Every corporation formed in Delaware owes an annual franchise tax, whether or not it does business in the state, and the Delaware franchise tax runs from a $175 minimum to $200,000 depending on how the tax is calculated. Payment and the Annual Report are due March 1 each year, filed online through the Division of Corporations.1State of Delaware. Annual Report and Tax Information – Division of Corporations The single most important thing to know before you pay: Delaware offers two calculation methods, and the one the state’s portal shows first is often many times higher than what you actually owe.
Who Has to Pay
Any corporation whose certificate of incorporation was filed in Delaware owes the tax every year, even with no employees, no office, and no customers in the state. It is the price of maintaining the entity under Delaware law, not a tax on income or activity.1State of Delaware. Annual Report and Tax Information – Division of Corporations
Certain nonprofits and similar entities that qualify as exempt under Delaware law still file the Annual Report but owe no tax; their filing fee is $25 instead of the $50 that non-exempt corporations pay.2State of Delaware. Annual Report and Tax Instructions
Delaware LLCs, limited partnerships, and general partnerships are a different animal. They owe a flat $300 annual tax, file no Annual Report, and pay by June 1 instead of March 1.3State of Delaware. LLC/LP/GP Franchise Tax Instructions Everything that follows is about corporations.
When It’s Due
The Annual Report and franchise tax are due online by March 1 each year, covering the prior calendar year. There is no automatic extension, and penalties start the day after the deadline.2State of Delaware. Annual Report and Tax Instructions
Quarterly Estimates for Bills of $5,000 or More
Corporations that owe $5,000 or more in franchise tax cannot wait for March 1. They must prepay on this schedule:1State of Delaware. Annual Report and Tax Information – Division of Corporations
- June 1: 40% of the estimated annual tax
- September 1: 20%
- December 1: 20%
- March 1: the remaining 20%, with the Annual Report
Missing an installment triggers the same 1.5% monthly interest that applies to any unpaid balance. If your bill sits close to the $5,000 line, estimating a little high and taking the credit against your March 1 payment costs less than underpaying and owing interest.
The Two Ways to Calculate the Tax
Delaware law gives you two formulas and lets you pay the lower result.4Justia Law. Delaware Code Title 8 – Section 503 Rates and Computation of Franchise Tax The state’s online portal runs the Authorized Shares Method by default when you first log in. That is where sticker shock hits, and that is why so many corporations pay far more than they need to.
Authorized Shares Method
This method looks only at how many shares the certificate of incorporation authorizes, ignoring what’s issued and what the company owns.4Justia Law. Delaware Code Title 8 – Section 503 Rates and Computation of Franchise Tax
- 5,000 or fewer authorized shares: $175
- 5,001 to 10,000 authorized shares: $250
- Each additional 10,000 shares (or any fraction thereof): add $85
The maximum under this method is $200,000.1State of Delaware. Annual Report and Tax Information – Division of Corporations A corporation authorized to issue 10 million shares owes roughly $85,175 here. Startups that authorize large share pools for options and future rounds routinely see five- and six-figure numbers under this default calculation.
Assumed Par Value Capital Method
The second method factors in the corporation’s actual assets and issued shares. For companies with lots of authorized shares but modest assets, it typically produces a tax thousands of dollars lower.
The calculation runs in four steps:
- Step 1: Divide total gross assets (from Form 1120, Schedule L) by the total issued shares across all classes. That gives the assumed par value per share.5State of Delaware. How to Calculate Franchise Taxes
- Step 2: If the assumed par value is lower than the actual par value of any class of stock, use the actual par value for that class.
- Step 3: Multiply the assumed par value (or actual par value where it applies) by the authorized shares in each class to get the assumed par value capital.
- Step 4: Apply the rate schedule. $175 for assumed par value capital up to $500,000; $250 if it’s above $500,000 but not more than $1,000,000; then $85 for each additional $1,000,000 or fraction thereof.4Justia Law. Delaware Code Title 8 – Section 503 Rates and Computation of Franchise Tax
The minimum under this method is $400. The maximum is $200,000. If you enter zero gross assets, the portal can’t run the calculation and falls back to the Authorized Shares Method.
A Worked Example
Take a corporation with $1,000,000 in total gross assets, 485,000 issued shares, and 10,000,000 authorized shares. Divide $1,000,000 by 485,000 for an assumed par value of about $2.06. Multiply by 10,000,000 authorized shares and the assumed par value capital comes to roughly $20.6 million, which puts the tax under $2,000. The same corporation under the Authorized Shares Method would owe more than $85,000.
For small corporations with 5,000 or fewer authorized shares, the Authorized Shares Method already produces the $175 minimum, so there’s no reason to run the second calculation. Everyone else should. The portal will do the math when you supply asset and share data, but check the numbers you enter, especially if you have multiple share classes with different par values.
The Large Corporate Filer Cap
One boundary worth flagging for public companies: a corporation qualifies as a Large Corporate Filer if its stock is listed on a national securities exchange and its most recent SEC annual report shows consolidated gross revenues or consolidated assets of at least $750 million, with neither figure below $250 million. For those corporations, the cap is $250,000 rather than $200,000. The Secretary of State compiles the qualifying list each December, and the higher cap applies automatically.6State of Delaware. Large Corporate Filer (Tier Two)
What You Need Before You File
Have these ready when you open the portal:
- Delaware Business Entity File Number, the seven-digit number assigned at formation. The Division of Corporations’ free entity search will pull it up by company name.
- Authorized shares and par value for each class, as stated in the certificate of incorporation.
- Issued shares across all classes, needed for the Assumed Par Value Capital Method.
- Total gross assets from U.S. Form 1120, Schedule L, for the fiscal year ending in the calendar year the report covers.5State of Delaware. How to Calculate Franchise Taxes
- Every current director’s name and business address.
- At least one officer’s name and title to certify the report.
- The corporation’s principal business address.
The gross assets figure is where most people get stuck. If the federal return for the relevant year isn’t filed yet, use the best available estimate and amend the report later if the final number moves materially.
Filing and Paying Online
Everything goes through the Delaware Division of Corporations portal. Log in with your file number, review and update directors, address, and share data, and the system will calculate the tax and add the $50 filing fee ($25 for exempt corporations).2State of Delaware. Annual Report and Tax Instructions Payment is accepted by credit card or ACH. Most filings process instantly, a confirmation number is generated, and a filed copy of the Annual Report is emailed to the address on file.
If you spot an error after filing, submit an amended Annual Report through the same portal. The filing fee is the same as the original, and if the corrected information changes the tax, the amendment adjusts the balance or generates a credit.2State of Delaware. Annual Report and Tax Instructions
What Happens If You Miss the Deadline
Miss March 1 and the state adds a flat $200 penalty to the outstanding balance.2State of Delaware. Annual Report and Tax Instructions Interest then accrues at 1.5% per month on the combined unpaid tax and penalty, not just the tax. On a $10,000 tax bill, that’s about $153 in interest every month.
The dollar cost is not the worst of it. The Secretary of State will not issue a Certificate of Good Standing for a corporation with an outstanding balance, which can block financing, acquisitions, and qualification to do business in other states. If the tax stays unpaid for three months, the Attorney General can seek a court injunction barring the corporation from conducting any business in Delaware.
Charter Voidance After a Year
A corporation that fails to pay the tax or file a complete Annual Report for one full year has its charter voided. At that point the corporation legally ceases to exist under Delaware law: no contracts, no lawsuits, no business of any kind.7Justia Law. Delaware Code Title 8 – Section 510 Failure to Pay Tax or File a Complete Annual Report for 1 Year Charter Void Extension of Time The Secretary of State can grant more time for good cause, but that grace isn’t something to plan around.
Reviving a void charter under 8 Del. C. Section 312 requires paying every year of back franchise taxes, penalties, and interest, plus the revival filing fee. The longer the charter is void, the higher the cleanup bill. Treat March 1 as fixed, even in years when the company is dormant. If the corporation is truly finished, formally dissolving it is what stops the franchise tax clock; letting the charter lapse does not.