Delaware Franchise Tax for Foreign Founders

Every year in late February, we get the same message from a founder somewhere outside the US: “Delaware says I owe $85,165 in franchise tax. Is this real?” It almost never is. The number is real on the notice, but it comes from the default calculation method, and a startup with ordinary paperwork usually ends up paying $400 plus a $50 filing fee once the return is redone with the other method.

Below, we’ll show you how Delaware franchise tax works for a C corporation, why that first number looks so wild, and which dates catch out founders who live abroad. You’ll need two numbers from your own records. We’ll tell you which.

Who pays Delaware franchise tax

If you formed a corporation in Delaware, you file an Annual Franchise Tax Report and pay franchise tax every year. It doesn’t matter whether you’ve made a sale yet, or whether you’ve ever set foot in the US. Delaware LLCs work differently. They don’t file the report and instead pay a flat $400 annual tax, due June 1.

Where you live doesn’t change the Delaware bill. It changes the federal paperwork that sits next to it. We’ll get to that.

The two ways Delaware calculates the tax

Delaware lets a corporation pay the lower of two methods, according to the Division of Corporations’ own calculation guide.

	Authorized Shares method	Assumed Par Value Capital method
Based on	How many shares the charter authorizes	Gross assets, issued shares and par value
Minimum tax	$175	$400
Maximum tax	$200,000	$200,000
Who it suits	Companies with very few authorized shares	Most venture-style startups with millions of authorized shares

Here’s the catch. The notice Delaware sends you uses the Authorized Shares method. Under it, a company with up to 5,000 authorized shares pays $175, a company with 5,001 to 10,000 pays $250, and every extra 10,000 shares adds $85.

Why a 10 million share startup gets an $85,165 bill

Startup lawyers commonly authorize 10,000,000 shares at a par value of $0.00001. Under the Authorized Shares method, that’s $250 for the first 10,000 shares plus 999 more blocks of 10,000 at $85 each, which comes to $85,165.

Now run the same company through the Assumed Par Value Capital method. Say it has $50,000 in total gross assets at year end and 8,000,000 shares issued.

1. Divide gross assets by issued shares: $50,000 divided by 8,000,000 is $0.00625. That’s the “assumed par”.
2. Because the real par ($0.00001) is lower than the assumed par, multiply the assumed par by all authorized shares: $0.00625 times 10,000,000 is $62,500.
3. The tax is $400 per $1,000,000 of that figure, which works out to $25 here. The minimum under this method is $400, so the company pays $400.

Add the $50 Annual Report filing fee and you’re paying $450, not $85,165. That’s it. Delaware’s online system recalculates once you enter issued shares and gross assets, so your only job is getting those two numbers right.

Where does the gross assets figure come from? Delaware asks for total assets as reported on Schedule L of the company’s federal Form 1120. That’s one reason a foreign-owned C corporation needs real year-end books, not a guess.

The dates that matter

What	Due	If late
Annual Franchise Tax Report and tax (corporations)	March 1	$200 penalty plus 1.5% interest per month on unpaid tax
Estimated payments (if you owe $5,000 or more)	40% by June 1, 20% by September 1, 20% by December 1, rest by March 1	1.5% interest per month on any unpaid tax
Annual tax (Delaware LLCs)	June 1	$200 penalty plus 1.5% interest per month
Federal Form 1120 (calendar year corporation)	April 15, or October 15 with Form 7004	IRS late-filing penalties

Delaware sends the franchise tax notice to your registered agent in December. If your agent forwards mail to an inbox nobody checks, you’ve got a problem. That’s how a $450 bill turns into a penalty, and then into a company that’s no longer in good standing. The source for these dates is the Delaware Annual Report and Tax Information page.

What foreign founders have to file besides the Delaware report

If you, or any foreign shareholder, own 25% or more of a Delaware C corporation, there’s a federal layer on top of the state one:

• Form 1120, the corporate income tax return, every year, even with no revenue
• Form 5472 attached to it, reporting transactions with the foreign shareholder, such as capital contributions, loans and payments. Missing it carries a $25,000 penalty. Our step by step guide covers how Form 5472 is filed.
• State filings where the company operates, which may not be Delaware at all. A company run from Texas or California can owe returns there too.

We cover the wider picture in our article on Delaware C-corp tax compliance for foreign founders, and the LLC versus corporation decision in US entity structure for foreign owners.

How to keep the bill at $450

• Keep a cap table you can trust. Delaware needs the number of issued shares. If you’ve issued shares to a cofounder or an advisor, count them.
• Close the books at year end. Gross assets come from your balance sheet. A bank balance alone often misses things like capitalized software or receivables.
• File the report yourself or through your CPA, not just your agent. Some agents pay the default calculation. Check the method before you pay.
• Put March 1 and June 1 in a shared calendar that more than one founder sees.

Frequently asked questions

Why is my Delaware franchise tax so high?

Delaware’s notice uses the Authorized Shares method, which charges by the number of shares in your charter. Startups with millions of authorized shares usually pay far less under the Assumed Par Value Capital method, often the $400 minimum.

When is Delaware franchise tax due?

March 1 every year for corporations, together with the Annual Franchise Tax Report. Delaware LLCs pay a flat $400 by June 1 instead.

What happens if I pay Delaware franchise tax late?

Delaware charges a $200 penalty for a late Annual Report and 1.5% interest per month on unpaid tax. Leaving it unpaid can cost the company its good standing.

Do foreign founders pay more Delaware franchise tax?

No. The Delaware calculation is the same wherever the founders live. Foreign ownership adds federal filings instead, mainly Form 1120 with Form 5472.

Not sure which number to pay? Book a short call and send us your cap table and year-end balance sheet. We’ll check the calculation before you file.