Delaware Corporate Franchise Tax: Authorized Shares Method vs. Assumed Par Value Capital Method

Delaware's corporate franchise tax is one of the most debated and misunderstood taxes owed by Delaware corporations. The state offers two calculation methods, and choosing the right one can save your company thousands of dollars annually. This guide breaks down both methods, shows you how they work, and helps you understand which makes sense for your business.

Understanding Delaware's Corporate Franchise Tax

Every Delaware corporation, whether it operates in Delaware or elsewhere, must file an annual franchise tax report and pay the Delaware franchise tax by March 1 each year for the prior calendar year. This is separate from the $50 annual report filing fee (or $25 if exempt). The tax itself is calculated using one of two methods set by Delaware Code Section 503.

Delaware has no sales tax, and the franchise tax is separate from the corporate income tax (8.7% of income apportioned to Delaware) that applies to corporations with Delaware income. The minimum tax is either $175 or $400 depending on your chosen method. The maximum is capped at $200,000 per year for most corporations (with a higher $250,000 cap for Large Corporate Filers listed on a national exchange).

Delaware corporations that conduct no business in Delaware still owe the franchise tax, making it a pure cost of maintaining a Delaware charter. This is why choosing the right calculation method matters, especially for startups and capital-intensive businesses.

Method 1: Authorized Shares Method

The Authorized Shares Method bases your Delaware franchise tax on the number of shares your corporation is authorized to issue in its certificate of incorporation. This method is straightforward: more authorized shares mean higher tax.

The fee schedule under the Authorized Shares Method is tiered:

• Up to 5,000 authorized shares: $175
• 5,001 to 10,000 authorized shares: $250
• Each additional 10,000 shares (or part thereof): $85 per bracket

For example, a corporation with 100,000 authorized shares would owe $250 for the first 10,000 shares, plus $85 for each additional 10,000-share bracket. That calculates to $250 + (9 × $85) = $1,015 in franchise tax.

The Authorized Shares Method makes sense for small corporations that keep their authorized share count low. If your certificate of incorporation authorizes fewer than 5,000 shares, your franchise tax is $175 annually. Many service businesses and professional corporations use this method because they do not need large numbers of authorized shares to conduct operations.

The downside: if your business grows and you raise multiple funding rounds or issue employee stock options, you may need to increase your authorized shares, which raises your franchise tax. A startup that authorizes 50 million shares to accommodate future financing would face a franchise tax bill far exceeding what the Assumed Par Value Capital Method would require.

Method 2: Assumed Par Value Capital Method

The Assumed Par Value Capital Method calculates your franchise tax based on the value of your company, not the number of authorized shares. Under this method, Delaware uses your company's gross assets and issued share count to determine an "assumed par value capital," then applies a per-million-dollar tax rate.

Here is how the Assumed Par Value Capital Method works:

Step 1: Determine your gross assets (total assets as of your last fiscal year end).

Step 2: Divide gross assets by the number of issued shares outstanding to get the par value per share.

Step 3: Multiply the par value per share by the total number of authorized shares to get assumed par value capital.

Step 4: Divide assumed par value capital by $1,000,000, then multiply by $400.

The formula is: (Assumed Par Value Capital / $1,000,000) × $400 = Franchise Tax (minimum $400, maximum $200,000).

For example, if your corporation has $10 million in gross assets, 1 million issued shares, and 10 million authorized shares, the calculation is:

($10,000,000 / 1,000,000) × 10,000,000 = $100,000,000 in assumed par value capital. Then $100,000,000 / $1,000,000 × $400 = $40,000 in franchise tax.

The Assumed Par Value Capital Method has a $400 minimum. Even if your calculation produces a lower tax, you owe at least $400. This makes the method advantageous for startups and early-stage companies with low asset values, because they pay the flat $400 minimum regardless of authorized shares.

Corporations using this method must submit their issued share count and gross assets with their annual report filing, or the state applies the Authorized Shares Method instead.

Comparing the Methods: When to Use Each

The choice between methods depends on three factors: your authorized share count, your gross assets, and your issued shares. Most startups immediately benefit from the Assumed Par Value Capital Method because the $400 minimum is far lower than what the Authorized Shares Method would cost if large numbers of shares are authorized.

Consider this real-world scenario: A software startup authorizes 50 million shares to accommodate Series A, Series B, and employee stock option pools. Under the Authorized Shares Method, the formula would produce $250 + (4,999 × $85) = $425,165, which the $200,000 maximum caps at $200,000 annually. But under the Assumed Par Value Capital Method with $1 million in assets, 500,000 issued shares, and 50 million authorized shares, the assumed par value capital is ($1,000,000 / 500,000) × 50,000,000 = $100,000,000. The franchise tax is $100,000,000 / $1,000,000 × $400 = $40,000. The Assumed Par Value Capital Method saves $160,000 per year.

Delaware provides a tax calculator at the Division of Corporations website to help you run both calculations with your specific numbers before you file.

Established corporations with low authorized share counts and significant assets may find the Authorized Shares Method cheaper. A mature company with 100,000 authorized shares, $500 million in gross assets, and 10 million issued shares would owe $1,015 under Authorized Shares but $2,000 under Assumed Par Value Capital ($500,000,000 / 10,000,000 = $50 per share, times 100,000 authorized shares = $5,000,000 of assumed par value capital, then $5,000,000 / $1,000,000 × $400 = $2,000).

Corporations with large authorized share counts often use the Assumed Par Value Capital Method because it aligns tax burden with company growth and asset value rather than penalizing you for authorizing shares needed for financing.

Calculating Your Delaware Franchise Tax

Each December, the Delaware Division of Corporations mails franchise tax notices to your registered agent. The notice tells you the tax owed and the payment deadline of March 1 of the following year. For example, a notice mailed in December 2026 will reflect a tax due by March 1, 2027, for the 2026 tax year.

You are responsible for knowing your calculation is correct, even if the notice reflects a different amount. If you dispute the calculation or believe the state computed it incorrectly, you must work with the Division of Corporations to reconcile the figures. Relying on the notice without verifying the method or amount can result in overpayment.

When you file your annual report online at corp.delaware.gov, you must declare which method you are using and provide the required supporting data:

• If using Authorized Shares Method: Just declare the method. No additional data is required.
• If using Assumed Par Value Capital Method: Submit your gross assets and issued shares. If you do not provide these, Delaware defaults to the Authorized Shares Method.

Providing accurate figures is critical. If your gross assets and issued shares are substantially understated, the Division of Corporations may audit your return and assess additional tax plus penalties.

Payment Terms and Installment Options

Your Delaware franchise tax is due March 1 each year for the prior calendar year. You pay online only through corp.delaware.gov/paytaxes/ using the details on your notice.

If your estimated franchise tax is $5,000 or more, Delaware allows you to pay in installments rather than a lump sum on March 1:

• 40% due June 1
• 20% due September 1
• 20% due December 1
• Balance due March 1

For payments over $5,000, Delaware requires ACH (Automated Clearing House) bank transfer. Credit card and check payments are accepted for smaller amounts, though processing times vary.

Late Payment Penalties and Non-Compliance

Delaware enforces franchise tax collection strictly. A payment made after March 1 incurs a $200 penalty plus 1.5 percent interest per month on the tax and penalty. Over six months late, interest alone reaches 9 percent.

More critically, if your franchise tax remains unpaid for one full year, your corporation's charter is automatically voided and repealed by proclamation under Delaware Code Sections 510 and 511. This is not a warning or suspension, your corporation loses its charter unless it is revived.

If your charter is voided and you wish to continue operating as a Delaware corporation, you must file for revival under Delaware Code Section 312. Revival requires a certificate of revival, payment of all back taxes plus penalties and interest, and a revival fee; check with the Division of Corporations for the total. This is far more expensive and time-consuming than paying the franchise tax on time.

Many business owners do not realize that failing to pay Delaware franchise tax results in automatic charter cancellation. Offshore entities and holding companies sometimes overlook renewal notices, only to discover months later that the corporation no longer exists.

When to Consult a Tax Professional

Choosing between the Authorized Shares Method and Assumed Par Value Capital Method requires accurate financial data and understanding of your corporation's capital structure. If any of the following apply to your situation, consult a Delaware tax attorney or CPA before filing your annual report:

• Your corporation is raising venture capital or planning equity financing.
• You plan to authorize a large number of shares for option pools or future rounds.
• Your gross assets exceed $10 million.
• You have not filed a Delaware annual report before and are unsure which method applies to your corporation.
• Your franchise tax calculation under one method exceeds $100,000.
• You have acquired another Delaware corporation or been acquired.
• You are uncertain whether to use gross assets or adjusted assets in the calculation.

A professional review before filing takes one to two hours and typically prevents costly mistakes.

Disclaimer

This guide is informational and is not legal or tax advice. Delaware franchise tax law is complex and subject to change. The figures, deadlines, and methods described here are accurate as of October 2026 based on Delaware Code Title 8, Chapter 5, and Division of Corporations rules. However, Delaware law is updated regularly, and administrative guidance may change without notice.

Before filing your annual report or making a franchise tax payment, verify current rules and fee amounts with the Delaware Division of Corporations at corp.delaware.gov or by calling (302) 739-3073. For tax planning advice specific to your business, consult a qualified Delaware tax attorney or certified public accountant.

Key Takeaways

Delaware's corporate franchise tax offers two calculation methods to suit different business structures. The Authorized Shares Method charges a flat $175 minimum for corporations authorizing up to 5,000 shares, with increases based on share count. The Assumed Par Value Capital Method charges a flat $400 minimum and scales with company assets and capitalization, making it attractive for startups and venture-backed companies with large authorized share counts.

Both methods cap out at $200,000 per year for standard corporations. The right choice depends on your authorized shares, asset value, and growth plans. Use Delaware's tax calculator to run both methods before deciding. File your annual report by March 1 with complete financial data, pay the calculated tax on time to avoid a $200 penalty and charter termination, and consult a tax professional if your situation is complex.