Delaware Franchise Tax Explained: The Deadline, the Methods, and How to Avoid Overpaying
Nearly every venture-backed startup is incorporated in Delaware — it’s the default for founders because of its investor-friendly laws, Court of Chancery, and established case law. What most founders don’t know until their first annual report: Delaware charges a franchise tax that, if calculated incorrectly, can be tens of thousands of dollars more than necessary.
Two Types of Delaware Annual Obligations
Delaware corporations must file:
- An Annual Report with the Delaware Secretary of State
- Pay the Delaware Franchise Tax
Deadline: March 1 of the following year (so your 2025 tax is due March 1, 2026). Penalties for late filing: $200, plus 1.5% monthly interest on the unpaid tax.
Delaware LLCs must pay an annual tax of $300 (flat fee as of 2025, increased from $200 — check current year for any adjustments), due June 1. No annual report required for LLCs.
The Franchise Tax Trap: Authorized Shares Method
Delaware calculates franchise tax using whichever of two methods applies — and the default method (Authorized Shares) produces wildly inflated bills for most startups.
Authorized Shares Method (the default):
- 5,000 shares or fewer: $175 minimum
- 5,001 to 10,000 shares: $250
- Each additional 10,000 shares (or fraction thereof): +$85
The problem: Most startups authorize 10 million shares at formation. Under the Authorized Shares Method:
- 10,000,000 shares = $175 + (10,000,000 − 10,000) / 10,000 × $85 ≈ $85,075
That’s the bill Delaware sends by default when you authorize a typical startup share structure. Most founders see this and panic — assuming they actually owe $85,000.
They don’t.
The Solution: Assumed Par Value Capital Method
The Assumed Par Value Capital Method almost always produces a significantly lower franchise tax for startups. This method calculates tax based on your company’s total gross assets relative to your issued shares:
Formula:
- Divide total gross assets by total issued shares → assumed par value per share
- Multiply assumed par value per share × total authorized shares = assumed par value capital
- Tax rate: $400 per $1,000,000 of assumed par value capital (minimum $175 per year)
Example: 10,000,000 authorized shares, 2,000,000 issued shares, $1,000,000 in gross assets
- Assumed par value per share: $1,000,000 / 2,000,000 = $0.50/share
- Assumed par value capital: $0.50 × 10,000,000 = $5,000,000
- Franchise tax: $5,000,000 / $1,000,000 × $400 = $2,000
In this example, the Assumed Par Value Capital Method reduces the franchise tax from $85,075 to $2,000. This is typical for early-stage companies with many authorized shares and modest assets.
You must specifically request this method when filing your annual report — it doesn’t apply automatically. The Delaware Secretary of State’s online filing system allows you to enter the required information to use this method.
What You Need to Calculate It
To use the Assumed Par Value Capital Method, you need:
- Total gross assets (from your balance sheet as of December 31)
- Total issued and outstanding shares as of December 31
- Total authorized shares
- Par value per share (as stated in your Certificate of Incorporation)
Your accountant or financial team should have this information. Total gross assets is the total assets line on your December 31 balance sheet — not net assets, not equity, but total assets before subtracting liabilities.
Who Files and What Else Is Required
The Annual Report and franchise tax payment are both due March 1. You can file at: corp.delaware.gov
The Annual Report requires:
- Company name and Delaware file number
- Principal office address
- Names and addresses of all directors
- Names and addresses of officers
- Number of shares issued and outstanding
Note: Delaware does not require disclosure of shareholders in the annual report. It’s the directors and officers that are disclosed publicly.
Registered Agent: Delaware requires every corporation to maintain a registered agent in Delaware — a person or entity with a physical address in Delaware who accepts legal service on behalf of the corporation. Most startups use a registered agent service ($50–$300/year). This is separate from the franchise tax.
Common Mistakes
Using the Authorized Shares Method when Assumed Par Value Capital would be lower. This is almost always the case for startups. File using the correct method.
Misreporting gross assets. Total gross assets means everything on your balance sheet: cash, A/R, prepaid expenses, equipment. Not just cash. Using only cash as “assets” understates assets (which actually produces a higher tax under the formula — you want accurate gross assets, not understated ones).
Forgetting to update authorized share count after stock splits. If you’ve done a stock split or recapitalization, your authorized shares in the filing should reflect the post-split count.
Paying the default bill without filing correctly. Some founders pay the $85,000 Authorized Shares bill when they receive it, not realizing they should have filed using the Assumed Par Value Capital Method and paid dramatically less. Overpaid franchise tax can generally be reclaimed by filing an amended report — but it requires working with the Delaware Secretary of State’s office.
Frequently Asked Questions
I'm a Delaware LLC, not a corporation. Do I still owe Delaware taxes?
Delaware LLCs pay a flat annual tax of $300 (as of recent years — confirm the current year amount at corp.delaware.gov), due June 1. This is significantly simpler than the Delaware franchise tax for corporations — there’s no authorized shares calculation, no assumed par value method, and no annual report required (for LLCs). The $300 payment is made through the Delaware Division of Corporations’ online portal. Late payment results in a $200 penalty plus interest. Note: Delaware LLCs do not owe Delaware income tax on income from operations outside of Delaware — the annual LLC tax is the primary Delaware state-level obligation for most LLCs. If your LLC operates in other states, you may owe franchise taxes or business taxes to those states separately.
We're a small startup with 10 million authorized shares but very little revenue. Why is our Delaware franchise tax bill so high?
You’re being calculated under the Authorized Shares Method — Delaware’s default. The Authorized Shares Method ignores revenue, assets, and everything else about your business; it only looks at how many shares you’ve authorized. 10 million authorized shares produces a bill of roughly $85,000 under this method. The solution is to use the Assumed Par Value Capital Method, which calculates tax based on your total gross assets relative to your issued shares. For a startup with 10 million authorized shares, 2 million issued shares, and $500,000 in assets, the Assumed Par Value Capital Method typically produces a tax of $175–$2,000 — dramatically less. You must actively select this method when filing your annual report through the Delaware online portal. The math is detailed in your annual report; your accountant or registered agent can calculate it for you.
We missed the Delaware franchise tax deadline. What are the penalties?
Late payment penalties: $200 plus 1.5% monthly interest on the unpaid balance, accruing from the deadline (March 1 for corporations, June 1 for LLCs) until payment. These accumulate — a corporation that misses the March 1 deadline and pays in September owes $200 + approximately 9% of the tax in interest. Additionally, Delaware may place your company in ‘void’ or ‘forfeited’ status for non-payment, which can affect your ability to conduct business, open bank accounts, raise investment, or demonstrate good standing. Restoring good standing requires paying all outstanding taxes, penalties, and fees. Pay as soon as possible after missing the deadline — interest accumulates daily. If your company has been in void status, your attorney or registered agent can advise on the restoration process.
We raised a Series A with preferred stock. Does that affect how we calculate Delaware franchise tax?
Yes — when you have preferred stock in addition to common stock, your Delaware franchise tax calculation under the Assumed Par Value Capital Method must account for all issued shares across all classes. The key number: ‘issued shares’ in the formula includes all issued and outstanding shares (common + preferred). This increases the assumed par value per share calculation when preferred rounds significantly increase your total authorized shares. More importantly, after a large preferred stock raise, your gross assets also increase significantly (all that cash from the raise). In most cases, the Assumed Par Value Capital Method still produces a lower tax than the Authorized Shares Method even post-raise — but the calculation is more nuanced. Your accountant should recalculate the franchise tax each year, especially in any year you’ve raised capital, to ensure you’re using the optimal method.
Our Delaware registered agent charges us for 'filing the annual report.' What does that actually cover?
Delaware registered agent services (National Registered Agents, Incorp, Vcorp, CT Corporation, and others) typically offer annual report filing as an add-on service. What they do: gather the information needed for the report (officer names and addresses, director names and addresses, share count), file the report through the Delaware portal, and potentially calculate the franchise tax using the Assumed Par Value Capital Method to minimize your bill. Costs: registered agent services charge $50–$300 for this service on top of their annual registered agent fee. For most startups, this is worth paying to ensure the report is filed correctly and on time. The more important check: make sure they’re calculating the franchise tax using the Assumed Par Value Capital Method, not just paying the Authorized Shares default. Ask them explicitly.