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How is the Delaware franchise tax calculated?

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Delaware calculates a corporation's franchise tax under two methods and lets the company pay the lower result. The authorized shares method counts the shares the certificate authorizes: $175 for up to 5,000 shares, $250 for 5,001 to 10,000, and $85 more for each further 10,000 shares or part of one, up to $200,000. The assumed par value capital method looks instead at what the company owns relative to its shares: $400 per million dollars, or part of a million, of assumed par value capital, with a $400 minimum and the same $200,000 cap.

The assumed par value capital method, step by step

Take total gross assets, the total assets figure from the company's federal Form 1120 Schedule L for the fiscal year that ended in the prior calendar year, and divide it by the shares actually issued, to six decimal places. That is the assumed par. Multiply it by every authorized share whose stated par value is below it; for authorized shares whose stated par is above it, use the stated par instead. Add the two. If the total is over a million, round up to the next million; divide by a million; multiply by $400.

A worked example

A startup authorizes 10,000,000 shares at $0.0001 par, has issued 8,000,000 of them to its founders, and has $50,000 in total gross assets. Under the authorized shares method, 10,000,000 shares is $250 for the first 10,000 plus 999 further blocks of 10,000 at $85 each, which is $85,165. Under the assumed par value capital method, $50,000 divided by 8,000,000 issued shares gives an assumed par of $0.00625, above the stated par, so all 10,000,000 authorized shares are multiplied by it: $62,500 of assumed par value capital, a fraction of a million, taxed at the $400 minimum. The company pays $400, plus the $50 annual report fee.

The share count drives the first method, and assets divided by issued shares drives the second. Once the company has raised money, the assets figure grows and so does the second method's answer, which is the point at which the two methods start to be worth comparing every year.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.