Founders open the mail, see a Delaware franchise tax bill for tens of thousands of dollars, and panic. The number is almost always inflated. Delaware bills you under its default method, which overstates what most startups actually owe.
This guide gives the real rates, the formula, worked math, deadlines, and penalties. Every figure comes from the current pages published by the Delaware Division of Revenue and the Delaware Division of Corporations. Read it before you pay a cent.
What Is the Delaware Franchise Tax?
The Delaware franchise tax is an annual fee for the privilege of being incorporated in Delaware. It is not a tax on income, revenue, or profit. Every Delaware corporation owes it, no matter where the company operates or whether it earned a dollar. The Delaware Department of State (Division of Corporations) collects it, not the Division of Revenue.
Under the Delaware Code, 30 Del. C. §1902(b)(6), a Delaware corporation that keeps only a statutory office in the state and does no business there owes no Delaware corporate income tax. It still owes franchise tax. The income-tax exemption does not touch the franchise tax obligation, per the Delaware Division of Revenue. Franchise tax also does not replace your federal or operating-state taxes.
How Is Delaware Franchise Tax Calculated?
Delaware offers two calculation methods, and you may pay whichever produces the lower tax. The default Authorized Shares Method comes preprinted on the state’s mailed notice and usually overcharges startups. The Assumed Par Value Capital Method is dramatically cheaper for most venture-backed companies. Your authorized share count comes from your certificate of incorporation.
Run both every year and file the lower result. The table below shows how each method is structured, per the Delaware Division of Corporations.
| Method | Minimum | Rate | Maximum | Source |
|---|---|---|---|---|
| Authorized Shares (default) | $175 | $250 for 5,001–10,000 shares, then +$85 per additional 10,000 shares (or portion) | $200,000 | Delaware Division of Corporations |
| Assumed Par Value Capital | $400 | $400 per $1,000,000 (or portion) of assumed par value capital | $200,000 | Delaware Division of Corporations |
You can model both figures on the state’s own Delaware franchise tax calculation page.
How does the Authorized Shares Method work?
The Authorized Shares Method taxes you only on the authorized shares listed in your certificate of incorporation. The tax is $175 for 5,000 shares or fewer, $250 for 5,001 to 10,000 shares, and adds $85 for each additional 10,000 shares or portion thereof, capped at $200,000, per the Delaware Division of Corporations.
| Authorized shares | Franchise tax | Source |
|---|---|---|
| 5,000 or fewer | $175 (minimum) | Delaware Division of Corporations |
| 5,001–10,000 | $250 | Delaware Division of Corporations |
| Each additional 10,000 (or portion) | +$85 | Delaware Division of Corporations |
| Standard maximum | $200,000 | Delaware Division of Corporations |
This is why startups get burned. Authorizing 10,000,000 shares for option pools and future rounds produces a five-figure default bill, even with no revenue.
How does the Assumed Par Value Capital Method work?
The Assumed Par Value Capital Method charges $400 per $1,000,000 (or portion) of assumed par value capital, with a $400 minimum and a $200,000 maximum, per the Delaware Division of Corporations. It usually yields a far lower bill for startups with many authorized shares and few assets.
The formula runs in four steps:
- Divide total gross assets (from U.S. Internal Revenue Service (IRS) Form 1120, Schedule L) by total issued shares to get the assumed par value per share.
- For each class of stock, multiply the assumed par by the authorized shares of that class, using the stated par value instead where it is higher.
- Sum the result across all classes to get total assumed par value capital.
- Round up to the next million and multiply by $400.
You need three inputs: total gross assets, total issued shares, and authorized shares by class with their par values.
Which Franchise Tax Method Is Cheaper?
For most venture-backed startups with high authorized share counts and modest assets, the Assumed Par Value Capital Method is dramatically cheaper. Low-share, low-asset corporations often stay at the $175 minimum under the Authorized Shares Method. The worked example below uses a company with 10,000,000 authorized shares, 5,000,000 issued, $0.0001 par value, and $2,000,000 in gross assets.
| Method | Calculation | Tax owed | Source |
|---|---|---|---|
| Authorized Shares (default) | $250 + $85 × 999 additional 10,000-share blocks | ~$85,165 | Delaware Division of Corporations |
| Assumed Par Value Capital | $0.40 assumed par × 10,000,000 authorized = $4M capital; 4 × $400 | $1,600 | Delaware Division of Corporations |
Same company, same year: roughly $85,165 versus $1,600. The scary notice number is the default estimate, not what you are obligated to pay. Run both calculations every year and file the lower one.
What Is the Large Corporate Filer Tier?
Large Corporate Filers pay a flat maximum franchise tax of $250,000 instead of the standard $200,000 cap, per the Delaware Division of Corporations. A Large Corporate Filer is a corporation with stock listed on a national securities exchange that reports consolidated annual gross revenue or consolidated assets of at least $750,000,000, per the Delaware Code. Almost no startup will reach this tier, but the true ceiling is $250,000.
When Is Delaware Franchise Tax Due?
Domestic corporations must file the Annual Report and pay franchise tax on or before March 1 each year, covering the prior calendar year, with no automatic extensions, per the Delaware Division of Revenue. Corporations owing $5,000 or more must pay estimated quarterly installments. Other entity types follow different dates and fees.
| Entity or situation | Deadline | Fee or tax | Source |
|---|---|---|---|
| Domestic corporation Annual Report + franchise tax | March 1 | tax + $50 report fee | Delaware Division of Revenue |
| Corporation owing $5,000+ (estimated installments) | 40% June 1, 20% Sept 1, 20% Dec 1, remainder March 1 | pro-rated tax | Delaware Division of Revenue |
| LLC, LP, GP flat tax | June 1 | $300 | Delaware Division of Corporations |
| Foreign corporation Annual Report | June 30 | $125 | Delaware Division of Corporations |
The online filing application runs daily from 8:00 am to 11:45 pm Eastern Time (ET), and Automated Clearing House (ACH) debit is required for any payment over $5,000, per the Delaware Division of Corporations.
What Is the Delaware Annual Report Requirement?
Every Delaware corporation must file an Annual Report with its franchise tax payment. The domestic filing fee is $50 on top of the tax due, filing is electronic only, and the report requires officer and director information, per the Delaware Division of Corporations. Blank paper returns are not available.
Nature of Business is now a required field on all domestic Annual Reports, a current-year change from the Division of Corporations. Exempt domestic corporations, such as certain nonprofits, pay no tax but must still file the report.
What Happens If You Don’t Pay Delaware Franchise Tax?
Delaware imposes a $200 late penalty plus interest at 1.5% per month on the unpaid balance, and the corporation loses good standing, per the Delaware Division of Revenue. Continued non-payment leads to the charter being declared void.
Loss of good standing blocks Certificate of Good Standing requests, which are routinely required in financing rounds, mergers and acquisitions (M&A), and bank account openings. A void charter creates banking and fundraising friction. Reinstatement requires paying all back taxes, penalties, and interest. Treat this as a staircase, not a cliff: miss March 1, then penalty and interest, then lost good standing, then a void charter.
Do Inactive Companies Owe Delaware Franchise Tax?
Yes. Franchise tax accrues every year the corporation exists on Delaware’s records, even with zero revenue, zero operations, and zero employees. Incorporation itself is the taxable privilege. Only formal dissolution stops the clock.
A dormant startup still owes at least the $175 minimum plus the $50 report fee, or the $400 assumed par minimum. If the entity has no future use, file a Certificate of Dissolution rather than abandon it. Abandoned entities keep accruing taxes, penalties, and interest until the charter is voided, and all of it must be paid to reinstate.
Does Delaware Franchise Tax Apply to Foreign-Owned Companies?
Yes. A Delaware corporation owes franchise tax regardless of who owns it or where it operates. Foreign ownership changes nothing about the Delaware obligation. The two terms founders confuse are different, though.
A foreign-owned Delaware C corporation (C-Corp) is a Delaware entity owned by non-U.S. persons. It follows the normal March 1 corporate rules, two methods, and $50 report fee, exactly like any domestic-owned corporation. A “foreign corporation” is incorporated elsewhere but registered to do business in Delaware. It files an Annual Report by June 30 with a $125 fee, per the Delaware Division of Corporations. International owners may also face IRS Form 5472 obligations, which are separate from franchise tax. Operating in other states can trigger foreign qualification and separate fees there too.
How Can You Reduce Your Delaware Franchise Tax?
Recalculate under the Assumed Par Value Capital Method before paying the default notice. For many startups this alone cuts a five-figure bill to the low four figures or the $400 minimum. It is the single most useful fix for a panicking founder.
Two more levers help. Amend the certificate of incorporation to reduce authorized shares if the count is needlessly high, but note the amendment carries its own filing cost and cap-table implications, so run the math first. And file and pay on time to avoid the $200 penalty and 1.5% monthly interest.
Do Delaware LLCs Pay Franchise Tax?
Delaware limited liability companies (LLCs), limited partnerships (LPs), and general partnerships (GPs) pay a flat $300 annual tax due June 1 and do not file an Annual Report, per the Delaware Division of Corporations LLC/LP/GP tax instructions. The two-method calculation applies only to corporations. Late payment carries the same $200 penalty and 1.5% monthly interest. See our guide to Delaware LLC costs for the full picture.
How Commenda Helps With Delaware Franchise Tax Compliance
Commenda calculates both methods, files your Annual Report, and tracks the March 1 and quarterly deadlines so the bill never surprises you. Commenda’s entity management platform keeps your Delaware compliance clean year after year, and its incorporation service sets up new Delaware C-Corps with the right share structure from day one. Founders comparing entity types can start with our LLC vs C-Corp guide, and everyone can track filing dates with the Commenda compliance calendar.
Book a demo and get both franchise tax methods calculated for your company before the March 1 deadline.
