The Delaware Franchise Tax is not an income tax. It’s a fee corporations pay for the privilege of being incorporated in Delaware. Every Delaware corporation must file an annual report and pay the franchise tax each year, even if it has no revenue or is not actively operating. Missing these filings can quickly affect your company’s good standing and complicate fundraising, banking, and future exits.
Who Has to File and When?
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Delaware corporations (C‑corps)
- Must file an Annual Franchise Tax Report and pay franchise tax by March 1 for the prior year.
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Exempt / nonprofit corporations
- Generally do not pay the tax but must still file an annual report and pay a smaller report fee.
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Delaware LLCs, LPs, LLPs
- Do not file annual reports but must pay a flat annual tax (currently due June 1 each year).
If you formed a Delaware corporation for your startup, assume you have to file and pay every year until the entity is formally dissolved.
How Delaware Calculates Franchise Tax for Corporations
Delaware offers two main calculation methods for corporations:
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Authorized Shares Method (note: This is the default method and usually generates a higher bill!)
- Tax is based on the number of authorized shares in your charter, with a minimum tax and a capped maximum.
- Startups with very high authorized share counts can end up with a surprisingly large bill if they leave this method unchanged, so consult your accountant!
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Assumed Par Value Capital Method
- Uses your issued shares and total gross assets to compute tax, often yielding a much lower amount for early‑stage startups.
- Many venture-backed companies deliberately choose this method to avoid overpaying.
There is also a special “large corporate filer” category for very large public companies that face a higher fixed maximum tax. For most startups, having an accountant who understands the Delaware Franchise Tax and who will recompute the tax under the assumed par value method can reduce the annual bill substantially. Use our Delaware Franchise Tax Calculator to get an estimate of your startup’s franchise tax.
What You Need to File
When filing the Delaware Annual Report and franchise tax online, expect to provide:
- Delaware file number and legal entity name
- Registered agent and registered office information
- Principal place of business
- Nature of business description
- Authorized share details (number of shares, par value, and classes)
- Names and addresses of directors
- Name and address of the signing officer
You must also provide share and asset data if using the assumed par value capital method so the system can compute the tax correctly.
Penalties for Missing or Late Filings
Delaware is strict about deadlines:
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Corporations
- Due on March 1 each year for the prior calendar year.
- Penalty for late filing or non-filing of the report is $200 plus 1.5% interest per month on any unpaid tax and penalty.
- Continued noncompliance can lead to loss of good standing and, after sufficient time, administrative voiding of the charter.
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LLCs, LPs, LLPs
- Tax due by June 1 each year.
- Penalty for late payment is $200 plus 1.5% interest per month on the unpaid balance.
Losing good standing can delay financings, prevent you from getting Certificates of Good Standing, and create friction with banks and investors who often require proof of compliance.
Step-by-Step: How a Startup Files Delaware Franchise Tax
- Gather your capitalization table and financial data
- Authorized and issued share counts by class
- Par value per share
- Total gross assets from your most recent balance sheet (if using the assumed par value method)
- Log into the Delaware online portal
- Access the state’s franchise tax and annual report system and locate your corporation by file number or name.
- Complete the Annual Report
- Confirm or update registered agent, principal business address, nature of business, and director/officer details.
- Choose and confirm the tax calculation method
- Review the default amount under the authorized shares method.
- Recalculate using the assumed par value capital method if it results in a lower tax (very common for startups).
- Submit and pay online
- Pay the filing fee plus tax via ACH or credit card, observing any special requirements for payments over certain thresholds.
- Save confirmation receipts and a PDF copy of the filed report for your records and for your CPA.
Working with a startup-focused accounting firm makes it easier to pick the correct method and ensure the numbers tie back to your books and cap table.
How to Avoid Delaware Franchise Tax Headaches
To keep this simple and penalty-free each year:
- Put critical dates on your calendar (check our tax deadlines for C-Corps)
- Set recurring reminders for March 1 (corporations) and June 1 (LLCs/LPs) deadlines with a buffer of a few weeks to prepare.
- Keep your cap table and financials up to date
- Accurate share counts and current balance sheet data make it straightforward to compute the optimal tax method.
- Coordinate with your CPA and legal team
- Have your accountant estimate the tax, choose the most favorable method, and verify that your filings align with your financial statements.
- Make sure your lawyer updates any changes to authorized shares or structure that could affect the calculation.
- Don’t forget about inactive entities
- If a corporation or LLC still exists on Delaware’s books, the state generally expects filings and payments until it’s formally dissolved.
For venture-backed startups, Delaware Franchise Tax is just one part of compliance, but it’s very important. Working with a startup-focused accounting firm keeps your financials, cap table, and state filings aligned so you stay in good standing, avoid unnecessary penalties, and never let a missed deadline get in the way of a fundraise or acquisition.
