The Calculation Of Delaware Franchise Tax
If you’re a founder of a Delaware corporation, you’ll very likely receive a franchised tax bill from the state of Delaware that made you almost fall out of your chair. But before you lose your mind, you need to know that there are two different ways to calculate Delaware franchise tax and Delaware defaults to a way that almost always results in a higher bill than necessary. At least for earlier stage businesses.
The first way is called the authorization shared method and this is the method that Delawre defaults to. It’s based on the number of shares that are authorized not issued but authorized in the company’s certificate of incorporation. This is typically not the method that you want to use to calculate the tax that you owe.
The second method is called the Assume Par Value Capital Method. The equation is essentially the number of issued shares (not authorized) but issued shares divided by the company’s gross asset value and the minimum franchise tax due in one year is $400.
The article below outlines an example and includes a link to a franchise tax calculator provided by Delaware, so please check that out for more information.
The nest time you get a franchised tax bill from the State of Delaware that seems absurdly high, make sure it has been calculated the right way.