Delaware’s Authorized Shares Method calculates franchise tax using a single figure: the total number of shares your corporation is authorized to issue under its Certificate of Incorporation. The tax starts at $175 for 5,000 shares or fewer, rises in $85 steps for each additional block of 10,000 shares, and caps at $200,000. It ignores what your shares are worth, how many you’ve sold, and what your company owns. It is also the state’s default calculation, so a corporation that files an annual report without reporting issued shares and gross assets will be billed this way automatically.1Justia. Delaware Code Title 8 Section 503 – Rates and Computation of Franchise Tax
Whether that default is good news depends on your share structure. Delaware requires you to pay the lesser of this method and the Assumed Par Value Capital Method, and the gap between the two bills can run into five figures.2Delaware Division of Corporations. How to Calculate Franchise Taxes
The Tax Tiers
The franchise tax follows a simple tiered structure:2Delaware Division of Corporations. How to Calculate Franchise Taxes
- 5,000 shares or fewer: $175 (the minimum tax)
- 5,001 to 10,000 shares: $250
- Each additional 10,000 shares, or any portion of 10,000, above 10,000: add $85
- Maximum annual tax: $200,000
A worked example: a corporation authorized to issue 25,000 shares starts at the $250 base for the first 10,000. Shares 10,001 through 20,000 add $85. Shares 20,001 through 25,000 count as a full block because any fraction rounds up, adding another $85. Total tax: $420.
Every corporation also owes a $50 annual report filing fee on top of the calculated tax, regardless of which method it uses.3Delaware Division of Corporations. Annual Report and Tax Information
What You Need Before You Calculate
Only one figure matters: the total number of shares your corporation is authorized to issue, as stated in your Certificate of Incorporation.4Wolters Kluwer. Delaware Incorporation: Why the Number of Authorized Shares Matters If you’ve filed amendments since incorporating, the most recent version controls. The authorized number appears in the article defining stock classes and quantities.
You do not need share prices, asset values, or issued-share counts. That narrow data requirement is why the method appeals to small companies without dedicated accounting staff.
When the Other Method Produces a Lower Bill
The Assumed Par Value Capital Method takes your total gross assets divided by total issued shares to reach an “assumed par value,” multiplies that by authorized shares, and taxes the result at $400 per million dollars of assumed par value capital, with a $400 minimum.2Delaware Division of Corporations. How to Calculate Franchise Taxes It requires reporting all issued shares (including treasury shares) and total gross assets.
The practical effect: many startups authorize millions of shares while holding modest assets. A corporation with 10 million authorized shares would owe close to the $200,000 cap under the Authorized Shares Method, but might owe only a few hundred dollars under the asset-based approach. Running both calculations before filing is worth the effort whenever your authorized share count is large.
One exception makes the comparison unnecessary. If your stock has no par value, the Authorized Shares Method will always produce the lesser tax.2Delaware Division of Corporations. How to Calculate Franchise Taxes
Mid-Year Amendments
If you amend your Certificate of Incorporation during the year to change your authorized share count or par value, Delaware prorates the tax. You calculate the tax that would apply to each distinct share authorization, then multiply each by the fraction of the year it was in effect (days divided by 365, or 366 in a leap year), and add the results.2Delaware Division of Corporations. How to Calculate Franchise Taxes If any period uses the Assumed Par Value Method, you must provide issued shares and total gross assets within 30 days of the amendment for that period.
Filing and Payment Deadlines
All active domestic corporations file the annual report and pay franchise tax online through the Division of Corporations portal by March 1 each year.5Delaware Division of Corporations. Annual Report and Tax Instructions You access your record with your business entity file number, then input authorized share data and update officer and director information on screen.
Corporations whose franchise tax bill reaches $5,000 or more cannot wait until March 1. Delaware requires quarterly estimated payments:6Delaware Division of Revenue. Franchise Taxes
- June 1: 40% of the estimated annual tax
- September 1: 20%
- December 1: 20%
- March 1: remaining balance
A company with 600,000 authorized shares would owe roughly $5,270, placing it inside quarterly territory. Missing a quarterly deadline triggers the same 1.5% monthly interest that applies to any unpaid balance.7Justia. Delaware Code Title 8 Section 504 – Collection and Disposition of Tax
Penalties, Interest, and Charter Voidance
Missing March 1 triggers an immediate $200 penalty plus 1.5% monthly interest on both the unpaid tax and the penalty itself.5Delaware Division of Corporations. Annual Report and Tax Instructions Interest compounds, so a large balance grows quickly.
If a corporation goes a full year without paying franchise tax or filing a complete annual report, the Secretary of State can declare the corporate charter void. The state sends a notice by November 30 warning that the charter will be voided unless all taxes are paid and reports filed by the following March 1.8Justia. Delaware Code Title 8 Section 510 – Failure to Pay Tax or File a Complete Annual Report for 1 Year The Secretary may grant an extension for good cause on a filed certificate showing why.
A voided charter means the corporation loses its legal existence. It cannot conduct business, file lawsuits, or defend itself in court. Reviving a voided corporation requires paying all back taxes and penalties, filing all missing annual reports, and submitting a Certificate of Revival with a $189 filing fee (plus $9 per additional page).9Delaware Division of Corporations. Certificate for Revival of Charter for a Voided Corporation Once revival is properly filed, Delaware law retroactively validates all contracts and acts the corporation entered into during the void period with the same force as if the charter had never lapsed.10Justia. Delaware Code Title 8 Chapter 1 Subchapter XII Even so, months without legal standing carry real risk, and the accumulated back taxes and penalties on top of the filing fee make revival expensive. Paying on time costs far less than catching up.