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Your startup doesn't need to make a dollar for you to owe Delaware franchise tax.
That's one of the first surprises for founders who incorporate in Delaware. The others usually show up when they realize the amount isn't based on revenue, their company structure can affect what they owe, and the deadline can arrive before they're thinking about taxes at all.
If you're getting ready to make your first Delaware franchise tax payment, here's what tends to catch first-time founders off guard.
Delaware franchise tax isn't based on whether your startup is profitable.
So if you incorporated your company, haven't raised money, have no customers, and haven't generated any revenue yet, you can still have a tax bill.
That's easy to miss when you're focused on the costs that feel more immediate: incorporation fees, legal bills, software, payroll, and fundraising.
The takeaway: Don't wait until your startup has revenue to start planning for Delaware franchise tax.
One of the biggest surprises in the Delaware franchise tax calculation for startups is that your company's share structure can affect what you owe.
Delaware corporations can calculate their tax using either the Authorized Shares Method or the Assumed Par Value Capital Method. Depending on your company's capitalization and assets, those methods can produce very different numbers.
For example, a startup that authorizes a large number of shares when it incorporates may end up with a different franchise tax bill than the founder expected.
The takeaway: Your cap table isn't just an investor document. How your corporation is structured can affect its tax obligations, too.
If you have a Delaware corporation, your franchise tax and annual report are generally due March 1.
But if you formed a Delaware LLC, LP, or GP, the rules are different. These entities generally don't file the same annual report as corporations and instead pay an annual tax due June 1.
So before you search for how to pay Delaware franchise tax, make sure you know which type of entity you have.
4. Your first bill can be different from what you expected
Founders often assume there's one standard Delaware tax amount. There isn't.
For corporations, Delaware provides two calculation methods. The Authorized Shares Method looks primarily at authorized shares, while the Assumed Par Value Capital Method also considers issued shares and the company's gross assets.
Your bill isn't simply a percentage of revenue.
And as your startup grows, your capitalization can change. That means your franchise tax calculation may change, too.
The takeaway: Don't use another startup's franchise tax bill as a benchmark for yours. Your company's structure matters.
Another easy assumption: My lawyer incorporated the company, so they'll take care of the tax.
Maybe. But don't assume.
Your accountant, tax provider, registered agent, or internal finance team may help with Delaware requirements. But your company is ultimately responsible for making sure its obligations are handled.
Before your first deadline, confirm:
A quick check now can prevent a very annoying "I thought you were handling that" conversation later.
If you're trying to figure out when to pay Delaware franchise tax, the deadline depends on your business entity.
Corporations with a previous-year franchise tax liability of $5,000 or more also generally have quarterly estimated payments.
For Delaware LLCs, LPs, and GPs, the annual tax is generally due June 1.
Put the applicable date on your company's financial calendar as soon as you incorporate. Don't wait for a reminder from the state to figure out who owns the task.
Missing a Delaware filing or payment can mean more than an annoying reminder email.
Corporations that don't file their required annual report on time can face a penalty, and unpaid taxes can accrue interest. Continued noncompliance can also put your company’s good standing at risk.
That can become a bigger headache if you're trying to close a financing, enter into a contract, open a bank account, or complete another transaction that requires your company to be in good standing.
The easiest solution is also the least exciting: know your deadline and make the payment.
You don't need to become a Delaware tax expert. You just need a system for keeping track of the obligation.
Before your first payment:
Delaware franchise tax is exactly the kind of startup obligation that's easy to overlook. It's not necessarily tied to revenue, the calculation can depend on your company's structure, and the deadline comes around whether you're ready for it or not.
Fondo handles your startup's bookkeeping and taxes end to end, including Delaware Franchise Tax. We calculate and file using books we already manage and understand, so you don't have to piece together your company's financials every time a tax deadline rolls around.
Your books, taxes, and financial reporting stay connected, with an accounting team that understands startups.
See how Fondo can handle your startup taxes
Delaware LLCs don't file the same annual franchise tax report as corporations. Instead, they pay an annual entity tax, generally due June 1.
Yes. Delaware franchise tax isn't dependent on your startup generating revenue or being profitable. A pre-revenue company can still have a tax obligation.
For corporations, the franchise tax calculation can be affected by factors including authorized shares, issued shares, and company assets. Two startups with different capitalization structures can therefore have different tax bills.
No. Your accountant or tax provider can calculate and file it for you. The important part is knowing who is responsible and making sure the payment is handled before the deadline.
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