Delaware Franchise Law: Disclosure, Termination, and Tax

Delaware franchise law is probably not what you think it is. The state has no franchise registration law and no franchise disclosure law of its own, so franchise sales in Delaware are governed by the federal FTC Franchise Rule. Delaware’s actual franchise statute, Title 6, Chapter 25, Subchapter V, is narrow: it protects certain product distributors and gas station operators from unjust termination, and it does not touch most restaurant, hotel, or service franchises. And Delaware’s famous “franchise tax” is a separate thing entirely — an annual entity tax paid by every corporation, LLC, LP, and GP formed or registered in the state, regardless of whether the business has anything to do with franchising.

Who the Delaware Franchise Statute Actually Covers

Before anything else, figure out whether the state statute applies to you. It only reaches businesses with a physical presence in Delaware that fall into one of four categories of “franchised distributor”:

Wholesalers that buy or take on consignment branded products for resale to retail outlets.
Retail sellers whose outlets carry the trademark of no more than three manufacturers or licensors.
Distributors of books, magazines, newspapers, or other publications for resale to retail outlets.
Operators of gas stations, filling stations, or similar locations selling motor fuel directly into vehicle tanks.

A “franchise” under this law is a contract between a franchised distributor and a franchisor where the distributor paid more than $100 to enter the arrangement. Motor fuel sellers are the one exception; they don’t need to have paid anything to qualify.¹

The practical result: most of the formats people picture when they hear “franchise” — quick-service restaurants, hotels, fitness studios, home service brands — likely fall outside the statute unless they also fit one of these four distributor types. If your situation isn’t on the list, your rights come from your franchise agreement and from federal law, not from Delaware’s termination statute.

Franchise Disclosure in Delaware Comes From the FTC

Because Delaware does not require state-level disclosure, the FTC’s Franchise Rule (16 CFR Part 436) is the controlling framework for anyone selling or buying a franchise in the state. Every franchisor must provide a prospective franchisee with a Franchise Disclosure Document at least 14 calendar days before the franchisee signs a binding agreement or makes any payment.²

The FDD covers 23 items. The ones worth reading closely before you sign anything:

Items 3 and 4 — the franchisor’s litigation and bankruptcy history, including arbitrations.
Items 5, 6, and 7 — the initial franchise fee, all recurring fees (royalties, advertising, technology), and the estimated total initial investment.
Items 8 and 12 — whether you must buy supplies from approved sources, and whether you get an exclusive territory.
Item 17 — renewal, termination, and transfer terms, including dispute resolution.
Item 19 — any financial performance representations the franchisor chooses to make.
Item 21 — three years of audited financial statements.

If the franchisor materially changes the agreement after giving you the FDD, you’re entitled to the revised agreement at least seven calendar days before signing.² Electronic delivery is allowed, but the file has to be downloadable, saveable, and printable, with no advertising, audio, video, or links that redirect you outside the document.

No State Registration Required

Thirteen states require franchisors to register their FDD with a state agency before offering or selling franchises there. Delaware is not one of them. A franchisor can begin offering franchise opportunities in Delaware without filing anything with the state — no registration, no notice filing, no exemption application.

That lowers the entry cost for franchisors. For franchisees it means something less comfortable: no state regulator is reviewing the FDD before it reaches you. The FTC does not pre-review FDDs either; its enforcement is after the fact. Scrutiny of the document falls on you and, if at all possible, a franchise attorney before you sign.

Termination and Non-Renewal Protections

If you do fall within the statute’s scope as a franchised distributor, the protections are meaningful. A franchisor cannot unjustly terminate a franchise or unjustly refuse to renew one, and a termination or non-renewal is “unjust” if it lacks good cause or is done in bad faith.¹ “Good cause” isn’t defined in the statute, so courts decide it on the facts of each case.

Any contract provision that would permit an unjust termination or unjust non-renewal is void as against Delaware public policy. The rest of the framework fills in the practical details:

Termination or non-renewal requires at least 90 days’ advance notice, no matter what the agreement says.⁴
If a termination clause doesn’t specify grounds, courts read it as allowing only just termination.
A franchisor cannot unjustly refuse to deal with a franchised distributor it has worked with for at least two years.
If the franchisor is also the distributor’s landlord, the rent cannot be unreasonable or excessive relative to the franchisor’s interest in the property. Refusing to renew the lease except at an unreasonable rent counts as unjust termination of the franchise itself.¹

What You Can Recover

When a franchisor unjustly terminates or refuses to renew — or even threatens to — the distributor can sue in the Delaware Court of Chancery for damages and an injunction. The court can order the franchisor to stop a termination or, in a non-renewal case, to renew the franchise.¹

Damages include a proportional share of the distributor’s tangible assets in Delaware tied to the terminated franchise: sales outlets, offices, warehouses, trucks, equipment, furnishings. The proportion is set by the ratio of gross sales attributable to the terminated franchise against total in-state gross sales for the most recently completed fiscal year.

Interim relief matters here. While the case is pending, Chancery can issue a preliminary injunction extending the franchise, requiring the franchisor to keep supplying products, keep licensing its trademarks, and otherwise maintain the relationship on its prior terms. For a distributor built around a single brand, that interim order can be what keeps the doors open.

Where a franchisor unjustly refuses to deal with a distributor of at least two years’ standing, the distributor can recover the standard damages plus lost profits.¹

The Delaware Franchise Tax Is a Different Animal

The “Delaware franchise tax” is not about franchise businesses at all. It is an annual tax on the privilege of being a Delaware entity, owed by every corporation incorporated in Delaware and every LLC, LP, or GP formed or registered there, regardless of where the business actually operates.

Corporations

Every domestic corporation must file an annual report and pay the franchise tax by March 1. There are two calculation methods, and you can use whichever produces the lower tax:⁵

Authorized Shares Method: $175 minimum for 5,000 shares or fewer, $250 for 5,001 to 10,000 shares, and $85 for each additional 10,000 shares or portion. This method generally produces the lower tax for no-par-value stock.
Assumed Par Value Capital Method: $400 per million dollars of assumed par value capital, based on total gross assets and issued shares, with a $400 minimum.

The cap is $200,000 for most corporations and $250,000 for large corporate filers. If you owe $5,000 or more, you pay in quarterly installments: 40% by June 1, 20% by September 1, 20% by December 1, and the balance by March 1.⁶ Foreign corporations registered in Delaware file their annual report by June 30, with a $125 penalty for late filing.⁷

LLCs, LPs, and GPs

All LLCs, limited partnerships, and general partnerships formed or registered in Delaware owe a flat $300 annual tax, due June 1. There is no annual report requirement. Miss the deadline and you owe a $200 penalty plus 1.5% monthly interest on the unpaid balance.⁸

If You Don’t Pay

A domestic corporation that misses March 1 owes a $200 penalty plus 1.5% monthly interest on the combined tax and penalty.⁶ A delinquent entity can lose good standing, which can block financing, interfere with transactions in other states, and prevent certain filings. Reinstatement means paying all back taxes, penalties, and interest.

Contract Terms to Read Carefully Before Signing

Two provisions in a Delaware franchise agreement deserve particular attention, because they operate independently of the state statute and will likely be enforced.

Non-competes. Most franchise agreements restrict competing activity during the relationship and for one to two years after it ends, usually within a defined radius. As of 2026 there is no federal ban; the FTC’s 2024 attempt at a nationwide prohibition was struck down in court and the agency formally abandoned its appeal in September 2025. Enforcement is case by case under Section 5 of the FTC Act, with the agency focused on broad or employee-targeted agreements. Delaware courts generally enforce reasonable non-competes, so treat the one in your agreement as real.

Arbitration and fee-shifting. Many franchise agreements send disputes to binding arbitration rather than court. Arbitration can be faster and more private, but it typically limits your right to appeal and may require you to travel to the franchisor’s home city. Class action waivers are common. The U.S. default rule is that each side pays its own legal fees; a franchise agreement can override that with a fee-shifting provision, which may be one-sided in the franchisor’s favor or reciprocal. Item 17 of the FDD is where you’ll find both.

Franchise agreements also commonly include a right of first refusal that lets the franchisor match any third-party offer to buy your business. If yours does, read the notice window and response period closely; both affect what you can realistically get when you sell.

1
Delaware Code Online. Delaware Code Title 6 Chapter 25 Subchapter V – Security for Franchised Distributors
2
eCFR. 16 CFR 436.2 – Obligation to Furnish Documents
3
eCFR. 16 CFR 436.5 – Disclosure Items
4
Justia Law. Delaware Code Title 6 Section 2555 – Notice Required to Terminate or Elect Not to Renew a Franchise
5
State of Delaware – Division of Corporations. How to Calculate Franchise Taxes
6
State of Delaware – Division of Corporations. Annual Report and Tax Information
7
State of Delaware – Division of Corporations. Annual Report and Tax Instructions
8
State of Delaware – Division of Corporations. LLC/LP/GP Franchise Tax Instructions