If you form a company in Delaware, the Delaware franchise tax becomes one of the recurring costs you need to understand. The name can be confusing because this is not a tax on franchises such as restaurants or retail chains, and it is not calculated like a normal income tax. For Delaware corporations, franchise tax is essentially an annual charge for maintaining a corporation incorporated under Delaware law. Delaware LLCs and certain partnerships pay a different flat annual tax rather than using the corporation franchise-tax calculation.

The amount can be relatively small for some companies and surprisingly high for others. A Delaware corporation with millions of authorized shares, for example, may initially see a large franchise-tax assessment even though the business has little revenue. In many cases, using Delaware’s alternative calculation method can significantly reduce that amount. There is also an important change for 2026: Delaware increased the annual tax for LLCs, limited partnerships, and certain partnerships from $300 to $400 for the 2026 tax year. This guide explains what the Delaware franchise tax is, who has to pay it, how Delaware corporations calculate it, when payments are due, and what happens if your company misses the deadline.

Quick Summary: Delaware Franchise Tax at a Glance

Delaware corporations generally have two methods available for calculating franchise tax, and the state instructs corporations to use the method that produces the lower tax.

What Is the Delaware Franchise Tax?

The Delaware franchise tax is an annual tax imposed on companies for the privilege of maintaining a Delaware entity. For corporations, the obligation comes from Delaware corporate law rather than from how much profit the business earns. That distinction matters because franchise tax is different from income tax. A corporation can owe Delaware franchise tax even if it:

• made no profit,
• generated little or no revenue,
• conducted its business outside Delaware, or
• has not yet started normal business operations.

The Delaware Division of Corporations explains that corporations incorporated under Delaware law are subject to the annual franchise-tax requirement. For example, imagine you incorporated a startup in Delaware in preparation for raising investment. You have issued founder shares but have not launched your product or generated revenue. The absence of revenue does not by itself remove your Delaware franchise-tax obligation. This is one reason founders should treat franchise tax as an entity-maintenance cost, rather than thinking of it as a tax that only applies once the company becomes profitable.

Who Has to Pay Delaware Franchise Tax?

Who has to pay Delaware franchise tax depends mainly on the type of entity formed in Delaware. Corporations, LLCs, limited partnerships, and certain general partnerships are all subject to annual state obligations, but they do not follow the same rules or pay the tax in the same way. For example, Delaware corporations calculate franchise tax using one of two methods and must also file an Annual Report. Delaware LLCs, by contrast, generally pay a flat annual tax and do not file an Annual Report with the Division of Corporations. Understanding your entity type is therefore the first step in determining how much you owe, how the tax is calculated, and when it is due.

Delaware Corporations

Domestic Delaware corporations generally must file an Annual Report and pay franchise tax each year. For non-exempt domestic corporations, the Annual Report filing fee is currently $50. The franchise tax is calculated separately. Both the Annual Report and franchise tax for the previous calendar year are due by March 1. Some qualifying exempt corporations do not pay franchise tax, although they still have an Annual Report requirement and currently pay a $25 Annual Report filing fee.

Delaware LLCs

Delaware LLCs do not calculate franchise tax according to their shares, assets, income, or number of members. Instead, Delaware imposes a flat annual tax. For the 2026 tax year, that annual tax is $400. Delaware law now states that domestic LLCs and foreign LLCs registered to do business in Delaware must pay the $400 annual tax. LLCs do not file a Delaware Annual Report with the Division of Corporations.

Delaware LPs and Certain Partnerships

Delaware also applies a $400 annual tax for the 2026 tax year to limited partnerships and qualifying general partnerships. Because corporation and alternative-entity rules are different, do not assume the corporation franchise-tax calculation applies to your LLC simply because both charges are sometimes casually referred to as “Delaware franchise tax.”

How to Calculate Delaware Franchise Tax

While Delaware LLCs pay a flat annual tax and do not need to calculate the amount using a formula, Delaware corporations follow a different system. Corporations can calculate their franchise tax using two methods: the Authorized Shares Method and the Assumed Par Value Capital Method. The amount a corporation owes can vary significantly depending on which method is used, especially if the corporation has authorized a large number of shares. This is common with startups. A company may authorize millions of shares to leave room for founders, employees, and future investors, even though only a portion of those shares has actually been issued.

Under the Authorized Shares Method, that structure can result in a relatively high franchise tax because the calculation is based largely on the number of authorized shares. The Assumed Par Value Capital Method, by contrast, also takes into account factors such as issued shares and company assets, so it may produce a much lower amount. That is why Delaware corporations should understand both methods rather than assuming the first tax figure they see is the amount they must pay.

Method 1: Authorized Shares Method

The Authorized Shares Method bases the Delaware franchise tax primarily on the number of shares the corporation is authorized to issue. Current Delaware rates are:

Suppose your corporation has 10,005 authorized shares. Delaware’s own example calculates the tax as $335: $250 for the first 10,000 shares plus another $85 because the additional five shares count as a portion of another 10,000-share block. The important point is that Delaware looks at authorized shares, not simply the number of shares shareholders currently own.

Method 2: Assumed Par Value Capital Method

The Assumed Par Value Capital Method takes into account the corporation’s:

• total gross assets,
• total issued shares,
• authorized shares, and
• par value of those shares.

The basic idea is to estimate the amount of capital represented by the corporation’s authorized stock and calculate the tax from that amount. The Delaware Division of Corporations currently applies a rate of $400 per $1 million, or portion of $1 million, of assumed par value capital, subject to a $400 minimum under this method. For this calculation, Delaware generally uses the company’s “total assets” reported on U.S. Form 1120, Schedule L for the relevant fiscal year.

A Simple Example of Why the Calculation Method Matters

Imagine a young Delaware corporation has:

• 10 million authorized shares,
• 1 million issued shares,
• very low par value per share, and
• $100,000 in gross assets.

Under the Authorized Shares Method, having 10 million authorized shares can produce a substantial franchise-tax assessment. Under the Assumed Par Value Capital Method, the calculation also considers the fact that the corporation has relatively modest assets compared with the number of issued shares. In a situation like this, the second method may produce a much lower tax. This is why startup founders should not automatically pay the number generated under the Authorized Shares Method without first determining whether the Assumed Par Value Capital Method gives them a lower legitimate tax.

Which Method Should You Use?

For most corporations that are eligible to use both methods, the practical answer is straightforward: Calculate the Delaware franchise tax both ways and use the method that produces the lower tax. The Delaware Division of Corporations specifically instructs corporations to use the method resulting in the lower tax. The Authorized Shares Method is relatively simple because it relies heavily on the number of authorized shares. The Assumed Par Value Capital Method requires additional financial information, but it can be particularly valuable for startups that:

• authorize millions of shares,
• have issued only part of those shares, and
• still have relatively modest assets.

Delaware also provides an official franchise tax calculator for estimates. The state cautions, however, that the calculator is intended to estimate the tax rather than serve as the final determination of the company’s balance.

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When Is the Delaware Franchise Tax Due?

The Delaware franchise tax due date for domestic corporations is March 1. Corporations file their Annual Report and pay franchise tax for the previous calendar year. For example: Franchise tax for the 2026 calendar year is generally due by March 1, 2027. The Annual Report must also be filed by that deadline. Delaware requires active domestic corporations to file their Annual Reports online. Delaware LLCs and certain partnerships follow a different schedule. Their annual tax is due June 1 following the end of the calendar year. That difference is easy to overlook:

• Corporation → March 1
• LLC → June 1

Keeping those dates separate is especially useful if you manage several Delaware entities with different legal structures.

What Happens If You Pay Delaware Franchise Tax Late?

Missing the Delaware franchise-tax deadline can become expensive quickly. For domestic corporations, failure to file the Annual Report and pay the required franchise tax results in a $200 penalty, plus 1.5% interest per month on the tax and penalty. The same $200 late-payment penalty and 1.5% monthly interest rate apply to the annual tax for Delaware LLCs. The consequences are not limited to the amount of money owed.

A corporation with an unpaid franchise-tax balance or missing Annual Franchise Tax Report cannot obtain a Delaware certificate of good standing for the relevant period. For an LLC, failure to pay the annual tax causes the company to cease being in good standing. Delaware law also restricts certain filings and prevents the state from issuing a certificate of good standing until the outstanding tax, penalties, and interest are resolved. That can become a practical business problem when a company is:

• raising investment,
• opening or updating financial accounts,
• completing a merger or acquisition,
• entering a major contract, or
• completing another transaction that requires evidence of good standing.

A missed $400 annual tax can therefore create a much bigger administrative problem later.

Stay on Top of Your Delaware Franchise Tax Requirements

The Delaware franchise tax is easier to manage once you know which rules apply to your entity. For a Delaware LLC, the annual obligation is relatively straightforward: the tax for the 2026 tax year is $400 and is generally payable by June 1, 2027. Corporations require more attention because the tax can vary substantially depending on authorized shares, issued shares, assets, and the calculation method used.

The biggest practical lesson is not to treat the first franchise-tax figure you see as automatically correct. If you own a Delaware corporation with a large number of authorized shares, compare both calculation methods before filing. And regardless of entity type, keep the applicable March 1 or June 1 deadline on your compliance calendar. If you need help maintaining a Delaware company, IncParadise can assist with Delaware registered agent and business compliance services, helping you keep important state notices and recurring requirements from slipping through the cracks.

Originally Published: February 2020 | Last Major Update: August 2026