Every Delaware corporation files an annual report and pays franchise tax by March 1. For startups, the notice from Delaware is often alarming: a company with 10 million authorized shares and little revenue can be billed tens of thousands of dollars. In most cases that number is wrong for your situation, because Delaware calculates it using the method that produces the higher tax unless you file using the other one.
The two methods
Authorized Shares method. Based only on the number of authorized shares:
| Authorized shares | Tax |
|---|---|
| 5,000 or fewer | $175 (minimum) |
| 5,001 to 10,000 | $250 |
| Each additional 10,000 or portion | add $85 |
Assumed Par Value Capital method. Based on total gross assets, issued shares and authorized shares. The tax is $400 per $1,000,000 (or portion) of assumed par value capital, with a $400 minimum under this method. Total gross assets come from Form 1120, Schedule L.
A corporation pays whichever method results in the lower tax. Under either method the tax is never less than $175 or more than $200,000, or $250,000 for corporations identified as large corporate filers. The annual report filing fee is separate: $50 for non-exempt domestic corporations.
How to file it correctly
- Gather total gross assets as of December 31 (from the balance sheet or Schedule L).
- Count issued shares and authorized shares as of December 31.
- Calculate under the Assumed Par Value Capital method using the state's calculator.
- File the annual report online, entering issued shares and gross assets so the lower tax is applied.
- Pay by March 1.
If you have already paid a high amount for a prior year, it may be possible to correct it by filing the information needed for the other method.
Other Delaware items
- Registered agent: Delaware corporations must maintain a registered agent in the state.
- Good standing: unpaid franchise tax causes a loss of good standing, which shows up in diligence and can block financings.
- Foreign qualification: if you operate in another state, that state may require registration and its own annual filings.
What we do
We calculate both methods each year, file the annual report with the inputs that produce the correct tax, keep the entity in good standing, and put the March 1 date on your compliance calendar alongside federal and state deadlines.
A worked example
A startup has 10,000,000 authorized shares, 6,000,000 issued shares and $1,500,000 of total gross assets at December 31.
Authorized Shares method: $250 for the first 10,000 shares, plus $85 for each additional 10,000 shares or portion. That is 999 additional blocks of 10,000, or about $85,165, plus the $250, before the $200,000 cap. Most founders see a number like this on the notice.
Assumed Par Value Capital method:
- Assumed par = total gross assets ÷ issued shares = $1,500,000 ÷ 6,000,000 = $0.25.
- Because $0.25 is greater than the stated par (commonly $0.00001 or similar), use $0.25.
- Assumed par value capital = $0.25 × 10,000,000 authorized shares = $2,500,000.
- Tax = $400 per $1,000,000 or portion = 3 × $400 = $1,200.
Same company, same year: roughly $1,200 instead of more than $85,000, because the annual report includes the gross assets and issued shares.
Keep the inputs ready
The calculation needs year-end gross assets and issued shares, so the year-end close and the cap table feed directly into the March 1 filing. Companies that close December late often file the annual report with estimates; we close on time so the filing uses real numbers.
Sources
- Delaware Division of Corporations, How to calculate franchise taxes
- Delaware Division of Corporations, Annual report and tax information
Questions founders ask
When is the Delaware franchise tax due?
Annual reports and franchise taxes for Delaware corporations are due by March 1 each year. Late filing carries a $200 penalty plus 1.5% interest per month on the tax and penalty.
Why did we get a huge franchise tax notice?
Delaware's default bill uses the Authorized Shares method, which can be very high for startups with millions of authorized shares. Recalculating under the Assumed Par Value Capital method usually lowers it substantially.
