Merging Delaware Corporations
Delaware remains the most preferred state for corporate mergers because of its predictable legal framework and efficient filing system under the Delaware General Corporation Law (DGCL).
However, even after completing the merger, many companies overlook their franchise tax obligations and post-merger compliance steps.
This guide explains how to manage Delaware franchise tax, filings, and compliance requirements after merging two or more corporation.
Step 1: Understanding Delaware Merger Types
Under DGCL §251–§259, Delaware allows several types of mergers, including:
- Statutory Merger – One corporation survives, and the other ceases to exist.
- Short-Form Merger – Allowed if a parent company owns at least 90 percent of a subsidiary.
- Triangular Merger – A subsidiary is merged into another entity for strategic purposes.
- Cross-State Merger – A Delaware corporation merges with an entity organized in another state.
Each structure affects your tax filings and final Delaware franchise tax responsibilities.
Step 2: File a Certificate of Merger
Every Delaware merger requires filing a Certificate of Merger with the Delaware Division of Corporations.
Filing Requirements:
- Names and file numbers of all merging corporations.
- Identification of the surviving entity.
- Effective date of merger (immediate or future date).
- Signature of an authorized officer from each entity.
Filing Fee: $244 for standard processing.
Optional Expedited Processing: 24-hour service available for an additional $50.
The merger is not legally effective until this document is accepted by the Division of Corporations.
Step 3: Franchise Tax Obligations Before the Merger
Each Delaware corporation involved in the merger must file and pay its annual franchise tax up to the date of merger.
- The Delaware franchise tax is based on authorized shares or assumed par value capital.
- Minimum tax: $175
- Maximum tax: $200,000
- Due date: March 1 for corporations
Example:
If Corporation A and Corporation B merge on June 30, 2025, both must file and pay franchise tax for the portion of the year prior to merger before the merger is finalized.
The surviving entity then assumes responsibility for all future filings.
Step 4: Post-Merger Annual Report and Franchise Tax
After the merger, the surviving corporation must continue filing the Delaware Annual Franchise Tax Report (Form 09-11).
Required Information:
- Updated officer and director details
- Authorized share count
- Stock par value
- Total gross assets (if using assumed par value method)
Failure to file this report may cause loss of good standing and trigger late penalties or interest charges.
Step 5: Notify the IRS and Update Employer Records
Once the merger is complete, notify the Internal Revenue Service and update all related accounts.
Required filings:
- Final Form 1120 for the non-surviving corporation, checking the “final return” box.
- Transfer of EIN accounts and payroll tax filings to the surviving entity.
- Update business licenses and W-9 information for all vendors and banks.
IRS rules under IRC §381(a) allow the surviving corporation to assume the tax attributes of the merged entity, including net operating losses and credits.
Step 6: Cancel Certificates for Dissolved Entities
Delaware automatically cancels the Certificate of Incorporation of any non-surviving entity once the merger becomes effective.
However, if the merger includes out-of-state corporations, you must separately file withdrawal or termination certificates in the other states to complete the legal closure.
Step 7: Maintain Accounting and Tax Records
Under Delaware and IRS record retention rules, both corporations must preserve accounting, tax, and shareholder records for at least seven years after the merger.
Keep copies of:
- Certificate of Merger
- Board resolutions approving the merger
- Tax filings and payment receipts
- Legal correspondence
- Financial statements of both entities
These documents are essential for IRS audits, shareholder requests, and due diligence during future funding or acquisition.
Step 8: Update Cap Table and Stock Ledger
After the merger, issue new stock certificates for shareholders of the surviving corporation based on the exchange ratio specified in the Merger Agreement.
Example:
If Company A shareholders receive 1.5 shares of Company B for each share held, the board must approve the new issuance through formal resolutions.
Update the Delaware stock ledger, which serves as the official ownership record for legal and tax purposes.
Step 9: Delaware Franchise Tax After the Merger
The surviving entity remains subject to ongoing Delaware franchise tax filings.
If the merger increases authorized shares, franchise tax liability may rise.
Calculation Methods:
- Authorized Shares Method for early-stage companies.
- Assumed Par Value Method for larger corporations with significant assets.
Tip:
To reduce future franchise tax, consider reducing authorized shares or converting to the par value method.
Step 10: Multi-State and International Considerations
If either entity was registered to do business in another state or country, file foreign merger notifications and withdrawals with the appropriate authorities.
Failure to do so can result in double taxation or continued annual report obligations in those states.
Conclusion
Merging two Delaware corporations requires more than a signed merger agreement.
Timely franchise tax payments, accurate filings, and post-merger updates ensure compliance with both the Delaware Division of Corporations and the IRS.
Proper planning helps the surviving entity maintain good standing, protect tax attributes, and simplify future audits or funding rounds.
Call to Action
For professional assistance with Delaware corporate mergers, franchise tax compliance, or IRS reporting, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert helping corporations complete mergers with full legal and tax compliance.
Disclaimer
This article is for informational purposes only and should not be treated as legal or tax advice. Always consult a CPA before filing Delaware merger documents or paying franchise taxes.
Top 5 FAQs
- Do both merging Delaware corporations have to pay franchise tax?
Yes. Each entity must pay franchise tax up to the date of merger. - What happens to the non-surviving corporation?
Its certificate of incorporation is automatically cancelled upon the merger’s effectiveness. - How does the IRS treat a Delaware merger?
The surviving entity assumes tax attributes such as net operating losses under IRC §381. - Do I need to notify other states of the merger?
Yes, if either company operated as a foreign entity elsewhere. File withdrawals in those states. - Can franchise tax liability increase after a merger?
Yes, if authorized shares increase or if the surviving corporation has higher assumed par value.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, Enrolled Agent admitted to practice before the IRS, and cross-border tax expert assisting Delaware corporations with mergers, dissolutions, and franchise tax compliance.