and distribute remaining assets to stockholders.4Justia. Delaware Code 8-278 – Continuation of Corporation After Dissolution That is not a license to keep operating.
LLCs: Three Years
An LLC gets longer. If a Delaware LLC fails to pay the $300 annual tax for three consecutive years, its Certificate of Formation is automatically cancelled on the third anniversary of the first missed due date.5Justia. Delaware Code 18-1108 – Cancellation of Certificate of Formation The Secretary of State publishes a list of cancelled LLCs each year by October 31. After cancellation, the LLC no longer exists as a legal entity.
Your Registered Agent May Resign
Delaware doesn’t send tax notices to you; it sends them to your registered agent. Every December, the Division of Corporations pushes annual report and tax reminders to agents, who pass them along to clients.6Delaware Division of Corporations. Annual Report and Tax Information
If you’ve also stopped paying the agent’s fees, the agent can resign using the state’s Certificate of Resignation of Registered Agent Without Appointment.7Delaware Division of Corporations. Resignation of Agent Without Appointment Forms After that, no agent is on file, which means state notices and lawsuit papers have nowhere to land. Losing your agent can push the entity toward void status on its own, stacking on top of the franchise tax delinquency.
Problems in Other States Where You Actually Operate
Plenty of Delaware entities only exist on paper in Delaware; the real business happens elsewhere under a foreign qualification. Losing good standing at home can unravel that.
Most states require a current Certificate of Good Standing from the home state when you first qualify to do business there, and some ask for ongoing proof. If Delaware has voided or cancelled your entity, you may be unable to renew your authority to operate in the states where your employees, offices, and customers actually are. Operating without valid foreign qualification can lock you out of that state’s courts, create personal liability for owners, and trigger back taxes and penalties covering every year you did business without being properly registered.
Personal Liability for Directors and Officers
Once a corporation’s charter is void, the shield that keeps business debts separate from personal assets starts to crack. If the business keeps operating and taking on obligations after the charter has been voided, the people making those decisions can be held personally responsible for the resulting debts.
The reasoning is simple. A voided corporation isn’t a legal entity, so anyone signing a contract or incurring a debt in its name is, from the counterparty’s point of view, acting on their own. Creditors can argue they were dealing with individuals and go after personal assets.
Revival fixes this retroactively. Delaware law treats a restored corporation as though the charter had never lapsed, validating contracts, acts, and transactions that happened during the void period.8Delaware Code Online. Delaware Code Title 8 – Corporations – Subchapter XII Until you actually complete revival and pay what you owe, the personal exposure is live.
Bringing the Entity Back
Delaware does give you a path back, and once reinstatement is complete, the entity is treated as having existed continuously without interruption.9Delaware Division of Corporations. Renewal For All Entities The price is clearing the full balance and filing the right certificate.
You have to pay all back franchise taxes, penalties, and interest for every delinquent year, and corporations must file all missing annual reports. One relief valve exists for long-dormant corporations: if a charter has been void for more than five years, Delaware caps the amount at three times the annual franchise tax that would be due for the year of revival at the current rate, instead of making you pay every individual year.8Delaware Code Online. Delaware Code Title 8 – Corporations – Subchapter XII
On top of that, you pay a filing fee for the Certificate of Revival: $189 for a corporation or $200 for an LLC.10Delaware Division of Corporations. Certificate Filing Fee Schedule Exempt corporations that owe no tax pay a reduced $5 revival fee. For a corporation, the board of directors or equivalent governing body authorizes the revival and files the Certificate of Revival with the Secretary of State under Section 103 of the Delaware General Corporation Law.11Justia. Delaware Code 8-312 – Revival of Certificate of Incorporation Once the state accepts it, every contract signed, asset held, and action taken during the void period is treated as valid, which is why revival is worth completing even years after the lapse.