Delaware Annual Franchise Tax: Two Calculation Methods and Why Most Startups Overpay
Key Takeaways
- The Delaware annual franchise tax for corporations is due March 1 each year alongside a required annual report. For 2025 tax year, that means March 1, 2026.
- Delaware defaults to the Authorized Shares Method, which produces very high tax bills for startups with many low-par-value shares.
- The Assumed Par Value Capital Method almost always produces a significantly lower tax for early-stage companies. The minimum under this method is $400.
- Switching to the Assumed Par Value Capital Method requires providing total gross assets and issued shares on the annual report. It does not require a separate application.
- Delaware LLCs pay a flat $300 annual franchise tax due June 1 each year, regardless of revenue or assets.
What Is the Delaware Annual Franchise Tax?
The Delaware annual franchise tax is a fee charged by the state of Delaware for the privilege of being incorporated there. It is not a tax on income or revenue. It is a flat fee based on either the number of authorized shares or the company's assumed par value capital, depending on which calculation method is used.
Every domestic Delaware corporation must pay the franchise tax and file an annual report each year, even if the company had no revenue, no employees, and no operations during the year. The obligation exists as long as the corporation remains registered with the state.
According to the Delaware Division of Corporations, the annual report filing fee is $50 for domestic corporations in addition to the franchise tax itself. Late filings incur a $200 penalty plus 1.5% interest per month on any unpaid tax.
Who Owes Delaware Franchise Tax and When
The Two Calculation Methods: Where the Savings Are
This is the information that saves most startup founders thousands of dollars and that most people find out about too late.
Method 1: Authorized Shares Method (Delaware Default)
The Authorized Shares Method calculates tax based on the total number of shares the company has authorized in its certificate of incorporation.
- 1 to 5,000 shares: $175
- 5,001 to 10,000 shares: $250
- Each additional 10,000 shares (or portion thereof): approximately $85
For a typical startup that authorizes 10,000,000 shares at $0.0001 par value:
- First 10,000 shares: $250
- Remaining 9,990,000 shares: 999 × $85 = approximately $84,915
- Total: approximately $85,165
This is the bill Delaware sends by default. For a pre-revenue startup with $200,000 in the bank, receiving an $85,000 franchise tax bill is genuinely alarming. (And yes, founders panic. The first call to the accountant usually happens the same day the bill arrives.)
Method 2: Assumed Par Value Capital Method
The Assumed Par Value Capital Method calculates tax based on the company's assumed par value capital, which is derived from total gross assets and total issued shares.
The formula:
- Divide total gross assets by total issued shares to get assumed par value per share
- Multiply assumed par value by total authorized shares to get assumed par value capital
- Apply the tax rate of $400 per $1 million (or fraction thereof) of assumed par value capital
For most early-stage startups with minimal assets and a standard share structure, this produces the $400 minimum tax.
Example comparison for a seed-stage startup:
- Authorized shares: 10,000,000
- Issued shares: 8,000,000
- Total gross assets: $500,000
- Assumed par value per share: $500,000 ÷ 8,000,000 = $0.0625
- Assumed par value capital: $0.0625 × 10,000,000 = $625,000
- Tax: $400 minimum (since $625,000 is less than $1 million)
Authorized Shares Method: ~$85,000. Assumed Par Value Capital Method: $400.
Switching methods requires nothing more than entering total gross assets and total issued shares on the annual report. There is no separate application, no special form, and no approval needed. The state recalculates automatically.
What You Need to File Using the Assumed Par Value Capital Method
To use the Assumed Par Value Capital Method and calculate your actual tax, you need two numbers from your financial records:
Total gross assets: The total assets figure from your balance sheet as of December 31 of the tax year. This is not net assets or total equity. It is gross total assets before any liabilities.
Total issued shares: The total number of shares actually issued and outstanding as of December 31. Not authorized shares. Issued shares.
Both of these come directly from your company's financial records and cap table. If your QuickBooks Online year-end balance sheet is current and accurate, total gross assets is a single number from the balance sheet. If your cap table is maintained, total issued shares is readily available.
How to File and Pay Delaware Franchise Tax
For corporations:
- Go to corp.delaware.gov/paytaxes
- Enter your Delaware file number (found on your Certificate of Incorporation)
- Complete the annual report including total gross assets and issued shares
- The system calculates your tax under both methods and you select the lower one
- Pay by credit card or electronic check
The entire process takes approximately 15 minutes if your financial records are current.
For LLCs:
LLCs pay the flat $300 fee through the same portal with no annual report required. LLC franchise tax is due June 1, 2026 for the 2025 tax year.
Payment accepted: Credit card, debit card, or electronic check. No paper filing required.
Recording Delaware Franchise Tax in Your Books
Once paid, the Delaware franchise tax should be recorded in QuickBooks Online as a business expense. The standard categorization is Taxes and Licenses or a dedicated Franchise Tax expense account.
Journal entry on payment:
- Debit: Taxes and Licenses (expense)
- Credit: Cash or Bank Account
For the annual report filing fee, record the $50 separately under the same expense category or as a Filing Fees line item.
Founders who have set up bookkeeping automation in QuickBooks Online have the total gross assets figure needed for the Assumed Par Value Capital Method ready from the current balance sheet rather than needing to pull alot of records together at filing time. And since the Delaware franchise tax deadline is March 1, having completed year-end close automation before that date means the December 31 balance sheet is available well before the filing window opens.
Finlens runs on top of QuickBooks Online with no migration and keeps financial records current so the two numbers the Assumed Par Value Capital Method requires, total gross assets and issued shares, are accurate and accessible when March 1 arrives.
Before Finlens: The March 1 deadline approaches. Total gross assets needs to be pulled from a partially closed year. The filing gets done on time but with numbers that may not perfectly reflect December 31.
After Finlens: Year-end books are closed cleanly. Total gross assets pulls directly from the December 31 balance sheet. The franchise tax filing is accurate and the correct method is used.
Delaware franchise tax is one of the most predictable annual costs for any Delaware-incorporated startup. Knowing which method to use is what keeps it at $450 instead of $85,000.
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FAQ
What is the Delaware annual franchise tax?
It is a fee charged by Delaware for the privilege of being incorporated in the state. It is not based on income or revenue. Every Delaware corporation owes it annually regardless of whether the company had any activity during the year.
When is the Delaware franchise tax due in 2026?
For corporations, the annual franchise tax and annual report are due March 1, 2026 for the 2025 tax year. For LLCs, the flat $300 fee is due June 1, 2026.
What are the two Delaware franchise tax calculation methods?
The Authorized Shares Method calculates tax based on total authorized shares. The Assumed Par Value Capital Method calculates tax based on total gross assets and issued shares. The Assumed Par Value Capital Method almost always produces a lower bill for early-stage startups.
How much is Delaware franchise tax for a startup?
Using the Assumed Par Value Capital Method, the minimum is $400 for most early-stage startups plus a $50 annual report fee. Using the Authorized Shares Method, a startup with 10 million authorized shares owes approximately $85,000.
How do I switch to the Assumed Par Value Capital Method?
Enter your total gross assets and total issued shares when completing the Delaware annual report on the state's online portal. The system calculates the tax under both methods automatically. No separate application or approval is required.
What is the penalty for late filing?
Corporations that miss the March 1 deadline face a $200 late penalty plus 1.5% interest per month on any unpaid franchise tax. LLCs that miss June 1 face a $200 penalty.
Do LLCs pay the same franchise tax as corporations?
No. Delaware LLCs pay a flat $300 annual franchise tax due June 1, regardless of revenue, assets, or shares. No annual report is required from LLCs.
