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:
Updated February 18, 2020