Delaware Franchise Tax Calculation Methods: Authorized Shares or Par Value

Delaware gives every stock corporation two ways to calculate its annual franchise tax, and you pay whichever one comes out lower. The two Delaware franchise tax calculation methods are the authorized shares method, a flat schedule based on how many shares your charter allows, and the assumed par value capital method, a formula that factors in your issued shares and total gross assets. For a company with a small share count, the first method is usually cheaper and takes about a minute. For a startup with millions of authorized shares and modest assets, the second method can cut the bill from tens of thousands of dollars to a few hundred.¹

The Authorized Shares Method

This one looks only at the number of shares your certificate of incorporation authorizes. Your assets, revenue, and the actual value of the shares do not enter the calculation. The brackets are:¹

5,000 shares or fewer: $175 (the minimum tax)
5,001 to 10,000 shares: $250
Each additional 10,000 shares, or any portion thereof: add $85

The “or any portion” wording matters. A corporation authorized to issue 10,001 shares pays the same as one authorized for 20,000; both owe $335. The ceiling under this method is $200,000.²

This method is friendly to corporations with small authorized share counts. It is punishing to companies that authorized millions of shares at incorporation to leave room for future funding rounds. A corporation with 10 million authorized shares owes roughly $85,000 under this method alone.

The Assumed Par Value Capital Method

The second method ties the tax to a combination of authorized shares, issued shares, and total gross assets. The rate is $400 for every $1,000,000 (or fraction thereof) of assumed par value capital, with a $400 minimum.¹ The calculation runs in five steps:

Step 1. Find the assumed par. Divide your total gross assets by the total number of issued shares (treasury shares included). Carry the result to six decimal places.
Step 2. Apply the assumed par to lower-par shares. Multiply the assumed par by the number of authorized shares in any class whose par value is lower than the assumed par.
Step 3. Use actual par for higher-par shares. For any class of authorized shares whose par value is higher than the assumed par, multiply those shares by their actual par value instead.
Step 4. Add the results from steps 2 and 3. That sum is your assumed par value capital.
Step 5. Calculate the tax. If the assumed par value capital is under $1,000,000, divide by $1,000,000 and multiply by $400. If it exceeds $1,000,000, round up to the next whole million, divide by $1,000,000, and multiply by $400.

Step 3 is where filers trip. When a class of stock has a par value higher than the assumed par you calculated in step 1, Delaware’s instructions require you to use that actual par value, not the assumed par, for those shares.¹ Skipping the comparison can swing the tax either way.

Where Total Gross Assets Come From

Total gross assets must match the “total assets” line from your U.S. Form 1120, Schedule L, for the fiscal year ending in the calendar year before you file.³ They are reported without any deduction for depreciation or amortization. If your corporation is part of a consolidated federal return, you file the consolidating balance sheets that reconcile your individual entity’s assets to the consolidated total.⁴

If All Your Stock Is No-Par

If your corporation has only no-par-value stock, there is no reason to run the assumed par value calculation. The Division of Corporations states directly that the authorized shares method will always produce the lesser tax in that situation.¹

Choosing Between the Two Methods

Delaware’s rule is simple: calculate both, pay the lower one.¹ This is not a binding election you lock in. You run the numbers each year and go with whichever is smaller.

The catch sits in the reporting form. To use the assumed par value capital method, you have to report all issued shares (treasury stock included) and total gross assets on your annual franchise tax report. Leave those fields blank and you default to the authorized shares method.²

That default is where a lot of money gets lost. A startup with 10 million authorized shares and $500,000 in total gross assets would owe roughly $85,000 under the authorized shares method. Under the assumed par value capital method, the same company might owe only $400. If the asset and issued-share fields on the report are left empty, the state bills the higher number and does not prompt you to reconsider.

Minimums, Maximums, and Large Corporate Filers

Whatever the math produces, the result lands inside a floor and a ceiling:²

Authorized shares method: $175 minimum, $200,000 maximum
Assumed par value capital method: $400 minimum, $200,000 maximum

Every non-exempt corporation also pays a $50 annual report filing fee on top of the franchise tax.⁵

A separate rule applies to the largest companies. Corporations classified as Large Corporate Filers pay a flat $250,000 instead of the standard $200,000 cap. To qualify, a corporation must have stock listed on a national securities exchange and meet both of the following financial tests:⁶

Consolidated annual gross revenues of at least $750 million, or consolidated assets of at least $750 million
Consolidated annual gross revenues of at least $250 million and consolidated assets of at least $250 million

The first test uses “or” and the second uses “and,” and both tests must be satisfied. The Secretary of State compiles the list each December and notifies qualifying corporations by letter.

What to Have Ready Before You Run the Numbers

You can calculate both methods with three documents in front of you: your certificate of incorporation (for total authorized shares and par value by class), your internal cap table or stock ledger (for issued shares, including treasury stock), and your IRS Form 1120, Schedule L (for total gross assets).¹ Consolidated filers also need the consolidating balance sheets that isolate the Delaware entity’s assets.⁴

Reports and payments are due by March 1 for the prior calendar year, and the filing is done online through the Division of Corporations’ system, which walks you through entering the authorized shares, issued shares, and total gross assets.⁵ Enter all three figures even if you think the authorized shares method will win. The small amount of extra work preserves your ability to pay the lower of the two amounts, which is the whole point of having two methods in the first place.

1
Delaware Division of Corporations. How to Calculate Franchise Taxes
2
Justia. Delaware Code Title 8 – Rates and Computation of Franchise Tax
3
Delaware Code Online. Delaware Code Title 8 – Corporations
4
Delaware Division of Corporations. Frequently Asked Tax Questions
5
Delaware Division of Corporations. Annual Report and Tax Instructions
6
Delaware Division of Corporations. Large Corporate Filer