What is Delaware’s franchise tax?

Franchise tax is a tax charged by Delaware to businesses for the right to do business in the state. It is separate from income taxes owed by the business, and applies to most businesses, not just “franchises”, despite the name.

If your business was formed or registered in Delaware at any point during a year, you owe franchise tax there for that year. It’s not prorated on the number of days. The calculation method and due date depend on your entity type.

Delaware franchise tax calculation for LLCs

For LLCs, Delaware imposes a flat annual tax of $300. This amount is fixed and does not vary based on assets, revenue, or ownership structure. Delaware refers to this as an “annual tax” rather than a “franchise tax”.

For Series LLCs, each registered series is subject to an additional $75 annual tax, in addition to the $300 tax paid by the parent LLC.

Delaware franchise tax calculation for Corporations

For corporations, the franchise tax calculation is more complex.

• Minimum franchise tax: $175
• Maximum franchise tax:
  
  • $200,000 for most corporations
  • $250,000 for Large Corporate Filers (generally publicly traded corporations that meet specific revenue and asset thresholds)

Delaware allows corporations to calculate their franchise tax using two methods:

• Authorized Shares Method
• Assumed Par Value Method

Corporations are permitted to calculate the tax under both methods and pay the lesser amount.

Authorized Shares Method 

The Authorized Shares Method is simpler than the Assumed Par Value Method and calculates franchise tax based solely on the number of authorized shares. For corporations with no par value stock, this method will always produce the lower tax.

However, corporations with a large number of authorized shares may incur a significant tax. With a sufficiently high share count, this method can reach the maximum annual tax.

How the tax is Calculated

The franchise tax is determined using the following tiers:

• 5,000 authorized shares or fewer (minimum tax): $175
• 5,001 to 10,000 authorized shares: $250
• Each additional 10,000 authorized shares (or fraction thereof): add $85
• Maximum annual tax:
  
  • $200,000 for standard filers
  • $250,000 for Large Corporate Filers

Example Calculation

Example
A corporation has 23,010,000 authorized shares.

1. The first 10,000 shares result in a base tax of $250.
2. Shares above 10,000:
   23,010,000 − 10,000 = 23,000,000 shares
3. Divide the remaining shares into increments of 10,000 (rounding up):
   23,000,000 ÷ 10,000 = 2,300 increments
4. Multiply the increments by $85:
   2,300 × $85 = $195,500
5. Add the base tax:
   $195,500 + $250 = $195,750

Total franchise tax due: $195,750

Assumed Par Value Method

The Assumed Par Value Method is a little more complicated, but it can be less than the authorized shares method if you have a lot of shares. To use this method, you will need the following information:

• Total gross assets
• Total issued shares
• Total authorized shares

The calculation is performed in three main steps.

Step 1: Calculate the “Assumed Par Value”

Divide your total gross assets by your total issued shares. Carry the result to six decimal places. This figure is your assumed par value.

Gross assets are the “Total Assets” reported on U.S. Form 1120, Schedule L, using the balance sheet corresponding to the company’s fiscal year that ends in the calendar year of the filing.

Example

• Total gross assets: $2,500,000
• Total issued shares: 5,000,000

Calculation:
$2,500,000 ÷ 5,000,000 = 0.500000

The assumed par value is $0.500000 per share.

Step 2: Calculate the “Assumed Par Value Capital”

1. Multiply the assumed par value by the number of authorized shares that have a stated par value less than the assumed par value (as listed in your articles of incorporation).
2. Multiply the number of authorized shares with a stated par value greater than the assumed par value by their respective stated par values.
3. Add the results from steps 1 and 2.

The total is your assumed par value capital.

Example

• Authorized shares with a stated par value of $0.0001 (less than assumed par): 9,000,000
• Authorized shares with a stated par value of $1.00 (greater than assumed par): 1,000,000
• Assumed par value (from Step 1): $0.500000

Calculations:

• 9,000,000 × $0.500000 = $4,500,000
• 1,000,000 × $1.00 = $1,000,000

Assumed par value capital:
$4,500,000 + $1,000,000 = $5,500,000

Step 3: Calculate the Franchise Tax

If the assumed par value capital exceeds $1,000,000, round it up to the next whole million. Divide the result by 1,000,000 and multiply by $400. The final amount is your franchise tax due.

Example

• Assumed par value capital: $5,500,000
• Rounded up to the next million: $6,000,000

Calculation:
$6,000,000 ÷ 1,000,000 = 6
6 × $400 = $2,400

The franchise tax due is $2,400.

How do you handle multiple time periods?

When filing under the Assumed Par Value Method, your franchise tax return may include multiple time periods. Delaware automatically creates these periods based on corporate filings made with the state during the year.

Time periods affect both the gross assets amount and the asset date used in the calculation:

• If there is only one time period, Delaware requires you to use the gross assets figure from U.S. Form 1120, Schedule L.
• If multiple time periods apply, you must use a gross assets figure that is “as of the nearest date on which the amount is obtainable,” within 30 days of the end of each period, provided the date falls within the same calendar year.

In filings with multiple periods, the end date of the final period is treated as the company’s fiscal year-end.

Because this topic is complex, we have created a separate guide that explains how Gross Assets and Asset Dates are determined for Delaware franchise tax filings.

What happens if you don’t pay franchise tax?

There are specific monetary penalties for not paying franchise tax, but more importantly, you can have your charter voided. Penalty for non-payment or late payment is $200.00. Additionally, interest accrues on the tax and penalty at the rate of 1.5% per month.

If a corporation doesn't pay franchise tax or file a complete annual report for one year, the corporation's charter can be voided. Delaware notifies delinquent corporations by November 30, and charters become void if taxes and reports aren't filed by the following March 1.

Similarly, if an LLC doesn't pay the annual tax in Delaware, the LLC loses its good standing status with the state. And if the tax remains unpaid for three years from the due date, Delaware cancels the LLC's certificate of formation on the third anniversary of that due date.

When are Delaware franchise taxes due?

Corporations

• Franchise tax is due March 1 of the year following the year in which the corporation was active in Delaware.
• For foreign corporations registered in Delaware, the due date is June 1, and the tax is a flat $125.

LLCs

• The Delaware annual tax is due June 1 of the year following the year in which the LLC was active in Delaware.

Corporation annual report filing fees 

In addition to franchise tax, Delaware corporations must pay an annual report filing fee when submitting their franchise tax return.

• Non-exempt corporations: $50 filing fee
• Exempt corporations (including nonprofits and certain other entities): $25 filing fee

This filing fee is separate from the franchise tax calculation and is paid at the same time as the franchise tax, generally by March 1.

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