Delaware · Guide
Every year around February, thousands of founders open a notice from Delaware saying they owe $85,165 and briefly consider dissolving the company. Almost none of them actually owe that. Most owe $800 or less, and the difference is a recalculation you can do yourself in five minutes.
This guide explains how the Delaware franchise tax really works as of August 2026: the two calculation methods, the full recalculation walkthrough with real numbers, the March 1 deadline, quarterly installments, and why none of this is an income tax.
This is general information, not tax or legal advice. All state figures are official as of August 2026; confirm current amounts with the Delaware Division of Corporations before relying on them.
Why your Delaware franchise tax notice is (probably) wrong
Delaware calculates every corporation's franchise tax two ways and is legally entitled to bill you at either. The notice it sends uses the authorized shares method, which taxes the shares you authorized in your charter, not the ones you issued or what the company is worth. For a startup with the standard 10,000,000 authorized shares, that default math produces $85,165.
The second method, assumed par value capital, taxes something closer to your actual size. For a typical pre-revenue or early-stage company, it produces $400 to $800. You are allowed to pay whichever method is lower, but the state will never run the second calculation for you. You have to do it, enter the numbers when you file, and pay the lower bill.
So the notice is not a scam and not a mistake. It is simply the worst-case number, sent to everyone, on the assumption that those who qualify for less will do the math. Here is the math.
Method 1: authorized shares, the default
The authorized shares method looks at one number, the total shares authorized in your Certificate of Incorporation, and applies this schedule (official as of August 2026):
| Authorized shares | Franchise tax |
|---|---|
| 5,000 or fewer | $175 |
| 5,001 to 10,000 | $250 |
| Each additional 10,000 (or fraction) | +$85 |
| Maximum | $200,000 |
Three worked examples, recalculated against the state schedule:
- 10,005 shares: $250 for the first 10,000, plus $85 for the fraction above it, so $335.
- 10,000,000 shares (the standard VC-style setup): $250 plus 999 blocks of 10,000 at $85, so $85,165.
- 20,000,000 shares: $170,165.
Notice what the method ignores: revenue, assets, issued shares, whether the company even has a bank account. It is pure charter arithmetic. If you authorized very few shares, it is cheap; a corporation with 5,000 or fewer authorized shares pays the $175 minimum and should stop reading here. If you authorized millions, the default is brutal, which is exactly why the second method exists.
How many shares you should authorize is a separate decision that touches investors and option pools, not just tax; that trade-off is covered in LLC vs C-Corp and entity setup for non-residents.
Method 2: the assumed par value walkthrough, step by step
The assumed par value capital method (APVC) taxes $400 per $1,000,000 (or fraction) of "assumed capital", with a minimum of $400 and the same $200,000 cap. Here is the full calculation, using the canonical early-stage example: a corporation with $1,000,000 in gross assets, 5,000,000 issued shares, and 10,000,000 authorized shares.
- 1Total gross assetsForm 1120, Schedule L, total assets for the fiscal year ending in the report year. Example: $1,000,000.
- 2Divide by issued shares$1,000,000 ÷ 5,000,000 = $0.20 assumed par. If that is below your charter's actual par, the actual par is used.
- 3Multiply by authorized sharesAuthorized, not issued: $0.20 × 10,000,000 = $2,000,000 of assumed capital.
- 4Apply the rate$400 per $1,000,000, rounded up to the next million: 2 × $400 = $800.
- 5Refile at the lower numberNo petition, no amendment. Enter issued shares and gross assets in the portal; it recalculates and you pay $800.
Step 1: find your total gross assets. This is the number you report to the IRS on Form 1120, Schedule L, total assets, for the fiscal year ending in the calendar year of the report. No US tax return yet? Use the same balance sheet total you would report. Our example: $1,000,000.
Step 2: divide gross assets by issued shares. This gives your "assumed par" per share. $1,000,000 ÷ 5,000,000 issued = $0.20. One rule to know: if this assumed par comes out lower than the actual par value stated in your charter, the actual par value is used instead. With the typical $0.0001 par, the assumed par wins.
Step 3: multiply the assumed par by ALL authorized shares. Not issued shares, authorized. $0.20 × 10,000,000 = $2,000,000 of assumed capital. This is where the method still respects your charter, just far more gently than method 1.
Step 4: apply the rate. $400 per $1,000,000 of assumed capital, rounding up to the next million. $2,000,000 → 2 × $400 = $800. That is the whole bill: $800 instead of the $85,165 on the notice. The state's own worked example on its calculation page, with a more complex multi-class structure, lands at $1,600 the same way.
Step 5: refile at the lower number. There is no petition and no amendment. When you file the annual report on the Division of Corporations online portal, enter your total issued shares and total gross assets with the asset date. The system recalculates automatically and the amount due drops to the APVC figure. Pay that. Done.
What you actually owe: authorized shares vs gross assets
The panic number depends only on authorized shares. The actual number depends mostly on gross assets. This table crosses the two, using the state formulas as of August 2026, for a company with 10,000,000 authorized and 5,000,000 issued shares (the standard startup configuration):
| Gross assets | Default notice (method 1) | APVC recalculation (method 2) | You pay |
|---|---|---|---|
| $250,000 | $85,165 | $400 (minimum) | $400 |
| $500,000 | $85,165 | $400 | $400 |
| $1,000,000 | $85,165 | $800 | $800 |
| $5,000,000 | $85,165 | $4,000 | $4,000 |
| $10,000,000 | $85,165 | $8,000 | $8,000 |
| $107,000,000+ | $85,165 | $85,600+ | $85,165 |
Two takeaways. First, "10 million authorized shares" is not a $85,165 mistake; while your gross assets are modest, the actual cost of the standard VC setup is a few hundred dollars a year. Second, APVC scales with assets, so a company that raises a large round or accumulates a big balance sheet will see the recalculated number climb. At very large asset levels the default method can even become the cheaper one, which is why you should run both every year rather than assume.
A quick word on which method fits which company
As a rule of thumb: tiny authorized share counts (5,000 or fewer) never need APVC, the $175 default is already the floor. Standard startup charters (millions of authorized shares, modest assets) should always run APVC and will almost always pay it. Asset-heavy companies with large balance sheets should compute both, because the crossover point is real. And if your bill under either method reaches five figures while your business is small, something in the charter is misconfigured, which is fixable and worth fixing before the next tax year starts accruing.
One more practical note: the state will never run the cheaper method for you, this year or any year. The notice will show the default number every February for as long as the corporation exists. Treat the APVC recalculation as an annual discipline, two numbers pulled once a year from documents you already have, not a one-time fix.
Owe $5,000 or more? Delaware wants quarterly installments
Corporations whose franchise tax liability is $5,000 or more must pay in installments rather than one March payment. The schedule, official as of August 2026:
- 40% due June 1
- 20% due September 1
- 20% due December 1
- Remainder due March 1 with the annual report.
For a founder this is mostly a cash-flow and calendar problem: the bill for a given tax year starts coming due in the middle of that year, before you have filed anything. If your recalculated APVC number is climbing toward $5,000, put the four dates in the calendar now; missed installments accrue the same penalties as a missed March filing.
Large Corporate Filer: the flat $250,000 tier
You will see the phrase "Large Corporate Filer" on the state's pages with almost no explanation attached, so here is the definition from 8 Del. C. § 503(c). A corporation is a Large Corporate Filer, and pays a flat $250,000 instead of the two-method calculation, if it meets all of the following:
- Listed on a national securities exchange, and
- Consolidated annual revenue or assets of $750 million or more, and
- At least $250 million in consolidated revenue and $250 million in consolidated assets.
If you are reading a founder guide to figure out your franchise tax, this tier is not about you. It exists so that public mega-caps cannot use APVC to pay less than Delaware thinks their charter privileges are worth. For everyone else, the ordinary $200,000 cap applies.
The annual report: $50, March 1, and real penalties
The franchise tax rides along with the corporation's annual report, due March 1 every year, with a $50 filing fee ($25 for exempt corporations). The report itself is short: registered agent details, principal place of business, directors and officers, plus the share and asset figures that drive the APVC math if you use it.
Miss March 1 and the state adds a $200 penalty plus 1.5% interest per month on both the unpaid tax and the penalty. It also quietly costs you your good standing, which surfaces at the worst moments: a financing, a bank review, a foreign account opening. The full missed-deadline cascade, through void status and revival, is in the compliance guide. Foreign corporations registered in Delaware file their own annual report at $250, due June 30 (the post-HB 400 rate, in effect as of August 2026).
If nobody on your team owns this date, that is a solvable problem; ongoing Delaware compliance is exactly the sort of thing a managed Delaware setup exists to absorb.
Franchise tax is not an income tax
This is the single most misunderstood point on this topic, so let's be precise. Three different Delaware taxes get confused with each other:
- Franchise tax is a fee for existing as a Delaware entity. It is not a tax on profit, and you owe it whether you made a dollar or nothing.
- Corporate income tax at 8.7% is a different animal, and most non-resident founders never touch it: it applies to income earned from activity carried on inside Delaware.
- Gross receipts tax follows the same logic: owed only on goods sold or services delivered in Delaware.
LLCs calculate nothing at all: they pay a flat annual tax of $300, rising to $400 from tax year 2026.
Everything above is Delaware only. A Delaware C-Corp still files a federal return and pays US federal corporate income tax at 21% on top of everything above.
Three traps that inflate the bill
Zero-par and low-issuance structures. The APVC formula divides gross assets by issued shares. A company that has issued very few shares relative to its assets gets a huge assumed par, which then multiplies across all authorized shares. Keeping issuance meaningfully proportionate to authorization is what keeps the canonical math working in your favor.
Multiple classes with real par values. For any class whose stated par value exceeds the assumed par, the calculation uses the actual par for those shares. A legacy class with $1.00 or $5.00 par can dominate the entire assumed capital figure, which is exactly what happens in the state's own $1,600 example. If you inherit an old charter, check the par values before February.
Mid-year charter changes and proration. Under § 503, if your authorized shares change during the year, the tax is prorated: each period is calculated at its own share configuration. Amending your charter in November to slash authorized shares does not erase the ten months already accrued at the old number. Fix the structure early in the year, or accept a blended bill.
None of these traps is exotic; they are the three ways real companies end up overpaying even after learning about APVC. If you would rather have the calculation, the filing and the calendar handled together, that is standard scope for a Delaware formation and compliance package.
Frequently asked questions
Why is my Delaware franchise tax so high?
Because the state bills everyone at the authorized shares method, which taxes charter shares, not company size. With 10 million authorized shares that default is $85,165. Recalculate under the assumed par value method when you file; for most early-stage companies the real bill is $400 to $800.
Do I owe franchise tax if my company made no money?
Yes. It is an existence fee, not an income tax. A dormant Delaware corporation with zero revenue still owes at least $175 (authorized shares minimum) or $400 (assumed par value minimum), plus the $50 annual report fee.
Can I choose which calculation method to use?
Yes. You may pay whichever of the two methods produces the lower tax, every year, no election or approval needed. You just have to supply issued shares and gross assets in the annual report filing so the portal can run the assumed par value math.
Where do I find my gross assets?
Total assets on Form 1120, Schedule L of your federal return, for the fiscal year ending in the report's calendar year. If you have not filed a US return yet, use the equivalent balance sheet total.
What happens if I miss the March 1 deadline?
A $200 penalty plus 1.5% interest per month on the tax and the penalty, and loss of good standing until you file and pay. There is no grace period.
Why am I being asked to pay quarterly?
Corporations owing $5,000 or more pay installments: 40% by June 1, 20% by September 1, 20% by December 1, and the balance by March 1. Below $5,000, everything is due March 1.
Do Delaware LLCs pay franchise tax?
Not this one. LLCs pay a flat annual tax ($300, rising to $400 from tax year 2026) with no report and no share math. See the cost guide.
Does my Delaware corporation owe Delaware income tax if it operates elsewhere?
Generally no. The 8.7% corporate income tax applies only to income apportioned to Delaware, and the gross receipts tax only to sales inside the state. Federal tax at 21% is a separate, nationwide matter.
What is a Large Corporate Filer?
A corporation listed on a national exchange with consolidated revenue or assets of $750 million or more, and at least $250 million of each. It pays a flat $250,000. The tier is irrelevant to startups and SMEs.
How many shares should I authorize to keep the tax low?
Fewer than 5,000 gives you the $175 minimum, but that setup conflicts with option pools and VC norms. The standard 10 million authorized shares costs only a few hundred dollars a year under assumed par value while assets are modest. The share structure decision is covered in company types.
Sources
- Delaware Division of Corporations: how to calculate franchise taxes
- Delaware Division of Corporations: annual report and franchise tax instructions
- Delaware Division of Corporations: Large Corporate Filer criteria (8 Del. C. § 503(c))
- Delaware Division of Revenue: corporate income tax and gross receipts tax
All franchise tax rates, thresholds and deadlines are official Delaware figures as of August 2026, verified against the Division of Corporations calculation pages and fee documents; worked examples were recalculated by hand against the state's formulas. Federal and Delaware income tax points are framing only. Confirm current figures with the state before relying on them.