Every corporation incorporated in Delaware pays an annual franchise tax for the privilege of being a Delaware corporation, wherever it does business. For most small companies, the tax is a few hundred dollars. But the notice Delaware sends each year often shows a much bigger number, sometimes $85,000 or more for a seed-stage startup, because it uses the more expensive of two calculation methods.
This guide explains both methods, works through examples for typical startups and covers due dates, penalties and the separate tax for Delaware LLCs.
Delaware franchise tax at a glance
| Item | 2026 |
|---|---|
| Who pays | Every Delaware corporation, except exempt nonprofits |
| Calculation | Authorized shares method or assumed par value capital method, whichever is lower |
| Minimum tax | $175 (authorized shares) or $400 (assumed par value capital) |
| Maximum tax | $200,000, or $250,000 for large corporate filers |
| Annual report fee | $50 |
| Due date | March 1 for the previous year |
| Late filing penalty | $200, plus 1.5% interest a month on unpaid tax |
| Estimated payments | Required if tax is $5,000 or more |
The rates are set by 8 Del. C. § 503 and haven't changed for 2026. A 2025 amendment to § 503(h), effective for tax years beginning in 2026, affects only regulated investment companies.
Method 1: authorized shares
The authorized shares method counts only the number of shares your certificate of incorporation authorizes, not the number you've issued. It ignores your assets.
| Authorized shares | Tax |
|---|---|
| 5,000 or fewer | $175 |
| 5,001 to 10,000 | $250 |
| Each additional 10,000 shares or part of 10,000 | Add $85 |
| Maximum | $200,000 |
Examples:
- 10,005 shares: $250 + $85 = $335
- 100,000 shares: $250 + 9 × $85 = $1,015
- 1,000,000 shares: $250 + 99 × $85 = $8,665
- 10,000,000 shares: $250 + 999 × $85 = $85,165
Startups usually authorize 10 million shares or more so they can issue founder stock, an option pool and investor shares. That's why the default notice so often shows a five-figure bill.
Method 2: assumed par value capital
The assumed par value capital method uses your gross assets and issued shares to estimate the value of your authorized shares, then taxes that value at $400 per $1 million. For companies with low par value stock and modest assets, it produces a much smaller bill.
Step by step:
- Find the assumed par. Divide total gross assets by total issued shares, to six decimal places. Gross assets are total assets from Schedule L of your federal Form 1120.
- Calculate assumed par value capital. Multiply the assumed par by the number of authorized shares. For any class whose stated par value is higher than the assumed par, use the stated par value for that class instead.
- Calculate the tax. If assumed par value capital is $1 million or more, round up to the next million, divide by 1 million and multiply by $400. If it's less than $1 million, divide by $1 million and multiply by $400.
- Apply the minimum. The tax is never less than $400 under this method.
Worked example: seed-stage startup
A startup has 10,000,000 authorized shares with a par value of $0.00001, 8,000,000 issued shares and $500,000 of gross assets at year-end.
| Step | Calculation | Result |
|---|---|---|
| Assumed par | $500,000 ÷ 8,000,000 | $0.0625 |
| Assumed par value capital | $0.0625 × 10,000,000 | $625,000 |
| Tax before minimum | $625,000 ÷ $1,000,000 × $400 | $250 |
| Franchise tax | Minimum applies | $400 |
| Annual report fee | $50 | |
| Total due | $450 |
Under the authorized shares method, the same company would owe $85,165. Choosing the lower method saves $84,715.
Worked example: Series A company
After a Series A, the same company has $8 million of gross assets and 9,000,000 issued shares, with 10,000,000 authorized.
| Step | Calculation | Result |
|---|---|---|
| Assumed par | $8,000,000 ÷ 9,000,000 | $0.888889 |
| Assumed par value capital | $0.888889 × 10,000,000 | $8,888,890 |
| Rounded up | $9,000,000 | |
| Franchise tax | 9 × $400 | $3,600 |
| Annual report fee | $50 | |
| Total due | $3,650 |
Still far below $85,165. As assets grow, the tax under this method grows too, but slowly. A company needs about $213 million of assumed par value capital before this method reaches $85,000.
Watch out for issued shares
The assumed par value capital method rewards issuing a large share of your authorized shares. If a company authorizes 10,000,000 shares but has issued only 1,000,000 and holds $2 million of assets, the assumed par is $2, and assumed par value capital is $20 million, for a tax of $8,000. Issuing more of the authorized shares, or reducing authorized shares, lowers the bill.
How to pay the lower amount
Delaware's annual notice, sent to your registered agent before the March 1 deadline, is calculated with the authorized shares method because the state doesn't know your assets. To pay less:
- Log in to the Delaware Division of Corporations' online annual report filing.
- Enter your issued shares and total gross assets as of the end of the previous year.
- The system recalculates using the assumed par value capital method and charges the lower amount.
There is no election form. You choose the lower method each year when you file. If you skip the gross assets and issued shares, you pay the authorized shares amount.
Due dates and estimated payments
- Annual report and tax: due March 1 for the previous calendar year. The report lists the company's officers and directors.
- Estimated payments: corporations owing $5,000 or more pay 40% by June 1, 20% by September 1 and 20% by December 1, with the balance due March 1.
- New corporations: the first annual report is due March 1 of the year after incorporation.
Penalties for paying late
| Problem | Consequence |
|---|---|
| Annual report not filed by March 1 | $200 penalty |
| Tax unpaid | Interest of 1.5% a month |
| Unpaid for a year or more | Charter declared void; company loses good standing |
A void charter can be revived by filing a certificate of revival and paying all back taxes, penalties and interest, but it can delay financings and acquisitions while lawyers clean it up. Many startups discover the problem during due diligence.
Delaware LLCs, LPs and partnerships
Delaware LLCs don't pay the corporate franchise tax. Instead they pay a flat annual tax:
- $400 for the 2026 tax year, up from $300, under HB 400.
- Paid in arrears by June 1 of the following year. The payment due June 1, 2026 covered 2025 at $300; the first $400 payment is due June 1, 2027.
- No annual report.
- A $200 penalty plus 1.5% monthly interest for late payment.
See LLC fees by state to compare Delaware with other states.
Is the franchise tax the only cost of a Delaware corporation?
No. A Delaware corporation that operates in another state also pays:
- Foreign qualification in each state where it does business, with that state's annual report fee.
- Income tax in the states where it operates, which can range from 0% to over 9%. See state corporate income tax rates.
- A registered agent in Delaware, typically $50 to $300 a year.
A Delaware corporation that does no business in Delaware doesn't pay Delaware's 8.7% corporate income tax.
Why startups still choose Delaware
Despite the franchise tax, most venture-backed startups incorporate in Delaware. Investors and their lawyers know Delaware corporate law well, the Court of Chancery decides business disputes without juries and with a large body of precedent, and standard financing documents assume a Delaware corporation. For a typical startup that files correctly, the franchise tax is $400 to a few thousand dollars a year.
Some companies have reincorporated in Texas or Nevada in recent years, citing court decisions and the cost of litigation. Delaware amended its corporate law in March 2025 in response. For most early-stage companies, the choice still comes down to what investors expect. See where to incorporate a startup for the trade-offs.
Tips to keep the bill low
Always file with gross assets and issued shares. It takes a few minutes and almost always cuts the tax for startups.
Don't over-authorize shares. Authorizing far more shares than you need increases the authorized shares bill and can raise the assumed par value capital bill if few are issued.
Keep your registered agent current. Notices go to the agent. If you change agents or let the agent lapse, you can miss the notice and the March 1 deadline.
Close unused companies properly. Delaware keeps charging tax until you file a certificate of dissolution and pay everything due. Dormant companies pile up penalties.
Budget for estimated payments. Once your tax reaches $5,000, you'll owe installments in June, September and December as well as March.
Compliance checklist
- Appoint a Delaware registered agent and keep it current.
- Track authorized shares, issued shares and year-end gross assets.
- File the annual report and pay franchise tax online by March 1.
- Enter gross assets and issued shares to use the assumed par value capital method.
- Make estimated payments if your tax is $5,000 or more.
- Register as a foreign corporation in the states where you operate.
Estimate your total tax in the United States calculator, read the full Delaware business tax guide or compare LLC fees by state.
Frequently Asked Questions
How much is the Delaware franchise tax for a startup with 10 million authorized shares?
Under the authorized shares method, which Delaware uses on its default notice, 10,000,000 authorized shares produce a tax of $85,165. Under the assumed par value capital method, a typical early-stage startup with modest assets owes the $400 minimum, plus the $50 annual report fee. You can pay whichever is lower.
When is the Delaware franchise tax due?
Corporations must file the annual report and pay franchise tax by March 1 for the previous year. Corporations owing $5,000 or more pay estimated tax in installments: 40% by June 1, 20% by September 1, 20% by December 1 and the rest by March 1.
What is the minimum Delaware franchise tax?
The minimum is $175 under the authorized shares method and $400 under the assumed par value capital method. Every non-exempt corporation also pays a $50 annual report fee.
What is the maximum Delaware franchise tax?
The maximum is $200,000 a year, or $250,000 for large corporate filers, which are listed companies with at least $750 million of revenue or assets.
What happens if I don't pay the Delaware franchise tax?
Delaware charges a $200 penalty for a late annual report and interest of 1.5% a month on unpaid tax. If the tax stays unpaid, the corporation's charter is declared void, and it loses good standing, which can block fundraising, contracts and bank accounts.
Do Delaware LLCs pay franchise tax?
Not the corporate franchise tax. Delaware LLCs, LPs and general partnerships pay a flat annual tax instead: $400 for the 2026 tax year, up from $300 under HB 400, paid by June 1 of the following year. They don't file an annual report.
Does a Delaware corporation pay Delaware income tax?
Only if it does business in Delaware. A corporation incorporated in Delaware but operating elsewhere doesn't pay Delaware's 8.7% corporate income tax, but it pays franchise tax and is taxed by the states where it operates.
What counts as gross assets for the assumed par value capital method?
Total assets as reported on Schedule L of the corporation's federal Form 1120 for the tax year ending in the calendar year of the report. For a startup, that is mostly cash in the bank and any capitalized assets.