How to Figure Out Your Delaware Franchise Taxes

Domestic Delaware corporations (formed and organized in the State of Delaware) have franchise tax and annual reports due on or before March 1st.

The First State actually has two ways to calculate the franchise tax, and it defaults to a method that’s usually way more expensive for startups and emerging-growth companies.

Delaware’s Default Method: Authorized Shares

The default—and more expensive—method is to base the franchise tax on the number of authorized shares in a company’s charter. Here’s how it breaks down:

Number of Shares Amount
5,000 shares or less (minimum tax) $175
5,001 – 10,000 shares $250
Each additional 10,000 shares or portion thereof      $85

For a company with 1,000,000 authorized shares, the annual tax would be $8,665. That’s $250 for the first 10,000 shares and an additional $8,415 for the remaining 990,000 shares.

Yikes.

The (Usually) Cheaper Method: Assumed Par Value Method

 This method is often more favorable for startups because it calculates the tax based on the company’s gross assets, rather than its authorized shares. If your company’s issued shares are at least a third to a half of the company’s authorized shares, this is likely the best way to go. The gross assets should be the same number as what’s reported to the IRS on Form 1120, Schedule L. If you haven't filed yet, then you can use the gross assets number from a recent balance sheet and amend the Delaware filing later if necessary.

The Assumed Par Value Method is more complicated. But after making a few simple calculations, it could mean significant savings on your annual tax bill.

This might make more sense to see the numbers play out. Here’s an example from Delaware’s Division of Corporations. Let’s assume the following for your corporation:

  • 1,000,000 shares with a $1.00 par value

  • 250,000 shares with a par value of $5.00

  • Gross assets of $1,000,000

  • 485,000 total issued shares

Here are the steps to determine the tax amount based on the assumed par value.

Step

Example

Divide your total gross assets by your total issued shares carrying to 6 decimal places. The result is your “assumed par”.

 

$1,000,000/485,000 = $2.061856 assumed par

Multiply the assumed par by the number of authorized shares having a par value of less than the assumed par.

 

$2.061856 * 1,000,000 = $2,061,856

Multiply the number of authorized shares with a par value greater than the assumed par by their respective par value.

 

250,000 * $5.00 = $1,250,000

Add the results of #2 and #3 above. The result is your

assumed par value capital.

 

$2,061,856 + $1,250,000 = $3,311,856 assumed par value capital

Figure your tax by dividing the assumed par value capital, rounded up to the next million if it is over $1,000,000, by 1,000,000 and then multiply by $400.00.

 

4 * $400.00 = $1,600.00

The minimum tax for the Assumed Par Value Capital Method of calculation is $400.00.

How to File

 Reach out if you’ like us to provide guidance on how to determine the tax amount via an Assumed Par Value Method, or if we can provide any additional guidance as you prepare to file your annual report with the Secretary of State. You can file your report by clicking on the link below. You’ll need to have your company information ready, including its entity number, which you can look up here.

If you fail to file your Delaware annual report and franchise taxes prior to midnight on March 1st, Delaware will place an immediate penalty one-minute past 11:59 pm.

California Corporations

California domestic and foreign corporations (corporations domestic to other states but qualified to do business in the State of California), are required to file a “Statement of Information” annually.  The due date for each corporation will be the last day of the corporation’s anniversary month.  This means that if your corporation was formed or qualified to do business on January 2012, your Statement of Information will be due on January 31st, of each year.  To file your California Statement of Information, please follow this link:

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Francesco Barbera

Francesco Barbera is a corporate attorney representing emerging growth companies in a wide range of industries, including software, technology, digital, fashion, health care, retail and e-commerce.


He counsels entrepreneurs, investors and established companies on the full range of their business activities, from formation through raising capital, growth and acquisition. He has special expertise in the representation of mission-driven organizations and social enterprises. 


Throughout his career, he has represented the National Broadcasting Corporation, the Grammy Museum, Ares Capital Management, Credit Suisse First Boston, as well as privately held businesses in internet, media and technology, mobile applications, consumer products, professional sports, film and television production, among others over the course of his career. 


Francesco began his legal career at two large, international law firms in Los Angeles, where he represented large and small enterprises in a broad range of transactions, from mergers and acquisitions to public and private securities offerings to the formation of partnerships and joint ventures.


Francesco is also the Co-Chairman of the Los Angeles chapter of Conscious Capitalism, Inc.A lifelong student of psychology and personal development, Francesco holds a Master’s Degree in Spiritual Psychology from the University of Santa Monica and has been trained and mentored by numerous leaders in the personal development arena, including Steve Chandler, Byron Katie and George and Linda Pransky. 

Francesco has also founded and represented non-profit initiatives.


He has served as outside counsel to the Los Angeles Leadership Academy, a charter school dedicated to training the next generation of social and political leaders, and he is the founder and former Executive Director of SpiritWalk, a non-profit fundraiser created to benefit the University of Santa Monica.  

Francesco’s writing has appeared in The American LawyerCalifornia LawyerSlate, and others. He served as the Supreme Court columnist and Executive Editor of the Harvard Law Record and was the founder and editor-in-chief of the Penn History Review, the first Ivy League journal in the country dedicated to the publication of undergraduate historical research.


Francesco is an honors graduate of Harvard Law School, cum laude, and the University of Pennsylvania, summa cum laude and Phi Beta Kappa.