The $85,165 Delaware Franchise Tax Notice Most Startups Don't Actually Owe

· RKube Services

Delaware franchise tax notice says $85,165? Compare the Authorized Shares and Assumed Par Value Capital methods with a worked startup example, the $400 minimum and the March 1 deadline.

Every year around December, founders with a Delaware C corporation get a notice from their registered agent, and some of them panic. The franchise tax shown can be tens of thousands of dollars for a company with a few hundred thousand in the bank. For a typical startup with 10,000,000 authorized shares, the figure is $85,165.

Most of those companies don't owe anything close to that. The notice is usually calculated with the Authorized Shares method, which is Delaware's default. There's a second method, the Assumed Par Value Capital method, and Delaware lets every corporation pay whichever is lower. For an early-stage company, the lower number is often the $400 minimum.

This guide walks through both methods with the numbers from a normal startup cap table, the inputs you need, and the March 1 deadline. It's written for founders running a Delaware C corporation, whether the office is in Wilmington, DE or anywhere else.

What every Delaware corporation owes by March 1

According to the Division of Corporations' franchise tax page, every corporation incorporated in Delaware has to file an Annual Report and pay franchise tax, and both must be received by March 1 each year. For the 2026 tax year, that's March 1, 2027.

  • Annual Report filing fee: $50 for a non-exempt domestic corporation ($25 for an exempt one, which pays no tax).
  • Minimum tax: $175 under the Authorized Shares method, $400 under the Assumed Par Value Capital method.
  • Maximum tax: $200,000 under either method, or $250,000 for a corporation identified as a Large Corporate Filer.
  • Late penalty: $200 for not filing a completed Annual Report by March 1, plus interest of 1.5% per month on unpaid tax.
  • Estimated payments: only for corporations owing $5,000 or more: 40% by June 1, 20% by September 1, 20% by December 1, and the rest by March 1.

Delaware requires the Annual Report to be filed online. Notices go to registered agents in December, which is why the scary number arrives right before the holidays.

LLCs are different. A Delaware LLC doesn't file an Annual Report or use either method. It pays a flat annual tax, which the Division now lists at $400, due June 1, with a $200 penalty for late payment. If you have a Delaware LLC rather than a corporation, this article's math doesn't apply to you.

Method 1: Authorized Shares

The Division explains both methods on its franchise tax calculation page. The Authorized Shares method looks only at how many shares your charter authorizes:

  • 5,000 shares or fewer: $175
  • 5,001 to 10,000 shares: $250
  • Each additional 10,000 shares or portion of 10,000: add $85
  • Maximum: $200,000

The Division's own examples: 10,005 authorized shares costs $335, and 100,000 authorized shares costs $1,015.

Now take a startup formed with 10,000,000 authorized shares, which is common because it leaves room for founder grants, an option pool and future rounds. The first 10,000 shares cost $250. The other 9,990,000 shares are 999 blocks of 10,000, at $85 each, or $84,915. Total: $85,165.

That's the number on the notice. Nothing about it reflects how much the company is worth or how much cash it has.

Method 2: Assumed Par Value Capital

This method uses three inputs, all of which you should already have:

  1. Total gross assets. Delaware defines these as the total assets reported on Schedule L of the company's federal Form 1120 for the fiscal year ending in the calendar year of the report. For the report due March 1, 2027, that's the 2026 year-end balance sheet.
  2. Issued shares, including treasury shares.
  3. Authorized shares and their par value, from your certificate of incorporation.

Then:

  1. Divide total gross assets by issued shares, to six decimal places. That's your "assumed par."
  2. For each class of authorized shares with a par value below the assumed par, multiply the assumed par by the number of authorized shares.
  3. For each class with a par value above the assumed par, multiply the authorized shares by their actual par value.
  4. Add those up. That's your assumed par value capital.
  5. Divide by $1,000,000, rounding up to the next million if it's over $1,000,000, and multiply by $400. If it's under $1,000,000, the result is a fraction of $400, but the minimum tax under this method is $400.

The Division's own example: a corporation with $1,000,000 of assets and 485,000 issued shares has an assumed par of $2.061856. With 1,000,000 shares at $1.00 par and 250,000 shares at $5.00 par, the assumed par value capital is $3,311,856, which rounds up to 4 million, for a tax of $1,600.

A worked example from a real-looking cap table

Here is the same 10,000,000-share DE C corporation from above. Say its certificate authorizes 10,000,000 shares of common stock at $0.00001 par. At the end of 2026:

  • Issued shares: 8,000,000 (founders' stock, including restricted stock that is still vesting)
  • Total gross assets: $250,000 (mostly cash from a friends-and-family round)

Step 1: $250,000 / 8,000,000 = $0.031250 assumed par.

Step 2: the $0.00001 par value is below the assumed par, so multiply: $0.031250 x 10,000,000 = $312,500 assumed par value capital.

Step 3: that's under $1,000,000, so the tax would be $312,500 / $1,000,000 x $400 = $125. The minimum under this method is $400, so the tax is $400.

Add the $50 Annual Report fee, and the company pays $450, not $85,165.

Now say the same company closes a seed round and ends 2027 with $5,000,000 of total assets, still 8,000,000 issued shares.

  • Assumed par: $5,000,000 / 8,000,000 = $0.625000
  • Assumed par value capital: $0.625 x 10,000,000 = $6,250,000
  • Rounded up to 7 million: 7 x $400 = $2,800

Still far below the Authorized Shares figure, but no longer the minimum. And once a corporation's tax reaches $5,000, the quarterly estimate schedule starts the next year.

Why the inputs matter so much

The method rewards a high issued-share count relative to authorized shares and punishes a big gap. A few details change the answer:

  • Issued shares only. Shares reserved for an option pool but not yet granted as stock aren't issued. Unexercised options aren't issued shares either. Restricted stock that has been issued but is still vesting generally is.
  • Gross assets, not equity. A company with $250,000 of cash and $240,000 of convertible notes still has $250,000 of gross assets. Liabilities don't reduce it.
  • Assets come from the books. If the books are behind, you can't calculate this with any confidence. Delaware points to the Form 1120 Schedule L figure, so the balance sheet you report federally and the number you give Delaware should match.
  • Mid-year charter changes. If you filed an amendment that changed authorized shares or par value during the year, Delaware prorates the tax for each period, and you'll need issued shares and gross assets within 30 days of the amendment.

How to actually pay the lower amount

The Annual Report filing system lets you enter issued shares and total gross assets, and the tax is then figured on those inputs. Check that the amount due matches your own Assumed Par Value Capital result before you pay. The Division also has a franchise tax calculator on its site for estimating it in advance.

The common mistake is paying the notice amount as-is, or leaving the issued shares and gross assets fields blank, which leaves you on the Authorized Shares figure. The other common mistake is ignoring the notice, which adds a $200 penalty and 1.5% a month, and an unpaid corporation can eventually lose its good standing. That causes trouble during a fundraise, a bank account review, or a sale.

What to do before March 1, 2027

  1. Pull your certificate of incorporation and list every class of authorized stock and its par value.
  2. Count issued shares as of December 31, 2026, from your cap table, including treasury shares.
  3. Close the books for 2026 so total gross assets are a real number, not a guess.
  4. Run both methods. Use the Division's calculator or the steps above.
  5. File the Annual Report online with the issued shares and gross assets filled in, and pay the lower tax plus the $50 fee.
  6. Calendar the estimates if your tax is $5,000 or more: June 1, September 1 and December 1, 2027.
  7. Check the home-state side. Most startups also register as a foreign corporation where they actually operate, and that state has its own report and tax.

Common questions about Delaware franchise tax

Is the $85,165 notice a mistake? No. It's the Authorized Shares calculation, which is correct for that method. You're allowed to pay the lower of the two.

What's the least a Delaware corporation can pay? $175 under the Authorized Shares method (5,000 shares or fewer), or $400 under the Assumed Par Value Capital method, plus the $50 Annual Report fee.

Do Delaware LLCs pay franchise tax? They pay a flat annual LLC tax, now listed at $400, due June 1. No Annual Report and no share-based calculation.

Our company has no revenue. Do we still owe? Yes. The tax is based on shares and assets, not income or activity.

We didn't file last year. What happens? You owe the tax, a $200 penalty and interest at 1.5% per month. File and pay as soon as you can, because the balance keeps growing.

This guide is general information about Delaware franchise tax as of October 2026, not tax or legal advice for your situation. Check the Division of Corporations' pages for current amounts before you file.

If your cap table and balance sheet don't agree yet, start with our guide to your first cap table. RKube Services can also close the year and file the DE Annual Report for you: (984) 234-7030.

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