Delaware Franchise Tax: Two Calculation Methods Explained

Delaware franchise tax is an annual tax every Delaware corporation pays for the privilege of being incorporated there, whether or not it does business in the state. It can be calculated two ways, the Authorized Shares method or the Assumed Par Value Capital method, and you pay whichever is lower. For many startups the difference is dramatic: tens of thousands of dollars under the default method versus about $400 under the alternative.

This guide walks through both Delaware franchise tax calculation methods with a worked example, explains the deadlines for corporations and LLCs, and lists the penalties and common mistakes. It is general information, not legal or tax advice; confirm your calculation with the Delaware Division of Corporations or a professional.

Who pays Delaware franchise tax?

Entity	What it pays	Due	Annual report?
Domestic corporation	Franchise tax (two methods) + $50 report fee	March 1	Yes
Domestic LLC	Flat $400 annual tax	June 1	No
Limited partnership / general partnership	Flat $400 annual tax	June 1	No
Foreign corporation registered in Delaware	$125 annual report fee	June 30	Yes

Delaware franchise tax is separate from state income tax and from the Delaware gross receipts tax, which apply only if you actually do business in Delaware. Most out-of-state startups owe just the franchise tax and report fee in Delaware, plus taxes in the states where they operate. If you are deciding where to form, see our sibling comparison of Wyoming vs Delaware LLCs and our guide to LLC vs corporation.

Method 1: Authorized Shares

This method looks only at how many shares your certificate of incorporation authorizes. According to the Division of Corporations' franchise tax calculation page:

Authorized shares	Tax
5,000 or fewer	$175 (minimum)
5,001 to 10,000	$250
Each additional 10,000 shares or part of 10,000	+$85
Maximum	$200,000

Venture-style startups commonly authorize 10 million shares so they can issue founder stock and an option pool. Under this method, 10,000,000 shares produce $250 + (999 x $85) = $85,165. That is the bill many founders see in their first notice, and it is why panicked searches for "Delaware franchise tax" spike every February.

Method 2: Assumed Par Value Capital

This method uses your issued shares and total gross assets to compute a notional capital figure, then charges $400 per $1 million (or part of a million), with a $400 minimum.

1. Assumed par = total gross assets / issued shares (to six decimal places).
2. For authorized shares with a par value below the assumed par, multiply the number of authorized shares by the assumed par.
3. For authorized shares with a par value at or above the assumed par, multiply the number of shares by their stated par value.
4. Add the results to get assumed par value capital.
5. If it is $1 million or more, round up to the next million, divide by $1 million and multiply by $400. If below $1 million, divide by $1 million and multiply by $400.
6. Apply the $400 minimum.

Gross assets come from total assets on Schedule L of your federal Form 1120 for the fiscal year. Issued shares include treasury shares.

Worked example: a seed-stage startup

Illustrative numbers. A Delaware C corporation has:

• 10,000,000 authorized shares, par value $0.00001
• 8,000,000 issued shares
• Total gross assets of $500,000 at year-end

Step	Calculation	Result
Assumed par	$500,000 / 8,000,000	$0.0625
Par value below assumed par?	$0.00001 < $0.0625	Yes, use assumed par
Assumed par value capital	10,000,000 x $0.0625	$625,000
Tax	($625,000 / $1,000,000) x $400 = $250	Minimum applies: $400
Annual report fee		$50
Total due		$450

Compared with $85,165 under the Authorized Shares method, the APVC method saves almost $85,000. Now suppose the company raises a $6 million seed round and ends the year with $5.2 million of gross assets and 10,000,000 issued shares. Assumed par is $0.52; assumed par value capital is $5,200,000; rounded up to $6 million, the tax is 6 x $400 = $2,400. Still a fraction of the default figure.

Step by step: filing the annual report

1. Gather your Delaware file number, issued shares, gross assets, principal place of business, and names and addresses of directors and at least one officer.
2. Log in to the Division of Corporations online filing system before March 1.
3. Enter issued shares and gross assets so the system calculates the APVC figure; it then charges the lower method.
4. Pay the tax and $50 fee.
5. If you owe $5,000 or more, schedule estimated payments: 40% June 1, 20% September 1, 20% December 1, remainder March 1.
6. Save the filed report and receipt with your corporate records.

Your registered agent often forwards reminders, but the obligation is yours. Put March 1 and June 1 on your 2027 tax calendar.

Which method fits your company?

Company profile	Usually lower method	Why
Few authorized shares (5,000 or fewer)	Authorized Shares	$175 beats the $400 APVC minimum
Millions of authorized shares, modest assets	Assumed Par Value Capital	Low gross assets per issued share keep capital small
Large balance sheet after a big funding round	Assumed Par Value Capital, still	Tax grows with assets, but usually far below the share-count bill
Few issued shares relative to authorized	Check both carefully	A high assumed par multiplies across all authorized shares

The last row is the edge case to watch: assumed par is calculated per issued share but multiplied by authorized shares. A company with $2 million of assets, 1 million issued shares and 10 million authorized shares has an assumed par of $2.00 and assumed par value capital of $20 million, for a tax of $8,000. Issuing more shares or reducing authorized shares changes the result, which is a decision for your lawyer, not a tax trick to apply on your own.

Received a large franchise tax notice?

1. Do not pay the default amount. The notice usually shows the Authorized Shares figure.
2. Collect your issued shares from your cap table and gross assets from your year-end balance sheet or Form 1120.
3. File the annual report online and enter both numbers; the system recalculates.
4. If you already paid the inflated amount, contact the Division of Corporations about recalculation and any refund, with your figures ready.
5. If you missed March 1, file and pay as soon as possible; the $200 penalty and 1.5% monthly interest apply from the deadline.

Budgeting for Delaware every year

For a typical seed-stage C corporation, plan on three recurring Delaware costs: the franchise tax under the APVC method (often $400 to a few thousand dollars, depending on assets), the $50 annual report fee and the registered agent's annual charge. Startups that close a large round late in the year see gross assets jump at year-end, which raises next March's tax; build that into the budget when you plan the raise. Keep the cap table and year-end balance sheet in one place so whoever files the annual report can find both figures in minutes, rather than defaulting to the Authorized Shares figure under deadline pressure.

Delaware LLCs: what the $400 does and does not cover

The flat $400 keeps a Delaware LLC in good standing in Delaware. It does not cover your registered agent's annual fee, which is separate, or any tax in the states where you actually operate. An LLC run from New York or California must register there as a foreign LLC and meet local rules, such as California's annual tax and Statement of Information or New York's publication requirement. Budget for both states before choosing Delaware for a small, single-location business.

Penalties

• Corporations: $200 penalty for not filing a complete annual report by March 1, plus 1.5% interest per month on unpaid tax.
• LLCs and partnerships: $200 penalty for late or non-payment of the $400 tax, plus 1.5% interest per month on tax and penalty.
• Loss of good standing and, eventually, a void charter. Investors, banks and acquirers routinely ask for a certificate of good standing, which you cannot get with unpaid tax.

Common mistakes

• Paying the scary default bill. Always enter issued shares and gross assets so the system can compute APVC.
• Leaving gross assets blank. Without it, the calculation falls back to Authorized Shares.
• Ignoring mid-year share changes. If you amended authorized shares during the year, the tax is prorated by period.
• Forgetting the $50 report fee when budgeting.
• Not paying in the operating state. A Delaware entity doing business in California, Texas or New York must also register and pay there. See our sibling guides on the California $800 annual tax and the Texas franchise tax.
• Responding to look-alike mailers. Private companies send official-looking notices offering to file for a fee. Pay only through the state's own website or your registered agent.

Keep the numbers ready

The APVC method depends on accurate gross assets, which depend on a balance sheet that reflects your receivables, cash and equipment. Startups that invoice customers properly and track what is outstanding can pull that figure in minutes. If you are billing your first customers, our guide to invoicing as a business entity shows the essentials, and our free invoice generator lets you create professional invoices with no sign-up and download them as PDFs.