Delaware Franchise Tax: What You Actually Owe
Delaware franchise tax confuses everyone. The default calculation can show $180,000+ for startups with typical share structures. But the actual tax is much lower if you know which method to use. Here's the real breakdown.
What Is Franchise Tax?
The annual fee Delaware charges for the privilege of being incorporated there. Every Delaware corporation pays it, regardless of where you actually operate.
Due Dates
- Annual report + tax: Due March 1 every year
- Late penalty: $200 + interest
- Consequences: Voided incorporation if unpaid
Two Calculation Methods
1. Authorized Shares Method (Default)
Based purely on number of authorized shares. This method produces absurdly high numbers for typical startups:
- Up to 3,000 shares: $175
- 3,001-5,000 shares: $250
- 5,001-10,000 shares: $500
- And it scales up... massively
2. Assumed Par Value Method (What You Should Use)
Based on your company's actual value and issued shares. Most startups pay the minimum.
- Minimum tax: $175
- Maximum tax: $200,000
- Most early-stage startups: $175-400
How to Use the Assumed Par Value Method
- When filing annual report, select "Assumed Par Value Capital Method"
- Enter your total assets (from balance sheet)
- Enter issued shares and total gross assets
- Delaware calculates the tax (usually minimum $175)
For LLCs
LLCs pay a flat $300 annual tax, due June 1. Simpler, but no choice of calculation methods.
Common Mistakes
- Paying the authorized shares amount (way overpaying)
- Missing the March 1 deadline
- Not filing annual report (separate from tax payment)
- Letting incorporation void for non-payment
We Handle This
Annual compliance shouldn't be a panic. We track deadlines, file reports, and ensure you pay the minimum required.