Delaware's corporate annual franchise tax bill is due by March 1. There are two method to calculate annual taxes for a Delaware corporation:
Authorized Shares Method
Delaware's authorities calculate and issue franchise tax invoices based on the number of shares a startup corporation has authorized. This method is titled as the “Authorized Shares Method”:
$75 for 1-5,000 shares;
$150 for 5,001 – 10,000 shares; or
$150 PLUS $75 for each additional 10,000 shares above 10,000 shares.
Accordingly, if a start-up authorized 1,000,000 shares, the start-up’s Delaware tax invoice will be $7,575. Luckily, there is an alternative method to calculate a start-up’s Delaware franchise taxes – one that is very likely to produce a much lower tax invoice.
Assumed Par Value Capital Method
Instead of using the Authorized Shares Method, a Delaware start-up can choose to have its annual franchise taxes calculated using the “Assumed Par Value Capital Method.” In this method, a startup’s Delaware franchise tax bill is calculated based on all issued shares, authorized shares, and total gross assets in the following manner:
1. Divide Total Gross Assets by Total Issued Shares (“Assumed Par Value”)
2. Multiply Assumed Par Value by Total Authorized Shares (“Assumed Par Value Capital”)
3. The franchise tax is calculated at $350 per every $1,000,000 or portion thereof of Assumed Par Value Capital.
Below is an example of a calculation of a start-up with total gross assets of $100,000, 500,000 issued shares and 1,000,000 authorized shares:
1. $100,000/500,000 shares = $0.2 Assumed Par Value
2. $0.2 * 1,000,000 shares = $200,000 Assumed Par Value Capital
3. $350 * ($200,000/$1,000,000) = $70.00 Franchise Tax
A start-up will clearly benefit by using the Assumed Par Value Capital Method when calculating its Delaware Franchise Taxes.
Below are links to:
Delaware Tax Calculator; and
FAQ regarding Delaware Taxes.