What the Delaware Franchise Tax Actually Is
The Delaware franchise tax is the annual fee that every Delaware-incorporated C-corporation pays to maintain good standing with the state. It is not an income tax. It applies whether your C-corp has revenue, losses, or no operations at all. The tax is the price of being a Delaware C-corporation and accessing Delaware's well-developed corporate law.
Delaware's franchise tax structure exists because the state has positioned itself as the default jurisdiction for sophisticated US corporations. Over 60% of Fortune 500 companies and over 80% of newly public US companies are Delaware-incorporated. The franchise tax is one of the state's largest revenue sources and underwrites the specialized Court of Chancery that hears corporate disputes without juries.
Who pays it
Every Delaware C-corporation pays the franchise tax annually, regardless of where the company actually operates. A Delaware C-corp headquartered in San Francisco, Austin, or New York still owes Delaware franchise tax. The obligation begins the year the entity is formed and continues every year until the entity is formally dissolved through the Delaware Division of Corporations.
Who does not pay it
Delaware LLCs pay a flat $300 annual tax (not the franchise tax). Delaware S-corps still pay the franchise tax in the same way as C-corps, because the S-election is a federal tax classification, not a state corporate-form change. Delaware non-profits, exempt corporations, and statutory trusts have separate fee structures. This article focuses on the C-corp franchise tax specifically.
The Two Calculation Methods: Authorized Shares vs. Assumed Par Value
Authorized Shares vs Assumed Par Value: Comparison
| Method | Best for | Minimum | How calculated |
|---|---|---|---|
| Authorized Shares | Low authorized-share counts | $175 | Tiered fee based on number of authorized shares |
| Assumed Par Value | High authorized + low assets (typical startup) | $400 | (Gross Assets / Issued Shares) × Authorized Shares × $400 per $1M |
| You pay the LOWER of the two. Always calculate both. | |||
Delaware lets you calculate franchise tax under either of two methods, and you pay the lower of the two. Most companies should run both calculations every year because the optimal method changes as the company grows.
Method 1: Authorized Shares Method
Under the Authorized Shares method, the tax is calculated based on the total number of shares your charter authorizes (whether issued or not). The fee schedule for 2026: $175 for 5,000 or fewer authorized shares; $250 plus $85 per additional 10,000 shares for 5,001 to 10,000 shares; and $85 per 10,000 shares above that. The cap is $250,000 for very large authorized-share counts.
This method tends to penalize startups that authorized 10 million or 100 million shares at incorporation (a common Silicon Valley pattern) even when only a small fraction were issued. A C-corp with 10 million authorized shares pays approximately $85,000 under this method.
Method 2: Assumed Par Value Capital Method
Under the Assumed Par Value method, the tax is based on the corporation's gross assets divided by issued shares, multiplied by a fixed rate. The formula is: (Total Gross Assets / Total Issued Shares) × Total Authorized Shares = Assumed Par Value. The tax rate is $400 per million dollars of Assumed Par Value, with a $400 minimum.
For an early-stage startup with $500,000 in assets and 5 million issued shares of 10 million authorized, the Assumed Par Value works out to $1 million, generating a $400 tax bill. The same company under the Authorized Shares method would owe approximately $85,000. The savings from running both calculations are substantial.
The March 1 Deadline and the $200 Late Penalty
Pre-filing Checklist
- Confirm current officer/manager information matches state records
- Verify registered agent address matches the agent's current record
- Check filing fee amount against the state's current fee schedule
- Confirm prior-year obligations are clear (no outstanding reports)
- Verify entity status is active (not administratively dissolved)
- Set a calendar reminder for next year's deadline
Delaware franchise tax and the accompanying annual report are due on March 1 of each year for the prior calendar year. The annual report is a single page filed online at the Division of Corporations portal, and it must accompany payment of the tax.
What you file
The annual report includes: the corporation's legal name and file number, the principal place of business address, the names and addresses of all directors as of January 1, and the name and address of one officer authorized to sign the report. The report must be signed by an officer or director. Payment is submitted alongside the report through the state portal.
The late penalty
Missing the March 1 deadline triggers an automatic $200 penalty plus 1.5% monthly interest on the unpaid balance. The penalty compounds quickly: a $400 franchise tax that goes unpaid for six months becomes approximately $636 in tax, penalty, and interest combined.
Loss of good standing
Failure to file the annual report and pay the franchise tax results in loss of good standing with Delaware. After 18 months of non-payment, the Delaware Secretary of State may administratively dissolve the corporation. Once dissolved, the company cannot legally conduct business, sign contracts, or maintain bank accounts, and reinstatement requires paying all back taxes, penalties, interest, and a $200 reinstatement fee.
Common Filing Mistakes That Cost Delaware C-Corps
Delaware franchise tax is a routine annual obligation, but several common mistakes drive up bills unnecessarily or trigger penalties.
Mistake 1: Defaulting to the Authorized Shares calculation
Delaware's online portal defaults to displaying the Authorized Shares tax first. Many founders pay the displayed amount without checking the Assumed Par Value alternative. For most startups with high authorized-share counts and modest assets, the Assumed Par Value method produces a substantially lower bill. Always calculate both and pay the lower amount.
Mistake 2: Forgetting that the tax applies even with no revenue
A Delaware C-corp that has never earned a dollar of revenue still owes franchise tax. The minimum is $400 (Assumed Par Value) or $175 (Authorized Shares, with 5,000 or fewer authorized). Pre-revenue companies, dormant entities, and corporations preparing for a future raise all pay the minimum every year.
Mistake 3: Using outdated officer information
The annual report requires the name and address of one currently authorized officer. Filing with a former officer's name (someone who left the company) can create issues during diligence or banking verification. Confirm officer information matches your current cap table and operating reality before submitting.
How to Reduce Your Delaware Franchise Tax Bill
Two strategies are available to reduce the annual franchise tax bill, both of which require planning at incorporation or through a board-approved charter amendment.
Strategy 1: Reduce authorized shares
If your C-corp authorized far more shares than needed (a 10-million-share charter is common but rarely necessary at formation), you can amend the charter to reduce the authorized share count. The amendment costs a $194 filing fee plus legal review, but the annual tax savings can run thousands of dollars per year. This is most cost-effective for companies that authorized large share counts but do not anticipate large share issuances in the near term.
Strategy 2: Maintain a high par value
Setting a par value on shares affects the Assumed Par Value calculation. Shares with a $0.0001 par value (the typical Silicon Valley default) maximize the Assumed Par Value method's downward effect. Setting a meaningfully higher par value increases the Assumed Par Value calculation, which can make the Authorized Shares method optimal instead. Most companies want low par values, but advisors should review this for unusual cap structures.
File.Business Manages Delaware Franchise Tax for You
File.Business handles annual Delaware franchise tax and annual report filing for C-corps registered with our compliance service. We calculate both methods automatically, file the report and pay the tax before the March 1 deadline, and notify you of any optimization opportunities (such as charter amendments) that could reduce future bills. The service includes ongoing good-standing monitoring and a same-day reminder system if anything in your corporate status changes.
Frequently asked questions
When is the Delaware franchise tax due?
March 1 of each year for the prior calendar year. The annual report must be filed alongside the tax payment through the Delaware Division of Corporations portal.
What is the minimum Delaware franchise tax?
$175 under the Authorized Shares method (for 5,000 or fewer authorized shares), or $400 under the Assumed Par Value Capital method. You pay the lower of the two calculations. Most companies should run both every year.
What is the maximum Delaware franchise tax?
$250,000 per year. The cap applies to very large entities under either calculation method.
Do Delaware LLCs pay franchise tax?
No. Delaware LLCs pay a flat $300 annual tax (not the franchise tax). Only Delaware corporations (C-corps and S-corps) pay the franchise tax under the structure described in this article.
What happens if I miss the March 1 deadline?
An automatic $200 penalty plus 1.5% monthly interest on the unpaid balance. After approximately 18 months of non-payment, the Delaware Secretary of State may administratively dissolve the corporation.
Can I reduce my Delaware franchise tax bill?
Yes. Two strategies: (1) reduce the authorized share count via a charter amendment if you authorized far more shares than needed, and (2) maintain a meaningful par value if the Assumed Par Value calculation would otherwise be higher than the Authorized Shares method.
Do I owe Delaware franchise tax if my company has no revenue?
Yes. The franchise tax applies regardless of revenue, profitability, or business activity. A Delaware C-corp that has never earned a dollar still owes the minimum franchise tax every year until it is formally dissolved.
How do I dissolve a Delaware corporation to stop franchise tax?
File a Certificate of Dissolution with the Delaware Division of Corporations. The certificate must be signed by an authorized officer. All back franchise tax must be paid before dissolution is processed. The filing fee is $204.
Let File.Business handle the filing.
We pull your record from the state, prefill every field, and validate before submission. Same-day filing in most states. First year of registered agent included with new entity formations.
