This foundational document is filed with the state to legally form the corporation. It often includes details about the classes of stock the corporation is authorized to issue, including the par value of each class. For VC-backed startups, it will specifically mention the par value of preferred shares. Any changes to these details typically require an amendment to the Certificate of Incorporation. Whenever a company issues stock, whether it is a corporation, LLC, LP, LLP, or statutory trust, the Authorized Shares Method applies.

Filing and Payment Requirements

Unlike traditional income taxes, this annual fee applies to all Delaware corporations regardless of their operational status or profitability. Delaware maintains its position as the corporate capital of America, hosting more than 1.8 million business entities, including 68% of Fortune 500 companies. If you’re one of them, you need to know tax obligations specific to Delaware corporations. Most startups use the Assumed Par Value Capital Method to calculate their franchise tax bill. This method almost always results in a lower tax for our customers because startups generally have few assets but authorize millions of shares.

Calculating the Delaware Franchise Tax

The content contained herein is intended to be general in nature and may not apply to every individual or entity. While we strive to provide accurate and up-to-date information, we cannot guarantee its accuracy at the time of receipt or in the future. Before taking action based on this information, it is recommended to seek professional advice and carefully evaluate your specific circumstances. Any credits your business applies, such as taxes paid in other states or certain investments made within Delaware, may also impact your final franchise tax bill. Delaware charges $400 for each $1,000,000 or fraction thereof of Assumed Par Value Capital.

Delaware legislators introduce bipartisan corporate law changes in an effort to persuade companies to remain incorporated in the First State. You should file an 83(b) election when you are issued shares with vesting (which is the standard). Need personalized guidance on navigating the Delaware Franchise Tax 2025? Let our team of experienced professionals help you stay compliant and optimize your tax strategy.

• Interests in entities that are consolidated with the Delaware reporting company must be included in “total gross assets” at a value determined in accordance with GAAP.
• The tax originated in 1899 as part of Delaware's general incorporation law, designed to generate state revenue from the growing number of corporations choosing Delaware as their legal home.
• Limited Liability Companies (LLCs), Limited Partnerships (LPs), and General Partnerships face a June 1st deadline for their annual payments.
• Before taking action based on this information, it is recommended to seek professional advice and carefully evaluate your specific circumstances.
• It’s calculated based on the number of authorized shares of stock a company has, with a minimum tax of $175 per year.
• Each time the startup issues shares, you need to consider (or ask your attorney to consider) conducting a state securities analysis.

Key Considerations of Franchise Taxes

The fallout came after Chancellor Kathaleen St. J. McCormick blocked what would be the largest CEO compensation deal in U.S. history — a pay package worth $56 billion. The Board Consent in Lieu of First Meeting is the first document that gets the business of the startup going. These resources will help you propel your business growth while staying on top of cutting-edge trends. Accracy is not a public accounting firm and does not provide services that would require a license to practice public accountancy. We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services. Our team has worked in the industry for years, and we’re here to share what we have learnt with you.

• When he’s not writing, James enjoys spending time with his family and playing golf.
• To determine this, we divide XYZ Growth Corp's total gross assets ($5,000,000) by their total number of issued shares (50,000).
• The DE franchise taxes and annual reports are due no later than March 1st of each year.
• If you have moved your business out of state, or if your business has been dissolved, you may be eligible for a refund of the tax that you have already paid.
• But in recent years, there have been a series of court decisions that have left some companies uneasy about the predictability of Delaware's corporate law, which Sen. Townsend says has led to a "growing drum beat of problems."
• If that hearing is anything like the debates over comparatively more modest changes to corporate law from last year, then lawyers, law professors and retired judges may be headed back to Dover to testify.

If a corporation does not pay the Franchise Tax on time or in full, there are a variety of consequences that may result. They pay a flat annual tax of $300, regardless of their revenue or assets. The franchise tax is levied to generate revenue for the state and ensure that businesses contribute to the maintenance of Delaware's business-friendly infrastructure and legal system.

Cleer Tax provides flat-rate accounting services for U.S. startups, often with foreign ownership, and growing businesses, to do it right from the start. Our all-inclusive accounting packages provide tax preparation, and bookkeeping to fit any budget and growth stage. Our tech-forward, streamlined process provides the Cleer path to success for your startup. If you incorporated in Delaware, yes, you need to file and pay the Delaware Franchise Tax. Most VC backed startups are Delaware C-Corps, which means that most VC-backed startups DO need to file.

How to Manage Late Filings and Penalties?

Where there’s revenue, there are taxes—and understanding how to manage your taxes as a content creator is crucial to maintaining your livelihood and avoiding potential legal issues. In this comprehensive guide, we'll walk you through the essentials of taxes how do i compute the delaware franchise tax for content creators, how to file them, and other tips to make your life easier. The IRS can collect unpaid taxes through levies, liens, and offsetting tax refunds, unless you negotiate a payment plan. Let’s also imagine it has authorized and issued 100,000 shares at a par value of $2.00 each, and 100,000 shares at par value of $10.00 each. Let’s also assume the number of shares issued and authorized is the same for simplicity’s sake. For more help with tax and compliance matters, see How can my corporation get help complying with Delaware’s requirements?.

This tax applies to all corporations, Limited Liability Companies (LLCs), and Limited Partnerships (LPs), regardless of whether they conduct business within the state or generate any revenue. It is a separate and distinct tax from Delaware's corporate income tax, which is based on profits earned. Missing the tax deadline (March 1st for corporations, June 1st for LLCs) incurs a $200 late fee and monthly interest, which can quickly add up over time.

Par Value Capital Method

The Authorized Shares Method often works best for corporations with fewer shares and higher asset values. The Assumed Par Value Capital Method typically benefits corporations with many authorized shares but lower asset values. Regular comparison of both methods using your current corporate structure and financials helps determine the most advantageous approach.

The tax rate varies depending on the value of the franchise, but it is generally lower than the corporate income tax rate. Next, add your total issued shares, your total Gross Assets, and click Recalculate Tax. This will recalculate based on the Par Value Capital method - so check this is lower than the Authorized shares method you worked out previously. If not remove the gross assets and go back to the original tax number using recalculate.

Thus, it is generally advisable to avoid no par value stock and to assign a very low par value to shares if possible. This tax is imposed on businesses operating in the state, and there are a few things that you need to know about it. In this blog post, we will discuss what the Delaware franchise tax is, how to pay it, and some of the exemptions that may apply to your business. But in recent years, there have been a series of court decisions that have left some companies uneasy about the predictability of Delaware's corporate law, which Sen. Townsend says has led to a "growing drum beat of problems."