How does Delaware calculate the franchise tax and what is the minimum tax for a startup?
Please Note: Clerky is unable to assist with annual report and tax matters. For assistance, you must contact the Delaware Secretary of State or your company's registered agent, accountant or lawyer (see Need Compliance Help?).
Delaware allows a corporation to use either one of the following two methods for computing the annual franchise tax:
- Assumed Par Value Method
- Authorized Shares Method
The Assumed Par Value method almost always results in a lower tax amount for startups, which typically have few assets but authorize millions of shares.
In order to use the Assumed Par Value Method, the company simply reports its total gross assets and the number of shares issued when completing Delaware's online annual report filing. For more information about completing this filing, see How does a company file its Delaware annual report and pay its annual franchise tax?
|Assumed Par Value Method||Authorized Shares Method|
|Tax Estimate Rule of Thumb||$400 for each $1,000,000 in gross assets (see Note 1)||$85 for each 10,000 shares authorized|
Note 1: See How to Calculate Franchise Taxes for a detailed explanation. Under the Assumed Par Value Method, the franchise tax can vary based on the ratio of issued shares to authorized shares. Consequently, a startup generally chooses to issue a meaningful portion of its authorized shares.
If any of the following are true, contact the Delaware Secretary of State Franchise Tax department for special assistance at 302-739-3073 (option 3):
- Total gross assets equal zero
- Number of shares issued equals zero
- Shares are not assigned a par value in the company's certificate of incorporation
Delaware Secretary of State Tax Information and Resources
Explains the ins-and-outs of the Authorized Shares Method and the Assumed Par Value Method.
A tax calculator provided by Delaware for calculating franchise taxes using both the Authorized Shares Method and the Assumed Par Value Method.
Delaware Secretary of State's tax FAQ.