# Delaware franchise tax, worked both ways

> Northwind's charter through both methods: $85,165 on authorized shares, $400 on assumed par value capital, and why the notice shows the first.

Source: https://lopifi.com/learn/delaware-franchise-tax-calculation
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How is Delaware franchise tax calculated, and why is my bill so high?** Northwind's charter through both methods: $85,165 on authorized shares, $400 on assumed par value capital, and why the notice shows the first.

Every Delaware corporation owes the [franchise tax](https://lopifi.com/md/glossary/delaware-franchise-tax) for the privilege of being one, whether or not it made money and wherever it operates. It's due with the annual report by March 1. There are two ways to compute it, and the company pays the lower, but only if it gives Delaware the figures the second method needs. Northwind's charter authorizes 10,000,000 shares at a par value of $0.00001, and the founders hold 8,000,000 of them. The two methods, the lower bill, and what to send Delaware to get it.

*[Figure: delaware franchise tax]*

Northwind's charter, run through both methods. Gross assets are September 30's, standing in for year end.

> “Taxes and Annual Reports are to be received no later than March 1st of each year.”

— [Delaware Division of Corporations — Annual Report and Tax Information](https://corp.delaware.gov/frtax/), Due date, the $50 annual report fee, minimum and maximum tax, the $200 penalty and 1.5% monthly interest

The [authorized shares method](https://lopifi.com/md/glossary/authorized-shares-method) counts the [authorized shares](https://lopifi.com/md/glossary/authorized-shares), the ceiling the charter sets, not what anyone holds: $175 up to 5,000 shares, $250 up to 10,000, then $85 for every further 10,000 or part. It's what Delaware's notice shows. The [assumed par value capital method](https://lopifi.com/md/glossary/assumed-par-value-capital-method) starts from the balance sheet instead, the total assets on Schedule L of [Form 1120](https://lopifi.com/md/glossary/form-1120), and taxes the result at $400 per $1,000,000 with a $400 minimum.

**Northwind — $450, not $85,215.** Authorized shares: $85,165. Assumed par value capital: $400. Northwind pays the lower, $400, plus the $50 annual report fee: $450 instead of $85,215. The $84,765 difference is what filing the issued shares and gross assets is worth. Nothing about the company changed; only the method did.

**Authorized shares**
- Pro: Needs nothing but the charter.
- Pro: Minimum $175.
- Con: Grows $85 for every 10,000 authorized shares, so a startup charter runs to five figures.
- Con: Counts shares nobody holds — the option pool's reserve included.
- Best for: A company that has authorized only a few thousand shares.

**Assumed par value capital**
- Pro: Runs off the balance sheet, so it tracks what the company actually has.
- Pro: Delaware applies it when the figures are filed.
- Con: Needs issued shares (treasury shares included) and gross assets from Schedule L.
- Con: Minimum $400, more than the authorized shares minimum.
- Best for: A startup with millions of authorized shares and modest gross assets.

The two methods, side by side.

> **The first year is prorated.** Northwind existed for part of 2026, from September 1, 2026. Delaware prorates the tax for the portion of the year a corporation was in existence (8 Del. C. §503(d)), so its first bill is a fraction of the full-year figures above. The figures here are a full year's, which is what 2027 will cost if nothing changes.

**Wrong:** Pay the $85,165 on the notice.

**Right:** File the annual report with issued shares (8,000,000) and gross assets. Delaware computes $400.

The notice shows the authorized shares method because that's all Delaware can compute without your balance sheet. It isn't a bill you have to accept.

> **When the tax gets big.** A company whose franchise tax reaches $5,000 pays it in installments during the year: 40% by June 1, 20% by September 1, 20% by December 1, and the rest with the report. The maximum is $200,000 on either method. Late reports cost $200, and unpaid tax carries 1.5% interest a month.

> **Delaware's notice is the authorized shares method. File issued shares and gross assets, and the assumed par value capital method usually brings a startup down to the minimum.**

In this lesson: the two methods worked line by line on Northwind's charter, and how the tax is accrued and paid in the books.

## Pages in this lesson

- [The two methods, worked line by line](https://lopifi.com/md/learn/delaware-franchise-tax-calculation/two-methods-worked) — 6 min. How do I calculate Delaware franchise tax with the assumed par value capital method?
- [Booking the franchise tax](https://lopifi.com/md/learn/delaware-franchise-tax-calculation/booking-the-franchise-tax) — 4 min. How do I record Delaware franchise tax in the books?

## Where this lesson's rules come from

- [Delaware Division of Corporations — Annual Report and Tax Information](https://corp.delaware.gov/frtax/) — Due date, the $50 annual report fee, minimum and maximum tax, the $200 penalty and 1.5% monthly interest (state)
- [Delaware Division of Corporations — How to Calculate Franchise Taxes](https://corp.delaware.gov/frtaxcalc/) — The authorized shares method and the assumed par value capital method, step by step (state)
- [8 Del. C. §§501–510](https://delcode.delaware.gov/title8/c005/index.html) — Delaware franchise tax — the annual report (§502), the rates (§503), proration (§503(d)), a void charter (§510) (state)
- [Wikipedia, “Franchise tax”](https://en.wikipedia.org/wiki/Franchise_tax) — A levy some US states charge businesses with a nexus in the state (reference)

## Read further

- https://lopifi.com/md/journal-entries/accrued-expenses
- https://lopifi.com/md/startups/startup-compliance-calendar
- https://lopifi.com/md/accounting/delaware-franchise-tax
- https://lopifi.com/md/docs/domain/04-schedules-and-accruals

- **Track:** [Compliance & tax](https://lopifi.com/md/learn/compliance)
- **Lesson:** Lesson 2 of 10 — 7 min
- **Terms taught:** [Delaware franchise tax](https://lopifi.com/md/glossary/delaware-franchise-tax), [Authorized shares method](https://lopifi.com/md/glossary/authorized-shares-method), [Assumed par value capital method](https://lopifi.com/md/glossary/assumed-par-value-capital-method), [Authorized shares](https://lopifi.com/md/glossary/authorized-shares), [Large corporate filer](https://lopifi.com/md/glossary/large-corporate-filer)
- **Previous:** [Keeping a Delaware corporation in good standing, Compliance · Lesson 1](https://lopifi.com/md/learn/keeping-a-delaware-corporation-in-good-standing)
- **Next:** [The two methods, worked line by line](https://lopifi.com/md/learn/delaware-franchise-tax-calculation/two-methods-worked)
- **The course:** https://lopifi.com/md/learn