Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Delaware franchise tax is an annual tax every Delaware corporation pays for the privilege of being incorporated there; it is not based on income. It can look very high because Delaware's default calculation, the Authorized Shares method, charges by the number of authorized shares, so a startup with 10 million authorized shares sees a bill of about $85,000. Recalculating under the Assumed Par Value Capital method often reduces it to a few hundred dollars.
Key takeaways
- Franchise tax is owed by Delaware corporations whether or not they have revenue or profit; LLCs pay a separate flat annual tax instead.
- Delaware's notices are computed on the Authorized Shares method unless the company provides the figures for the alternative method.
- Under the Authorized Shares method, 10,000,000 authorized shares produce $85,165 of tax.
- The Assumed Par Value Capital method has a $400 minimum and charges $400 per $1 million (or part) of assumed par value capital.
- The alternative method needs two numbers Delaware does not have: total issued shares and total gross assets from Form 1120 Schedule L.
What the franchise tax is actually taxing
Delaware does not tax a typical out-of-state corporation's profits. Instead, it charges an annual franchise tax for the right to exist as a Delaware corporation, filed with the annual report by March 1. The law gives two ways to measure it, and the corporation pays whichever result is lower:
- Authorized Shares method: a sliding scale based only on the number of shares the certificate of incorporation authorizes.
- Assumed Par Value Capital method: a calculation that uses the company's gross assets and issued shares to estimate the value of its authorized capital.
Both methods are capped at $200,000 a year, or $250,000 for Large Corporate Filers.
Why a small startup receives a five-figure notice
Venture-style startups are routinely incorporated with 10,000,000 or more authorized shares and a tiny par value such as $0.00001, so founders can hold millions of shares and an option pool can be created later. The Authorized Shares method does not care that most of those shares are unissued or that the company has little in the bank:
| Authorized shares | Tax under the Authorized Shares method |
|---|---|
| Up to 5,000 | $175 |
| 5,001 to 10,000 | $250 |
| Each further 10,000 shares or part | adds $85 |
| 10,000,000 | $85,165 |
Delaware sends its reminder using this method because it already knows the authorized share count. That is the number that alarms founders. It is a correct calculation, just not the one most startups should be paying.
How the Assumed Par Value Capital method brings it down
Take a corporation with 10,000,000 authorized shares at $0.00001 par, 8,000,000 shares issued and $500,000 of total gross assets at year-end.
- Assumed par: gross assets divided by issued shares: $500,000 / 8,000,000 = $0.0625 per share.
- Compare with stated par: the stated par of $0.00001 is lower than the assumed par, so the assumed par is used.
- Assumed par value capital: 10,000,000 authorized shares x $0.0625 = $625,000.
- Tax: $400 for each $1,000,000 or part of a million, so $625,000 produces the $400 minimum.
With the $50 report fee, the total due is $450 instead of more than $85,000. If the same company later had $5,000,000 of gross assets and 9,000,000 shares issued, assumed par would be about $0.5556, assumed par value capital about $5.56 million, rounded up to 6 million, and the tax $2,400.
Information you need before filing
Delaware will only apply the alternative method if the report includes:
- All issued shares, including treasury shares, as of the end of the tax year, from the stock ledger or cap table.
- Total gross assets, which Delaware defines as the total assets reported on the corporation's Form 1120 Schedule L for the fiscal year ending in the report year.
This is where bookkeeping matters. If the books are not closed by March 1 and no reliable balance sheet exists, the company either files on an estimate, which needs to be supported later, or pays the higher amount. Treat the Schedule L figure and the franchise tax figure as one number used in two places.
When the alternative method does not help
The Assumed Par Value Capital method is not automatically cheaper. It can produce a higher tax when gross assets are large relative to issued shares, when the corporation issued very few shares, or when the stated par value is high, because shares with a par value above the assumed par are counted at their stated par. A company that raised a large round and holds significant cash should compute both methods every year rather than assuming last year's answer still holds.
Once the tax under the lower method reaches $5,000, Delaware also expects quarterly estimated payments during the following year: 40% by June 1, 20% by September 1, 20% by December 1 and the balance with the March 1 report. A company that has just crossed that line after a funding round should put those dates on its calendar immediately.
Common mistakes to avoid
- Paying the Authorized Shares figure on Delaware's notice without computing the alternative method.
- Reporting only founder shares as issued and leaving out shares issued to investors or under option exercises.
- Using total equity or cash instead of total gross assets when calculating assumed par.
- Filing late because year-end books were not ready, adding the $200 penalty and monthly interest.
- Ignoring quarterly estimated payments once the tax reaches $5,000.
- Assuming a Delaware LLC is subject to the same franchise tax calculation as a corporation.
Documents and records to prepare
- Certificate of incorporation and any amendments showing authorized shares and par value
- Cap table or stock ledger showing issued shares at year-end
- Year-end balance sheet or Form 1120 Schedule L total assets
- Delaware file number and prior-year annual report
- Any franchise tax notice received from Delaware
NYBACS 360° support
How NYBACS helps
- Calculates franchise tax under both methods each year and files on the lower result.
- Closes year-end books in time to support the gross assets figure used in the Delaware report.
- Reconciles the issued share count with your cap table, option exercises and SAFE or note conversions.
- Sets up estimated payment reminders when the tax reaches the $5,000 threshold.
- Reviews prior years where the higher amount may have been paid or penalties accrued, and coordinates corrections.
Frequently Asked Questions
Can I get a refund if I already paid the Authorized Shares amount?
Delaware allows a corporation to file an amended annual report using the alternative method, and an overpayment may then be refunded or credited. Gather the issued share and gross asset figures for that year before contacting the Division.
Does a company with zero assets owe nothing under the alternative method?
No. The Assumed Par Value Capital method has a $400 minimum, so even a company with no assets pays $400 plus the $50 report fee.
Should I file before my tax return is finished?
The report is due March 1, earlier than Form 1120. Use the year-end balance sheet from closed books so the gross assets figure will match Schedule L when the return is filed.
Is the franchise tax the same as Delaware income tax?
No. Delaware's corporate income tax applies to corporations doing business in Delaware. Most Delaware corporations that operate elsewhere pay franchise tax but no Delaware income tax.
