Guide
Delaware franchise tax, explained.
Every Delaware corporation owes an annual report and franchise tax by March 1 each year — even with zero revenue. Delaware calculates your default bill using the authorized shares method, which looks enormous for a startup with 10,000,000 authorized shares. You're allowed to recalculate using the assumed par value capital method and pay the lesser amount — and for typical startups, the difference is dramatic.
What it is (and isn't)
The franchise tax is Delaware's annual fee for the privilege of being incorporated there. It is not a tax on income, sales, or activity — a dormant shell owes it the same as a business doing millions in revenue. It comes bundled with the annual report, a filing that lists the corporation's principal place of business, its directors, and the officer signing the report. Both are due together on or before March 1, covering the prior calendar year.
The report is not a formality to click through: it is certified by a real officer or director, and knowingly false statements in it are perjury under Delaware law (8 Del. C. §502). That is why the final submission is always a human act, however much software prepares it.
The two calculation methods
Delaware lets a corporation compute its tax under either of two methods and pay whichever is lower.
Authorized shares method. The tax scales with the number of shares the charter authorizes — not the shares actually issued, and not what the company is worth. Authorize a lot of shares, owe a lot of tax. This is the method Delaware uses to compute the default bill it sends you.
Assumed par value capital method. The tax scales with the company's real economic footprint instead: it is computed from total gross assets (the total assets figure from U.S. Form 1120, Schedule L), shares actually issued, and the authorized shares' par value. For an early-stage company with modest assets and low-par-value stock, this method almost always produces a far smaller number — though it carries a higher minimum than the authorized shares method.
Why startups with 10M shares must recalculate
The standard venture setup — 10,000,000 authorized shares at $0.00001 par value — is exactly the configuration the authorized shares method punishes hardest: millions of authorized shares drive the default bill toward the upper end of the scale. The same company recalculated under the assumed par value capital method, with small gross assets and tiny par value, typically lands near the bottom of the scale instead.
So the annual ritual is: receive the alarming default notice, recalculate with the assumed par value capital method, file the annual report with issued shares and gross assets filled in, and pay the lesser amount. Delaware publishes the current rates, minimums, and maximums — they change, so verify the year's figures with the Delaware Division of Corporations before paying.
This deadline is one item on the broader post-incorporation checklist; where the human/software line sits for filings like this is covered in what an AI agent legally can and cannot do.
Do it from Claude Code
Corply calendars the March 1 deadline, runs both franchise-tax calculations, prefills the annual report, and routes it to an officer for the certification only a human can make.
then run /incorporate
FAQ
- Is the Delaware franchise tax an income tax?
- No. It's the annual fee for existing as a Delaware corporation, owed regardless of revenue, profit, or activity. A pre-revenue startup that incorporated in Delaware owes it just like a profitable one does.
- Delaware sent me a huge bill. Is it wrong?
- Probably not wrong — just calculated with the authorized shares method, Delaware's default. A startup with 10,000,000 authorized shares almost always owes far less under the assumed par value capital method. Recalculate before you panic, and before you pay.
- What do I need to use the assumed par value capital method?
- Two figures you enter on the annual report: total issued shares (including treasury shares) and total gross assets — the total assets reported on U.S. Form 1120, Schedule L for the fiscal year ending in the report's calendar year.
- What happens if I miss March 1?
- Delaware assesses a penalty plus interest on the unpaid balance, and the corporation falls out of good standing — which blocks good-standing certificates that banks and investors ask for, and, if neglected long enough, can void the charter. Current penalty and interest figures are on the Delaware Division of Corporations site.
- Can software file it for me?
- Software can prefill the report, run both calculations, and flag inconsistencies — but the annual report lists the corporation's directors and an officer, and knowingly false statements in it are perjury under Delaware law (8 Del. C. §502). A human officer reviews and certifies; a payment the company authorized settles the tax.
This page is general education, not legal or tax advice, and reading it does not create an attorney–client relationship. Corply is operated by 0Lumen Labs Corp., is not a law firm, and routes questions that need individualized judgment to licensed professionals. Rules and fees change — verify current requirements with the State of Delaware, the IRS, or your counsel.