Every Delaware LP and LLC must pay an annual franchise tax. This applies to the fund entity, the GP entity, the management company, and each SPV or series LLC formed in Delaware. It is a small but recurring obligation that is easy to overlook, and the consequences of missing it include penalties, interest, and, in the worst case, administrative dissolution of the entity.
Tax Amounts
The Delaware franchise tax for LPs and LLCs is a flat annual fee, not a tax on income or assets:
- Limited partnerships and LLCs: $300 per year, per entity
- Series LLCs: $300 per year for the master entity only. Individual series within the LLC do not pay separate franchise taxes, which is one of the cost advantages of the series LLC structure.
Delaware corporations (C-corps and S-corps) are subject to a different, potentially much higher franchise tax calculated based on authorized shares or assumed par value. This guide focuses on LPs and LLCs, which are the standard entity types for private fund structures.
Due Date
The Delaware franchise tax for LPs and LLCs is due on June 1 of each year. There is no extension available. Late payment triggers a $200 penalty plus 1.5% monthly interest on the unpaid amount.
The June 1 deadline is easy to miss because it does not align with other major fund deadlines. Federal tax returns are due March 15 (or September 15 with extension). Audited financials are due 120 days after year-end. The Delaware franchise tax sits on its own calendar and requires a separate tracking process.
Practical Considerations
For a typical fund structure, the franchise tax adds up across multiple entities:
- Fund + GP + management company = $900 per year. This is the baseline for a standard three-entity fund structure. Every fund pays this regardless of size, strategy, or activity level.
- Standalone SPVs add $300 each. A syndicator with 10 standalone Delaware LLCs for deal-by-deal SPVs pays $3,000 per year in franchise taxes, plus the $900 for the core entities. At 20 SPVs, the annual cost is $6,900.
- Series LLCs offer efficiency. A series LLC with 10 series pays $300 total for the master entity, compared to $3,000 for 10 standalone LLCs. This is a meaningful cost savings for high-volume deal-by-deal operators.
- Expense allocation. The franchise tax is typically a fund expense or management company expense, depending on the LPA. Review your partnership agreement to confirm which entity bears the cost and ensure it is properly reflected in fund accounting.
Failure to Pay
The consequences of missing the Delaware franchise tax escalate over time:
- Penalties and interest. A $200 late penalty plus 1.5% monthly interest on the unpaid tax accrues from the June 1 due date. For a single $300 payment, the penalty alone nearly doubles the cost.
- Administrative dissolution. If the franchise tax remains unpaid for an extended period, Delaware can administratively dissolve the entity. A dissolved entity cannot conduct business, enter into contracts, or maintain its liability shield until it is reinstated.
- Reinstatement costs. Reinstating a dissolved Delaware entity requires paying all back franchise taxes, penalties, interest, and reinstatement fees. Depending on how many years have been missed, the total cost can be several thousand dollars for a single entity.
- Operational disruption. A dissolved fund entity cannot process capital calls, make distributions, or close investments. For an active fund, even a brief period of dissolution creates operational, legal, and reputational problems that are disproportionate to the $300 annual cost.
How Capital Company Helps
Capital Company handles fund and SPV formation, from entity setup through bank accounts and registered agents. Schedule a demo to learn more.
This article is for informational purposes only and does not constitute legal or tax advice. Consult qualified professionals for guidance specific to your situation.