Franchise Tax in Delaware: Complete Guide 2026
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Franchise Tax in Delaware: Complete Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
Delaware is the incorporation capital of the United States, with more than ~1.8 million business entities registered in the state. Every corporation incorporated in Delaware must pay an annual franchise tax to maintain its good standing, regardless of whether it conducts business in the state. Delaware’s franchise tax is not based on income or revenue — it is based on either the number of authorized shares or the assumed par value of the corporation’s stock. Understanding which calculation method to use can mean the difference between owing a few hundred dollars and owing hundreds of thousands of dollars.
Delaware Franchise Tax Rates (2026)
Authorized Shares Method
| Authorized Shares | Annual Tax |
|---|---|
| Up to ~5,000 shares | ~$175 |
| ~5,001 — ~10,000 shares | ~$250 |
| Each additional ~10,000 shares (or fraction) | ~$85 |
| Maximum tax | ~$200,000 |
Assumed Par Value Capital Method
| Component | Calculation |
|---|---|
| Assumed par value per share | Total gross assets / total issued shares |
| Tax rate | ~$400 per ~$1,000,000 of assumed par value capital |
| Minimum tax | ~$400 |
| Maximum tax | ~$200,000 |
Other Entity Types
| Entity Type | Annual Tax/Fee |
|---|---|
| LLC (domestic) | ~$300 annual tax |
| LP (limited partnership) | ~$300 annual tax |
| GP (general partnership) | No franchise tax |
How Delaware Franchise Tax Works
Two Calculation Methods for Corporations
Delaware corporations can use either the Authorized Shares Method or the Assumed Par Value Capital Method to calculate their franchise tax. The state’s online calculator defaults to the Authorized Shares Method, which often produces a much higher tax than the Assumed Par Value Capital Method.
Authorized Shares Method: This is the simpler calculation. Tax is based solely on the number of shares the corporation is authorized to issue in its certificate of incorporation. Companies that authorized millions of shares (common for startups) can face tax bills in the tens or hundreds of thousands of dollars under this method.
Assumed Par Value Capital Method: This method uses a formula that considers the corporation’s total gross assets (as reported on federal Form 1120) divided by the total number of issued shares to determine an assumed par value. The tax is then calculated at ~$400 per ~$1,000,000 of assumed par value capital (authorized shares multiplied by assumed par value).
For most companies, especially startups with large numbers of authorized shares but relatively modest assets, the Assumed Par Value Capital Method produces a dramatically lower tax.
LLCs and Partnerships
Delaware LLCs and limited partnerships pay a flat annual tax of ~$300, regardless of size, revenue, or assets. This simplicity is one reason Delaware remains popular for LLC formation.
Filing Deadlines and Payment
| Entity Type | Due Date | Where to File |
|---|---|---|
| Corporations | March 1 | Delaware Division of Corporations |
| LLCs | June 1 | Delaware Division of Corporations |
| LPs | June 1 | Delaware Division of Corporations |
Late payments incur a penalty of ~$200 plus ~1.50% monthly interest on the unpaid balance. Failure to file can result in the entity being voided or having its certificate of incorporation cancelled.
Annual Report Requirement
Corporations must file an Annual Report alongside their franchise tax payment. The report includes basic information about the company’s officers, directors, and registered agent. LLCs file a simpler Annual Tax form.
Why Companies Incorporate in Delaware
Despite the franchise tax, Delaware remains the preferred state of incorporation for several reasons:
- Court of Chancery: A specialized business court with judges (not juries) who are experts in corporate law
- Well-developed case law: Decades of precedent provide predictability for corporate governance disputes
- Flexible corporate statutes: The Delaware General Corporation Law (DGCL) is highly flexible and regularly updated
- Privacy: Officers and directors are listed in the annual report, but shareholder information is not public
- No requirement to operate there: Companies can incorporate in Delaware without having offices, employees, or revenue in the state
Comparison to Other States
| State | Franchise Tax Basis | Minimum Tax | Maximum Tax |
|---|---|---|---|
| Delaware | Authorized shares or assumed par value | ~$175 (corp) / ~$300 (LLC) | ~$200,000 |
| Texas | Revenue margin | $0 (below threshold) | No cap |
| California | Net income (min ~$800) | ~$800 | No cap |
| Nevada | No franchise tax | ~$200 (business license fee) | ~$11,100 |
| New York | Net income or capital | ~$25 | ~$200,000 |
Tips for Minimizing Delaware Franchise Tax
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Use the Assumed Par Value Capital Method. For most corporations, this method produces a significantly lower tax than the Authorized Shares Method. You must report gross assets to use it.
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Optimize authorized shares. If you have not yet issued many shares, consider whether reducing authorized shares in your certificate of incorporation would lower your tax under the Authorized Shares Method.
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Report gross assets accurately. The Assumed Par Value Capital Method depends on gross assets from your federal return. Ensure this figure is accurate and up to date.
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File by the deadline. The ~$200 penalty plus ~1.50% monthly interest adds up quickly. Mark March 1 (corporations) or June 1 (LLCs/LPs) on your calendar.
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Consider an LLC if appropriate. The flat ~$300 annual tax for LLCs is dramatically simpler and cheaper than the corporate franchise tax for many businesses.
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Review your structure annually. As your company grows and authorizes more shares or raises capital, recalculate both methods to determine which is more favorable.
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Maintain good standing. Failure to pay franchise tax can lead to cancellation of your certificate of incorporation, which complicates future fundraising and operations.
Key Takeaways
- Every Delaware corporation must pay an annual franchise tax, due March 1, regardless of whether it operates in the state.
- Two calculation methods exist: Authorized Shares and Assumed Par Value Capital. The Assumed Par Value Capital Method is usually cheaper.
- LLCs and LPs pay a flat ~$300 annual tax, due June 1.
- The maximum franchise tax for corporations is ~$200,000.
- Late payment penalties are ~$200 plus ~1.50% monthly interest.
- Delaware’s business-friendly courts and laws justify the franchise tax for many companies.
Next Steps
- Federal Income Tax Guide 2026 — Federal corporate tax obligations alongside Delaware franchise tax.
- State Income Tax Rates Comparison 2026 — Compare Delaware’s overall business tax environment.
- Self-Employment Tax Guide — How pass-through entities interact with franchise tax.
- Tax Bracket Calculator — Estimate your total business tax burden.
- Find a CPA Near You — Get help calculating your Delaware franchise tax.