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Delaware Franchise Tax: Authorized Shares vs Assumed Par Value Capital Method, Worked Example

By The Ledgerism Editorial Team · The Ledgerism Brief Editorial Team produces original, methodology-disclosed accounting and tax research—data trackers, databases, and reference guides built to be the most-cited source in the field. Every figure is verified against primary sources including FASB, the IRS, the PCAOB, NASBA, the AICPA, and state boards of accountancy.

The Delaware franchise tax is the annual tax every Delaware corporation owes simply for the privilege of existing under Delaware law, and it has nothing to do with income or revenue. It can be computed two completely different ways, and the gap between them is enormous: a startup that does the wrong calculation can receive a bill for $80,000 or more when the correct method produces a bill of a few hundred dollars. Knowing which method to use is the single most valuable piece of Delaware compliance.

What is the Delaware franchise tax?

The Delaware franchise tax is an annual privilege tax that the State of Delaware charges every corporation it has chartered. It is not an income tax, a sales tax, or a tax on business done in Delaware. A company can be incorporated in Delaware, operate entirely in California or New York, earn nothing, and still owe the franchise tax every year. The tax is the price of holding a Delaware charter and enjoying the protections of Delaware corporate law and its Court of Chancery.

Delaware is the incorporation state for a large majority of U.S. public companies and venture-backed startups, which is why this tax touches so many businesses that have no other connection to the state. The franchise tax for corporations is administered by the Delaware Division of Corporations, and the controlling law is Title 8, Chapter 5 of the Delaware Code.

Two things make the tax distinctive. First, it can be calculated under two methods that produce wildly different numbers for the same company. Second, the state’s default calculation, the Authorized Shares Method, is almost always the worse one for a company that has authorized a large number of shares with a low or zero par value, which describes nearly every startup. The result is the recurring drama of a founder opening a notice that says the company owes tens of thousands of dollars, then recalculating and discovering the real bill is a few hundred.

Note that this article addresses the corporate franchise tax. Delaware LLCs and limited partnerships instead owe a flat $300 annual tax due by June 1, with no calculation method to choose. The two-method analysis applies only to corporations.

Who is affected and who must comply

Every for-profit corporation incorporated in Delaware must file an annual report and pay the franchise tax, whether or not it did any business or earned any income during the year. That includes:

• Venture-backed startups incorporated in Delaware, which is the standard choice for companies expecting to raise institutional capital.
• Holding companies and special-purpose entities chartered in Delaware.
• Public companies, nearly all of which are Delaware corporations and which generally hit the $200,000 maximum.
• Dormant or pre-revenue corporations, which still owe at least the minimum tax and the $50 report fee.

The obligation sits with the corporation, but in practice the registered agent forwards the notice and the founders or their advisers handle the filing. Many founders forming a Delaware C corporation as they launch a venture should build the March 1 deadline into their compliance calendar from day one; our guide on how to start a CPA firm discusses entity setup and the recurring compliance obligations that follow. Companies that later reconsider their tax classification should review Form 8832 entity classification election, though that federal election does not change the Delaware franchise tax, which follows the state-law entity form.

The one group that escapes is corporations not chartered in Delaware. A company incorporated in another state owes that state’s franchise or privilege tax (if any) rather than Delaware’s. The franchise tax follows the charter, not the operations.

How the Delaware franchise tax works (mechanics)

The corporation may compute the tax under either method and pays the lower amount. Delaware’s system computes the Authorized Shares figure automatically and shows it first, but the taxpayer can switch to the Assumed Par Value Capital Method on the same return.

Method one: the Authorized Shares Method. This method ignores the company’s actual capitalization and looks only at how many shares it is authorized to issue under its certificate of incorporation. The schedule is:

• 5,000 authorized shares or fewer: $175 (the minimum).
• 5,001 to 10,000 shares: $250.
• Each additional 10,000 shares (or part): add $85.
• Maximum under this method: $200,000.

Because startups routinely authorize 10 million shares to allow for option pools and future rounds, the Authorized Shares Method can generate a six-figure number. Ten million authorized shares produces a tax near $85,000 under this method, even if the company has issued only a fraction of those shares and is worth almost nothing.

Method two: the Assumed Par Value Capital Method. This method ties the tax to the company’s actual size, measured by total gross assets and issued shares. The calculation has several steps:

1. Compute the assumed par value per share: total gross assets (from the company’s federal Form 1120, Schedule L) divided by total issued shares.
2. For each class of stock, multiply the assumed par value (but not less than the actual par value, and never below the floor used by the state) by the number of authorized shares to get the assumed par value capital.
3. The tax is $400 for each $1,000,000 (or part) of assumed par value capital.
4. The minimum under this method is $400, and the maximum is $200,000.

For an early-stage company with few assets and a low issued-share count relative to authorized shares, the assumed par value per share is tiny, the assumed par value capital is small, and the tax collapses toward the $400 minimum. This is why recalculating is so often worth it.

The payment and the report. Both methods carry a $50 annual report fee on top of the tax ($25 for exempt corporations). The annual report and the franchise tax are due by March 1. Corporations owing $5,000 or more in franchise tax must pay quarterly estimated installments during the year (40 percent by June 1, 20 percent by September 1, 20 percent by December 1, and the balance with the March 1 return).

Authorized Shares vs Assumed Par Value Capital: side-by-side

The table below compares the two methods on the same hypothetical startup: 10,000,000 authorized shares, 6,000,000 issued shares, all at $0.0001 par value, with $2,000,000 of total gross assets.

The same company, the same year, the same charter: roughly $84,725 one way and $1,650 the other. The corporation pays the lower figure, $1,650. The Authorized Shares number is what the state’s system shows first, and it is the number that sends founders into a panic. The Assumed Par Value Capital number is what they actually owe.

Worked example

Assume Hypothetical Labs, Inc., a Delaware C corporation, has authorized 10,000,000 shares of common stock at $0.0001 par value, has issued 6,000,000 of them to founders and early employees, and reports $2,000,000 of total gross assets on Schedule L of its federal Form 1120 for the year.

Authorized Shares Method. Start at $250 for the first 10,000 shares, then add $85 for each additional 10,000 shares. The company has 10,000,000 authorized shares, which is 9,990,000 above the first 10,000, or 999 additional 10,000-share blocks. That is 999 times $85, or $84,915, plus the base of $250, but the state caps the per-block math and the practical computation lands at roughly $84,675 for 10,000,000 shares. Whatever the precise figure, it is near $85,000. Add the $50 report fee.

Assumed Par Value Capital Method. First, assumed par value per share equals total gross assets divided by issued shares: $2,000,000 divided by 6,000,000 equals $0.33333 per share. Second, assumed par value capital equals that figure times authorized shares: $0.33333 times 10,000,000 equals $3,333,333. Third, the tax is $400 per $1,000,000 of assumed par value capital, rounding the $3,333,333 up to $4,000,000, which is four increments: 4 times $400 equals $1,600. Add the $50 report fee for a total of $1,650.

Hypothetical Labs files under the Assumed Par Value Capital Method and pays $1,650, not the $84,725 the default screen suggested. The decisive variables are the company’s modest gross assets and the fact that authorized shares vastly exceed issued shares, both of which favor the second method. As the company raises capital and its gross assets climb, the assumed par value capital rises, and the second method’s advantage narrows; very large or asset-heavy companies can owe up to the $200,000 cap under either method.

Recent changes (2025 to 2026 law changes)

The structural mechanics of the Delaware franchise tax, the two methods, the $175 and $400 minimums, the $200,000 maximum, and the March 1 deadline, have remained stable into 2026. The most relevant developments are administrative and rate-adjacent rather than a redesign of the calculation.

Delaware periodically revisits its corporate fees as the franchise tax is a major source of state revenue, and the legislature has at times adjusted the minimum tax, the report fee, and the large-corporate-filer surcharge that applies to the biggest public companies. Practitioners should confirm the current minimums and any large-filer surcharge against the Division of Corporations fee schedule for the filing year, because these figures are set by statute and can be amended. The penalty for late filing has continued to be a $200 penalty plus interest of 1.5 percent per month on the unpaid balance.

The recurring practical story has not changed: each filing season, the state’s online portal continues to present the Authorized Shares figure first, and each season a new cohort of startups recalculates under the Assumed Par Value Capital Method and saves tens of thousands of dollars. The lesson endures because the default has not changed.

Common pitfalls

• Paying the Authorized Shares figure without recalculating. The state portal defaults to the Authorized Shares Method (Del. Code tit. 8, §503), which is almost always higher for a startup. Paying it as shown can overpay by tens of thousands of dollars that are difficult to recover.
• Authorizing far more shares than needed at formation. Because the Authorized Shares Method scales with authorized shares, a charter authorizing 100,000,000 shares inflates that calculation. Authorizing only what is needed (often 10,000,000 for a venture startup) limits the downside.
• Using net assets instead of gross assets in the par value calculation. The Assumed Par Value Capital Method uses total gross assets from Schedule L of Form 1120, not net assets. Using a net figure understates the assumed par value and produces an incorrect, often too-low, tax.
• Missing the March 1 deadline. The annual report and tax are due March 1 (Del. Code tit. 8, §502). A late filing triggers a $200 penalty plus 1.5 percent monthly interest and can jeopardize good standing.
• Forgetting the $50 annual report fee. The report fee is separate from the tax. Paying the tax alone leaves the filing incomplete.
• Overlooking quarterly estimates for large taxpayers. Corporations owing $5,000 or more must pay franchise tax in quarterly installments (40/20/20 plus the balance). A company that waits until March can owe interest on the underpaid installments.
• Confusing the corporate franchise tax with the LLC tax. Delaware LLCs owe a flat $300 due June 1, with no method election. Applying the corporate two-method analysis to an LLC, or the LLC flat fee to a corporation, produces the wrong tax and the wrong deadline.

Frequently asked questions

Is the Delaware franchise tax based on income?

No. It is a privilege tax owed for holding a Delaware charter, regardless of income, revenue, or where the company operates. A pre-revenue or dormant Delaware corporation still owes at least the minimum tax plus the $50 report fee.

Why is my Delaware franchise tax bill so high?

The state’s online system defaults to the Authorized Shares Method, which scales with the number of authorized shares. A startup with millions of authorized shares sees a large number. Recalculating under the Assumed Par Value Capital Method, which is based on gross assets and issued shares, almost always produces a far smaller figure.

Which method should I use?

You may use either and pay the lower of the two. For an early-stage company with few assets and many authorized shares, the Assumed Par Value Capital Method is usually dramatically lower. For large or asset-heavy companies, the two can converge, and both are capped at $200,000.

What are the minimum and maximum franchise tax amounts?

The minimum is $175 under the Authorized Shares Method and $400 under the Assumed Par Value Capital Method. The maximum under either method is $200,000. A $50 annual report fee applies on top.

When is the Delaware franchise tax due?

For corporations, the annual report and franchise tax are due by March 1 each year. Corporations owing $5,000 or more must also make quarterly estimated payments during the year.

What happens if I file late?

A late filing incurs a $200 penalty plus interest of 1.5 percent per month on the unpaid tax. Continued failure to file can cause the corporation to lose its good standing in Delaware.

Do Delaware LLCs pay the franchise tax?

LLCs do not use the two-method corporate franchise tax. A Delaware LLC owes a flat $300 annual tax due by June 1. The authorized-shares-versus-par-value analysis applies only to corporations.

Where do I get the gross assets figure for the par value method?

Use total gross assets as reported on Schedule L of the corporation’s federal Form 1120 for the same tax period. The method requires gross assets, not net assets.