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Delaware liquidation

Discussion in 'Bankruptcy Law' started by DELAWARE_INC_2017, Dec 3, 2019.

  1. DELAWARE_INC_2017

    DELAWARE_INC_2017 Law Topic Starter New Member

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    I want to liquidate our startup Delaware, a C corp INC.
    Incorporation 7/26/2017
    5 shareholders.
    I have 81% of shares
    There are convertible loans $221000
    Last annual report filled 2017.
    Status: tax delinquent (3/1/2019)
    I did a Delaware Entity Search Status and I states:
    Annual Tax Assessment: $127665
    Tax due $128428
    I can’t understand why the tax due is so high. We never made a profit.
    And what I understand is that we first have to pay all taxes before we can liquidate the company.

    I don't know what to do to clean this up.
  2. flyingron

    flyingron Well-Known Member

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    Did you ever file tax returns (federal and Delaware?). Did you have employees? It's a strong possibility the amount reflects your gross receipts stated in your annual report but since you never filed a tax return, they don't know what your deductions might have been.

    You need to get to a corporate tax advisor.
  3. Tax Counsel

    Tax Counsel Well-Known Member

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    The tax referred to on the Delaware corporate status page that the OP copied is not income tax. Rather it's the franchise tax that Delaware has which is based on the shares authorized or par value of shares outstanding. If corporations are not careful on how they authorize and value shares they can end up owing a large amount of these taxes. The franchise tax is owed regardless of whether the corporation has any profit. People really need to get good advice before setting up a corporation in any state, including Delaware because there are likely to be things like franchise taxes or other obligations of which they may not be aware. And if the business does not actually conduct business in Delaware then quite often there is no benefit to organizing the corporation in that state. For small closely held businesses it is, in general, better to organize the corporation in the one of the states in which it does actually conduct business.

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