An LLC must act as a separate legal entity if it wishes to hold a S Corp. As a result, the LLC will have to establish a new corporation and choose S Corp status for it. After that, the LLC will take ownership of the S Corp, and any gains or losses realized by the S Corp will be distributed to the LLC’s shareholders.
Delaware’s business-friendly laws and tax regulations make it a popular jurisdiction for incorporation. Currently, Delaware has a corporate income tax rate of 8.7%, which is quite low when compared to other states.
Corporations must submit an annual franchise tax report and pay a franchise tax fee in Delaware. The fee is calculated based on the authorized shares and par value of the corporation. You can ask for an extension if you need additional time to submit your Delaware franchise tax report. However, in order to avoid fines and interest, you must estimate and pay your franchise tax on the original due date.
You may want to think about establishing in another state or reorganizing your company as a limited partnership or limited liability partnership to completely avoid paying Delaware franchise tax. However, it is significant to keep in mind that these choices could also have additional tax and legal repercussions, which should be carefully evaluated before making a choice.
In conclusion, an LLC is permitted to own a S Corp, but only through a different legal organization. Although Delaware has comparatively low corporate tax rates and is a business-friendly state, firms are nonetheless required to submit an annual franchise tax report and pay a franchise tax levy. You can ask for a filing extension if you need more time, but you must estimate and pay your franchise tax by the deadline without fail. You can look into other incorporation possibilities to completely avoid paying Delaware franchise tax, but it’s crucial to carefully analyze the potential financial and legal repercussions.