Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Authorized shares affect Delaware franchise tax under both calculation methods. Under the Authorized Shares method, every additional 10,000 shares above 10,000 adds $85, so share count alone drives the tax. Under the Assumed Par Value Capital method, authorized but unissued shares are still multiplied by the assumed par value, and a high stated par value can raise the result. Choosing share count and par value carefully, and revisiting them before increases, keeps the tax predictable.
Key takeaways
- Authorized shares are the maximum the certificate of incorporation permits; issued shares are those actually held by shareholders.
- Under the Authorized Shares method, 1,000,000 authorized shares cost $8,665 a year and 10,000,000 cost $85,165, before the $200,000 cap.
- Under the Assumed Par Value Capital method, doubling authorized shares while issued shares and assets stay constant roughly doubles assumed par value capital.
- Shares with a stated par value higher than the assumed par are counted at stated par, so a high par value can increase the tax.
- Changing authorized shares requires a charter amendment approved by the board and stockholders and filed with Delaware.
Authorized versus issued shares, and why Delaware taxes the first
A Delaware certificate of incorporation states how many shares the corporation is authorized to issue, by class and par value. The board then issues shares to founders, investors and option holders out of that authorization. Unissued shares are a reserve: they let the company grant options or close a round without amending its charter each time.
Delaware's franchise tax treats that reserve as part of the corporation's capital structure. Neither calculation method ignores unissued shares, which is why the authorization chosen at incorporation, often without much thought, follows the company into every annual report.
Share count under the Authorized Shares method
This method uses nothing but the number of authorized shares:
| Authorized shares | Annual tax |
|---|---|
| 5,000 | $175 |
| 10,000 | $250 |
| 1,000,000 | $8,665 |
| 10,000,000 | $85,165 |
| 30,000,000 | $200,000 (the cap) |
For a corporation that will never use the alternative method, for example a closely held subsidiary with a simple structure, keeping authorized shares at or below 5,000 holds the tax at the $175 minimum. For startups that need millions of shares, this method is rarely the one they should end up paying, but it is the figure Delaware shows by default.
Share count and par value under the Assumed Par Value Capital method
The alternative method divides gross assets by issued shares to find an assumed par value, then multiplies authorized shares by it. Unissued authorized shares therefore still add to the tax base.
Consider a company with $2,000,000 of gross assets, 10,000,000 shares issued and a par value of $0.0001. Assumed par is $0.20.
- With 15,000,000 authorized: 15,000,000 x $0.20 = $3,000,000, so the tax is 3 x $400 = $1,200.
- With 30,000,000 authorized: 30,000,000 x $0.20 = $6,000,000, so the tax is $2,400.
Par value matters too. If a corporation has 5,000,000 authorized shares at $1.00 par, 1,000,000 issued and $200,000 of gross assets, assumed par is $0.20. Because the stated $1.00 par is higher, those shares are counted at $1.00: $5,000,000 of capital and a $2,000 tax. The same structure at $0.0001 par produces $1,000,000 of assumed par value capital and the $400 minimum.
Decisions where authorized shares change the bill
Authorized share changes usually happen for good reasons, so the goal is to make them deliberately:
- At incorporation: pick a share count that fits the cap table you expect, with a low par value, and understand the franchise tax under both methods.
- Creating or expanding an option pool: an increase large enough for several years of grants raises the tax every year until the shares are issued.
- Stock splits: a forward split multiplies issued shares, which lowers assumed par, but it usually also multiplies authorized shares.
- Preparing for a financing: investors' counsel often increases authorized common and creates preferred stock; ask for the franchise tax effect alongside the legal documents.
- After a round closes: if a large authorization was never used, a charter amendment can reduce it, though the amendment has its own approval and filing cost.
Why this belongs in board and finance planning
Franchise tax is rarely large enough to drive a capital structure decision on its own, and legal and investor needs come first. It is, however, a recurring cost that should be known at the time of the decision, not discovered on March 1. A short calculation at each charter change, using projected gross assets and issued shares, avoids surprises and gives the board an accurate compliance budget.
It also helps to keep the inputs in one place. The authorized share count lives in the certificate of incorporation and its amendments, the issued share count lives in the stock ledger, and gross assets live in the books. When those three records disagree, the annual report is the place the mismatch shows up, and an investor's diligence team will often compare them too.
Common mistakes to avoid
- Authorizing far more shares than any realistic plan requires because a template used a large number.
- Setting a high par value such as $1.00 per share for a startup with millions of authorized shares.
- Approving an option pool increase without checking its effect on next year's franchise tax.
- Reporting authorized shares from an outdated charter after amendments or a stock split.
- Assuming unissued shares are ignored under the Assumed Par Value Capital method.
NYBACS 360° support
How NYBACS helps
- Models franchise tax under both methods before you incorporate, amend authorized shares or split stock.
- Keeps the authorized and issued share figures in the annual report aligned with your charter and cap table.
- Works alongside your corporate counsel on charter amendments so the tax effect is known when the board approves.
- Flags past years where share changes may have caused overpayment or underpayment of franchise tax.
- Supports the year-end gross assets figure the calculation depends on through timely bookkeeping.
Frequently Asked Questions
What is a sensible number of authorized shares for a startup?
Many venture-backed startups authorize around 10,000,000 shares at a very low par value and rely on the Assumed Par Value Capital method. The right number depends on the founder split, option pool and financing plans, so decide it with corporate counsel.
Does reducing authorized shares lower the tax immediately?
It lowers the tax for periods after the amendment takes effect. Delaware's calculation reflects authorized shares during the year, so the timing of the filing matters and should be checked.
Do preferred shares count the same as common shares?
Yes, all classes of authorized stock are included. Under the Assumed Par Value Capital method each class is compared with the assumed par using its own par value.
Does a stock split increase franchise tax?
It can. A split that increases authorized shares raises the Authorized Shares method figure, while under the alternative method the effect depends on how issued shares and gross assets change alongside it.
