How to Calculate and File Your Delaware Franchise Tax: A Step-by-Step Guide

If you’ve incorporated your business in Delaware, knowing how the Delaware franchise tax calculation works is a must. It’s a yearly filing requirement that every founder needs to handle accurately to avoid unnecessary costs.

In this guide, we’ll walk you through both calculation methods, show you how to run the numbers, and help you choose the one that makes the most financial sense for your company.

How to Calculate Your Delaware Franchise Tax

Delaware allows corporations to choose between two methods for calculating franchise tax: the Authorized Shares Method and the Assumed Par Value Capital Method. The right choice depends on your company’s share structure and financials. Below, we’ll explain both with simple examples.

1. Authorized Shares Method

This method calculates franchise tax based on the total number of shares your company is legally allowed to issue, regardless of how many have been issued or how much revenue your business earns.

How the Authorized Shares Method Works

Under this method, the first 5,000 authorized shares are taxed at $175.For every additional 10,000 shares, you add $75.The maximum franchise tax you can be charged is $200,000 per year.

Example: If your company has 20,000 authorized shares, the tax would be calculated like this. The first 5,000 shares are taxed at $175. The remaining 15,000 shares add up to $150, calculated in blocks of 10,000 shares at $75 each. So, your total Delaware franchise tax would be $325.

2. Assumed Par Value Capital Method

This method calculates franchise tax based on your corporation’s total gross assets and the number of issued shares, rather than the total number of authorized shares. It is often more favorable for companies that have authorized a large number of shares but have relatively modest assets.

How the Assumed Par Value Capital Method Works

Step 1

Start by calculating your company’s total gross assets. Use your year-end balance sheet and include all assets owned by your company, even if they are located outside the United States or held by subsidiaries.

Step 2

Divide the total gross assets by the number of issued shares. This gives you the assumed par value per share. Then multiply this result by the total number of authorized shares to determine your company’s assumed capital.

Step 3

Now, calculate the franchise tax. The state charges four hundred dollars for every one million dollars of assumed capital. If the result is under the minimum threshold, the tax will still be three hundred fifty dollars. 

Example: If your company has two million dollars in assets and ten thousand issued shares, the assumed par value per share would be two hundred dollars. With twenty thousand authorized shares, your assumed capital would be four million dollars. That means your total Delaware franchise tax would be one thousand six hundred dollars.

How to Choose the Right Calculation Method for Your Corporation?

Choosing the right method for calculating your Delaware franchise tax can help your company save money and stay compliant. Here’s how to figure out which one fits your business better.

When to Use the Authorized Shares Method

This method works best if your company has only a small number of authorized shares. It’s simple to calculate and usually cost-effective for early-stage startups with a basic share structure. If your business is not holding many shares in reserve, this could be a better choice.

When to Use the Assumed Par Value Capital Method

This method is a good option if your company has authorized a large number of shares but hasn’t issued most of them yet. It often results in lower taxes for companies with high share authorizations and limited total assets. It’s also useful for businesses that expect to raise funds in the future but haven’t done so yet.

What You Need to Compare Both Methods

Before you decide, gather the following information:

• Total number of authorized shares
• Total number of issued shares
• Gross assets from your latest balance sheet

With these numbers, you can calculate your tax using both methods and then pick the one that results in the lowest payment.

How to File Your Delaware Franchise Tax

Filing your Delaware franchise tax is a simple online process. Once you’ve calculated the amount using your preferred method, you can complete the filing through the Delaware Division of Corporations website.

To get started, visit the official filing portal and enter your Delaware file number. You’ll then be asked to provide basic company details such as:

• The number of authorized shares
• The number of issued shares
• Gross assets value (only if using the Assumed Par Value Capital Method)

After filling in the required information, choose the calculation method that gives you the most favorable tax outcome. The system will then display the tax due based on your inputs.

Review all your details carefully, then proceed to the payment section. You can pay the tax using a U.S.-based credit card, debit card, or other accepted methods listed on the portal.

Once payment is made, you’ll receive a confirmation that your Delaware franchise tax has been successfully filed. Keep a copy of this confirmation for your records.

How LedgersCFO Helps You Handle Delaware Franchise Tax

At LedgersCFO, we assist founders and business owners in managing their U.S.-based corporate compliance, especially when it comes to Delaware franchise tax. Our team makes the entire process smoother by handling everything from calculations to filings.

We help you:

• Choose the most suitable tax calculation method
• Gather the necessary financial and shareholding information.
• Accurately complete and submit your franchise tax report.
• Stay compliant with Delaware requirements year after year

Whether you’re just starting or managing an established corporation, we provide expert guidance and hands-on support. Let LedgersCFO take the complexity out of franchise tax so you can focus on growing your business.

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FAQ’S

1. What is the Delaware franchise tax?

The Delaware franchise tax is an annual fee that corporations incorporated in Delaware must pay to the state. It is not based on company revenue or profits but rather on share structure or the company’s asset value, depending on the chosen calculation method.

2. What are the two methods to calculate franchise tax?

Corporations can choose between:

1. Authorized Shares Method, which is based on the total number of authorized shares.
2. Assumed Par Value Capital Method, which is based on gross assets and issued shares.

3. Can I change my calculation method each year?

Yes. Delaware allows you to choose the more favorable method each year when filing your franchise tax. It’s wise to review both options annually to see which one results in a lower tax.

4. How do I file my Delaware franchise tax?

You can file your franchise tax online through the Delaware Division of Corporations website. You’ll need your file number, share information, and asset details (if using the Assumed Par Value method).

5. How can LedgersCFO assist with Delaware franchise tax calculation and filing?

LedgersCFO handles the full process of calculating and filing Delaware franchise tax for startups and corporations. From identifying the most cost-effective method to preparing the required details and submitting the report, our team ensures everything is done accurately.