Equity, tax and compliance
Delaware Franchise Tax: Why You Got a Huge Bill and How to Fix It
The short answer
Delaware corporations pay an annual franchise tax and file an annual report by March 1. The state's notice and online form default to the authorized shares method, which for a typical startup with 10,000,000 authorized shares produces about $85,165, but every corporation may instead use the assumed par value capital method, and companies pay the lower of the two. For an early-stage startup with low par value, most authorized shares issued and modest assets, the assumed par value capital method usually gives the $400 minimum, plus the $50 annual report fee. You do not owe the large number; you need to file with your issued shares and total gross assets.
Key numbers
| Item | Figure | Source |
|---|---|---|
| Filing and payment deadline | March 1 each year | Delaware Division of Corporations |
| Annual report fee (non-exempt domestic corporation) | $50 | Delaware Division of Corporations |
| Minimum tax, authorized shares method | $175 (5,000 shares or fewer); $250 (5,001 to 10,000) | Delaware Code, Title 8, Section 503 |
| Each additional 10,000 authorized shares | $85 | Same |
| Minimum tax, assumed par value capital method | $400 | Same |
| Rate, assumed par value capital method | $400 per $1,000,000 (or part) of assumed par value capital | Same |
| Maximum tax | $200,000 ($250,000 for large corporate filers) | Same |
| Late penalty | $200 plus interest of 1.5% per month | Delaware Division of Corporations |
| Example "shock" bill for 10M authorized shares | $85,165 | Calculation; Mintz (February 2026) |
Why the bill looks so large
When a startup authorizes 10,000,000 shares, the authorized shares method charges $250 for the first 10,000 shares and $85 for each additional 10,000 shares (or part): $250 + 999 x $85 = $85,165. Delaware sends notices and its online payment page calculates under this method by default. Founders who do not know there is a second method sometimes pay it, or panic. In early 2026 a law firm described founders receiving notices for $175,000 and more; Mintz published a guide titled "No, You Don't Owe Delaware $200,000".
The assumed par value capital method
You need three numbers:
- Total gross assets: total assets from the company's federal return (Form 1120, Schedule L) for the fiscal year ending in the prior calendar year.
- Issued shares: all classes of stock issued and outstanding at year end (options and unissued pool do not count).
- Authorized shares and par value for each class, from the charter.
Steps:
- Assumed par = total gross assets / issued shares.
- For each class, if the assumed par is greater than or equal to the stated par value, multiply the assumed par by the authorized shares of that class; if it is lower, multiply the stated par by the authorized shares.
- Assumed par value capital = the sum for all classes.
- Tax = $400 for each $1,000,000 or portion of assumed par value capital, with a minimum of $400.
Worked examples
Example 1: a typical pre-seed company. 10,000,000 authorized common shares at $0.00001 par; 8,000,000 issued; total gross assets $500,000.
- Assumed par = $500,000 / 8,000,000 = $0.0625 (higher than $0.00001 par)
- Assumed par value capital = $0.0625 x 10,000,000 = $625,000
- Tax = one $1,000,000 bracket or portion = $400. Plus $50 annual report = $450.
- Authorized shares method: $85,165. The company pays $450.
Example 2: after a SAFE round. Same shares; total gross assets $3,000,000 (cash raised on SAFEs).
- Assumed par = $3,000,000 / 8,000,000 = $0.375
- Assumed par value capital = $0.375 x 10,000,000 = $3,750,000
- Tax = 4 brackets x $400 = $1,600 (plus $50).
Example 3: few shares issued. 10,000,000 authorized; only 1,000,000 issued; total gross assets $3,000,000.
- Assumed par = $3.00; assumed par value capital = $30,000,000
- Tax = 30 x $400 = $12,000. Issuing a larger share of the authorized shares (Example 2) would cut this to $1,600.
The pattern: the method rewards low par value, a high ratio of issued to authorized shares and modest assets. It penalizes authorizing far more shares than you issue.
How to file
- Prepare Form 1120 (or at least the year-end balance sheet) to know total gross assets.
- On the Delaware annual report, enter issued shares and total gross assets and the date of the figures. The system recalculates under the assumed par value capital method.
- List directors and principal place of business.
- Pay by March 1. If the notice shows a larger number, it is the authorized shares calculation; once you enter the figures, the amount due should update.
- Keep a PDF of the filing and the calculation in your minute book.
If you already paid the larger amount by mistake, contact the Division of Corporations about a correction or refund; they handle this regularly.
Planning tips
- Keep authorized shares close to what you need. Ten million is enough at formation; increase before a round if needed.
- Use par value, not no-par stock. No-par stock cannot use the assumed par value capital method in the normal way and often produces higher tax.
- Calendar March 1 every year, plus the registered agent renewal.
- After a priced round, recompute: authorized preferred and common both enter the calculation, and higher gross assets mean more brackets. A seed-stage company usually still pays a few thousand dollars at most.
- Dormant companies still owe the tax and report; formally dissolve a company you no longer use.
Consequences of not paying
Penalties of $200 plus 1.5% monthly interest accrue, and after continued non-payment the company loses good standing and, eventually, its charter can be declared void. Investors and banks check good standing, and a void charter requires revival filings.
Quick reference: where startups land
| Situation | Typical assumed par value capital tax |
|---|---|
| Pre-seed, under $1M of assets, most authorized shares issued | $400 (minimum) |
| After a $2M to $3M SAFE round | About $800 to $1,600 |
| After a seed priced round with $5M of assets and more authorized shares | Usually a few thousand dollars |
| Few shares issued relative to authorized, several million in assets | Can reach five figures; consider issuing or reducing authorized shares |
The figures are illustrative; run the calculation with your own year-end numbers every February.
Key takeaways
The large number on the Delaware notice is almost never what an early-stage startup owes. Report issued shares and total gross assets every year, keep par value low and issued shares close to authorized shares, and pay by March 1 to avoid penalties and keep good standing. If your notice shows tens of thousands of dollars, do not pay it before running the assumed par value capital calculation.
Frequently asked questions
Why does my Delaware franchise tax notice show tens of thousands of dollars?
Because Delaware calculates the default amount with the authorized shares method. Most startups owe far less under the assumed par value capital method, which you can use by reporting issued shares and total gross assets.
What is the minimum Delaware franchise tax?
$175 under the authorized shares method (5,000 shares or fewer) and $400 under the assumed par value capital method, plus the $50 annual report fee.
When is Delaware franchise tax due?
March 1 for the prior calendar year, together with the annual report.
Where do I find total gross assets?
On the company's federal income tax return (Form 1120, Schedule L, total assets at year end). If the return is not yet filed, use the year-end balance sheet.
Do stock options count as issued shares?
No. Only shares actually issued and outstanding count. Options and the unissued pool do not.
Does an LLC pay the same franchise tax?
No. Delaware LLCs pay a flat annual tax ($300 as of 2026) due June 1 and do not file the corporate annual report.