Delaware franchise tax: why your startup's bill says $85,165 and how the Assumed Par Value Capital method cuts it to $400

Delaware lets every corporation pay the lesser of two franchise tax calculations: the Authorized Shares method or the Assumed Par Value Capital (APVC) method. The state's notices start from authorized shares, which is why a typical startup with 10,000,000 authorized shares sees a franchise tax of $85,165. If you file the Annual Franchise Tax Report with your issued shares and total gross assets, the APVC method usually brings an early-stage company down to the $400 minimum, plus the $50 annual report fee. The report and tax are due March 1 every year.

Below: how each method works, a worked APVC example using Delaware's own formula, and what happens if you miss the deadline. Every figure is taken from the Delaware Division of Corporations and Title 8 of the Delaware Code, linked at the end.

What are the two Delaware franchise tax methods?

Title 8, Section 503 of the Delaware Code says a corporation pays whichever of the two computations is lesser. The Division of Corporations says the same thing in plain language: 'Use the method that results in the lesser tax.'

Authorized Shares method. The tax depends only on how many shares your certificate of incorporation authorizes:

• 5,000 shares or fewer: $175 (the minimum).
• 5,001 to 10,000 shares: $250.
• Each additional 10,000 shares, or portion of 10,000: add $85.
• Maximum: $200,000.

Assumed Par Value Capital method. The tax depends on your total gross assets and how many shares you have actually issued. It is $400 per $1,000,000 of assumed par value capital, or portion of a million, with a minimum of $400 and a maximum of $200,000. Corporations identified as Large Corporate Filers pay $250,000.

Why does a startup with 10 million authorized shares get a five-figure bill?

Because startups authorize a lot of shares and Delaware's default math only looks at that number. Using the Division's own schedule:

• The first 10,000 shares cost $250.
• The remaining 9,990,000 shares are 999 blocks of 10,000.
• 999 x $85 = $84,915.
• Total: $250 + $84,915 = $85,165.

Delaware's own example confirms the arithmetic: a corporation with 100,000 authorized shares pays $1,015 ($250 plus 9 x $85). Scale that to the 10,000,000 shares common in startup charters and you get the number that makes founders panic.

The statute explains why the scary number is the default. Under Section 503(b), unless a corporation submits the number of shares actually issued and its total gross assets when it files the annual report, it pays the tax computed under the Authorized Shares method. The fix is not a negotiation or an appeal. It is two numbers on the report.

How do you calculate the Assumed Par Value Capital method?

The Division of Corporations lays out the calculation in four steps:

1. Find the assumed par. Divide total gross assets by total issued shares (including treasury shares), carrying to 6 decimal places.
2. Value the low-par shares. Multiply the assumed par by the number of authorized shares whose par value is less than the assumed par.
3. Value the high-par shares. For authorized shares whose par value is greater than the assumed par, multiply the number of shares by their own par value.
4. Add steps 2 and 3 to get the assumed par value capital.

Then compute the tax. If assumed par value capital is $1,000,000 or more, round it up to the next million, divide by 1,000,000, and multiply by $400. If it is under $1,000,000, divide by 1,000,000 and multiply by $400. Either way the APVC tax cannot be less than $400.

Total gross assets means the 'total assets' reported on the corporation's federal Form 1120, Schedule L, for the fiscal year ending in the calendar year of the report. For the report due March 1, 2027, that is a calendar-year company's December 31, 2026 balance sheet. The statute also requires goodwill to be included at the value carried in the company's books.

Worked example: a seed-stage startup

Assume a Delaware C-corp with:

• 10,000,000 authorized shares of common stock at $0.00001 par.
• 8,000,000 shares issued.
• $750,000 of total assets on its year-end Schedule L.

Step 1, assumed par: $750,000 / 8,000,000 = $0.093750.

Step 2: the $0.00001 par is below the assumed par, so all 10,000,000 authorized shares are multiplied by it: 10,000,000 x $0.093750 = $937,500.

Step 3: no shares have a par value above the assumed par, so this is $0.

Step 4: assumed par value capital = $937,500.

Tax: $937,500 is under $1,000,000, so $937,500 / 1,000,000 x $400 = $375. That is below the APVC minimum, so the tax is $400. Add the $50 annual report filing fee for a non-exempt domestic corporation and the company pays $450 instead of $85,165.

Worked example: after a priced round

Now the same company, a year later, with $6,000,000 of total assets and 9,000,000 shares issued:

• Assumed par: $6,000,000 / 9,000,000 = $0.666667.
• Assumed par value capital: 10,000,000 x $0.666667 = $6,666,670.
• Round up to the next million: 7.
• Tax: 7 x $400 = $2,800, plus the $50 annual report fee.

Still a fraction of the authorized shares figure. APVC grows with assets, so it rises as you raise money, but for most venture-backed companies it stays far below the authorized shares calculation for years. If your charter has more than one class (for example common and preferred), include every class of authorized shares in step 2 or step 3 according to whether its par is below or above the assumed par. Delaware's own example uses two classes: 1,000,000 shares at $1.00 par and 250,000 at $5.00, with $1,000,000 of assets and 485,000 issued shares, for an assumed par of $2.061856 and a tax of $1,600.

When is Delaware franchise tax due?

The Annual Franchise Tax Report and the tax must be received by March 1 each year. Delaware sends notices to registered agents in December, and annual reports for domestic corporations must be filed electronically.

Corporations owing $5,000 or more pay estimated installments: 40% by June 1, 20% by September 1, 20% by December 1, and the remainder by March 1. A startup that files using APVC and owes $400 has nothing to estimate.

Delaware LLCs, limited partnerships, and general partnerships do not file an annual report. They pay a flat annual tax of $400, due June 1, with a $200 penalty for late payment.

What are the penalties and interest for filing late?

• Late or incomplete annual report: a $200 penalty if a completed report is not filed by March 1.
• Unpaid tax: interest of 1.5% per month on the unpaid balance.
• Not filing at all: under Section 502(c), the Secretary of State fixes the tax itself, and that amount stands unless the corporation later files the report with its issued shares and gross assets.

What happens if the tax goes unpaid for a year?

The charter becomes void. Section 510 of Title 8 says that if a corporation neglects or refuses for one year to pay its franchise tax, or to file a complete annual franchise tax report, its charter is void and 'all powers conferred by law upon the corporation are declared inoperative.' The Secretary of State must notify delinquent corporations by November 30 that the charter will become void unless the taxes are paid and the report filed by the following March 1. Under Section 511, the Governor issues an annual proclamation repealing the charters of corporations that have been delinquent for a year.

A void corporation can come back. Section 312 allows a corporation whose certificate of incorporation became forfeited or void to procure a revival by filing a certificate of revival, with its rights restored and its debts and liabilities intact. The Division of Corporations says any corporation reinstating its status must file its annual reports and pay all tax due first, which means every missed year, plus penalties and interest. If you are reviving, file those back reports using APVC; otherwise each missing year can be billed on authorized shares.

The checklist

• Close your books for the year so Schedule L total assets is final before you file.
• Pull issued shares (including treasury shares) from your cap table as of year-end.
• File the annual report by March 1 at the Division of Corporations' online portal and enter both numbers so the APVC calculation applies.
• Ignore the notice amount if it was calculated on authorized shares; Delaware charges the lesser method only when you give it the data.
• Keep the same total assets number you report on Form 1120, Schedule L. The two should match.

ClearBooks keeps your balance sheet and trial balance current all year, so the total assets figure Delaware asks for is the same number that flows to your Form 1120 Schedule L.

This article is general information, not tax or legal advice. Confirm your calculation with the Division of Corporations' franchise tax calculator or a professional before filing.

Sources

• Delaware Division of Corporations, Annual Report and Tax Information: https://corp.delaware.gov/frtax/
• Delaware Division of Corporations, How to Calculate Franchise Taxes: https://corp.delaware.gov/frtaxcalc/
• Delaware Code, Title 8, Chapter 5 (Sections 502, 503, 510, 511): https://delcode.delaware.gov/title8/c005/index.html
• Delaware Code, Title 8, Chapter 1, Subchapter XII (Section 312, revival): https://delcode.delaware.gov/title8/c001/sc12/index.html