Delaware sells itself on the Court of Chancery, the case law and the speed of the Division of Corporations, and the sales pitch is largely true. What is understated is the cost of holding the entity once the formation invoice is paid. Forming a Delaware LLC costs $110 in state fees. Keeping it costs $400 every year after that, whether it trades or not, and for a corporation the number can arrive with five figures in it because of a calculation nobody chose. This page is about the second invoice rather than the first.
The LLC Version: $400 Flat, With Nothing to Remind You
A Delaware LLC pays a flat annual tax of $400 on or before June 1. That is the entire state-side obligation. There is no income calculation, no revenue band and no size test, so a holding company with one bank account pays exactly what a trading business pays. Delaware publishes the figure and the deadline in its alternative entity tax instructions, which cover LLCs, limited partnerships and general partnerships together.
No report means no annual prompt
Delaware is explicit that LLCs, LPs and GPs are not required to file annual franchise tax reports with the Division of Corporations. Several guides get this wrong and describe a Delaware LLC annual report that does not exist. The absence sounds like a benefit and behaves like a hazard: because the state never asks an LLC for members, managers or addresses, there is no moment in the year when somebody is forced to look at the record. Registered agent details go stale, the contact on file leaves the company, and nothing surfaces the problem until a lender asks for a certificate of good standing.
No proration either
The instructions add a detail that decides what a dormant entity really costs: there is no proration on these taxes, and the annual tax applies if the entity is active in Division records at any point during the calendar year. An LLC formed on December 20 owes the full $400 for that year, and an LLC dissolved in January owes it too. Anyone holding a company formed for a deal that never closed should read that sentence as a standing invoice and act on it, because the cheapest way out of a Delaware LLC is to close it deliberately rather than to stop paying.
The Corporation Version: Two Methods, Very Different Bills
Corporations are on a different clock and a different formula. The annual report is due March 1, three months earlier than the LLC deadline, and franchise tax is due with it. Delaware permits two calculation methods and lets the corporation pay under whichever is lower, subject to a floor of $175 and a ceiling of $200,000, with large corporate filers assessed up to $250,000. Corporations owing $5,000 or more pay in instalments rather than in a single March payment.
The authorized shares method is the default
This method prices the shares named in the certificate of incorporation, not the shares anyone actually owns. Delaware charges $175 for 5,000 authorized shares or fewer, $250 for 5,001 to 10,000, and $85 for each additional 10,000 shares or fraction of that. The arithmetic is unremarkable until a founder uses a template that authorises ten million shares because a template suggested it.
| Authorized shares | Tax under the authorized shares method |
|---|---|
| 5,000 | $175 |
| 10,000 | $250 |
| 100,000 | $1,015 |
| 1,000,000 | $8,665 |
| 10,000,000 | $85,165 |
| 50,000,000 | $200,000 (capped) |
The assumed par value capital method
The second method works from total gross assets and total issued shares instead, and the rate is $400 per million or portion of a million of assumed par value capital, with a $400 minimum. Because it is anchored to what the company owns and what it has actually issued, an early-stage corporation with a large authorized share count and modest assets lands near the floor. A corporation holding $500,000 in cash against eight million issued shares of ten million authorized typically arrives at the $400 minimum, against $85,165 under the first method. Delaware sets both calculations out on its franchise tax calculation page.
How to Avoid the $85,165 Notice
The notice Delaware sends is computed under the authorized shares method. It is a correct calculation under one permitted method, not a mistake, and the state does not select the cheaper one on your behalf. The corporation has to run the second calculation itself and file on that basis. Three numbers are needed before March: total gross assets from the most recent balance sheet, total issued shares, meaning shares actually held by someone rather than shares authorised in the certificate, and the par value of those shares.
Do the comparison in January. The annual report window opens well before the deadline, and a share-structure question answered in the last week of February is answered under pressure. Two structural moves reduce the number permanently: authorise the share count the company actually needs rather than the count a template offered, and keep the balance sheet close enough to hand that the second calculation can be run in an afternoon. Our Delaware franchise tax guide walks the corporate calculation in detail, and the Delaware annual report page covers the March filing itself.
What Happens When You Miss the Delaware Date
Delaware's late charge is a flat $200 penalty plus interest at 1.5% per month on the tax and the penalty. On an LLC that is small enough to ignore and large enough to matter: 1.5% of $400 is $6 a month and $72 across a full year. The structure is what makes it expensive, because the penalty is fixed rather than proportional, so it costs the same on a dormant holding company as on a trading one.
| Component | Amount | Note |
|---|---|---|
| Unpaid annual tax | $400 | Not prorated, owed for any year the entity is active |
| Late penalty | $200 | Fixed, attaches after June 1 |
| Interest, one month | $6 | 1.5% of the unpaid $400 tax |
| Interest, twelve months | $72 | On the tax alone; Delaware applies the same rate to the penalty as well |
| One missed year, before interest | $600 | Tax plus penalty |
| One missed year, with a year of interest | about $672 | The number on a typical catch-up notice |
Two missed years is $1,200 before interest and three is $1,800, and every one of those dollars is owed by an entity that may have earned nothing at all. Meanwhile the practical consequence arrives earlier than the money does: an entity with unpaid tax is not in good standing, and Delaware certificates of good standing are the ones investors, lenders and acquirers ask for more often than any other state's. A financing round waiting on a certificate is a business problem long before the arrears become an accounting one. The route back is covered in Delaware reinstatement, and an entity nobody needs should go through dissolution instead of quietly accruing.
Let us handle the Delaware filing
We calculate the franchise tax under both permitted methods, file on the lower one, and pay before the deadline. Or keep reading and file it yourself; this guide covers what you need either way.
The Delaware Costs That Never Appear on the Tax Notice
The registered agent. Delaware requires one at all times, and for a company with no Delaware presence that means a commercial provider on an annual fee. It is a real recurring line, and because the LLC files no report there is no state prompt that ever confirms the appointment is still live. Our Delaware registered agent page sets out what the role covers.
Registering where you actually operate. This is the largest hidden number for most Delaware entities. Forming in Delaware does not authorise trading anywhere else, so a company with people, premises or ongoing business in another state generally has to register there as a foreign entity as well, and then keep up that state's annual filing too. The registration fee for an LLC is $180 in Washington, $70 in California and $750 in Texas, and each of those states then wants its own recurring filing. The decision framework is in when to foreign qualify, and the comparison that should have happened before formation is in the best state to form an LLC.
The tax your home state charges anyway. Forming in Delaware does not move a business out of its home state's tax net. A company run from California pays the California franchise tax on top of Delaware's $400, which is the arithmetic set out in the California franchise tax page. The state-by-state picture is collected in franchise tax by state.
Three Delaware Bills in Practice
Scenario one: the corporation that opened an $85,165 notice
Tessellate Labs Inc. incorporates in Delaware with ten million authorized shares, issues eight million to two founders, and holds about $500,000 raised on a convertible instrument. In February the state notice arrives at $85,165, computed under the authorized shares method. The finance lead pulls total gross assets and total issued shares, runs the assumed par value capital method, and files on that basis for the $400 minimum plus the annual report fee. Time spent: an afternoon. Difference: $84,765. Nothing about the company changed; the corporation simply used the second calculation Delaware permits.
Scenario two: the dormant LLC that missed two Junes
Halden Studio LLC was formed in Delaware for a design partnership that dissolved before it traded. Nobody closed the entity. Two June deadlines pass. The arrears are $800 of tax and $400 of penalties, $1,200 before interest, on a company that never issued an invoice. The member pays, then files to dissolve, because a third year would add another $600 for exactly nothing. The lesson is the one the no-proration rule implies: an unwanted Delaware entity is a subscription, and cancelling it is a filing rather than a decision.
Scenario three: the Delaware LLC that trades in Washington
Alder Finch Consulting LLC forms in Delaware for $110 because a founder read that Delaware is the best state, then runs the business from Seattle with two employees. Washington treats that as doing business in Washington, so the company registers as a foreign LLC for $180 and files a Washington annual report at $70 each year. Running total per year: $400 to Delaware, $60 to Washington, plus a Delaware registered agent fee, for a company whose entire operation is in one state. Forming in Washington in the first place would have removed the Delaware line completely.
Five Mistakes That Produce the Surprise
Mistake 1: Authorising ten million shares because a template did
What happens. The certificate of incorporation names ten million authorized shares on a company with two founders. Why it fails. The default calculation prices authorized shares, so the number sets the bill regardless of how few are issued. Consequence. An $85,165 notice in February. Prevention. Authorise what the cap table plausibly needs, and run the assumed par value calculation before paying anything.
Mistake 2: Paying the number on the notice
What happens. The bookkeeper treats the state notice as an assessment and pays it. Why it fails. The notice reflects one permitted method. Delaware does not choose the cheaper method for the taxpayer. Consequence. Tens of thousands paid where the floor applied. Prevention. Treat the notice as an opening figure and compute both methods before authorising payment.
Mistake 3: Mixing up March 1 and June 1
What happens. An owner holding both a Delaware corporation and a Delaware LLC pays everything in June. Why it fails. The dates apply strictly by entity type and are three months apart. Consequence. The corporation is three months late and carries the $200 penalty plus interest. Prevention. Record entity type next to every date, and check each entity individually rather than by group.
Mistake 4: Assuming a dormant entity costs nothing
What happens. A company formed for a project that never started is left on the register. Why it fails. Delaware charges the full $400 for any calendar year the entity is active in Division records, with no proration. Consequence. $600 for the first missed year and $1,200 for two, before interest, on zero revenue. Prevention. Decide once a year whether each entity earns its $400, and dissolve the ones that do not.
Mistake 5: Treating formation in Delaware as permission to trade anywhere
What happens. A company forms in Delaware and operates entirely from another state without registering there. Why it fails. Foreign registration is a separate obligation in the state where the business actually operates. Consequence. Back fees, penalties, and in some states an inability to bring a lawsuit until the registration is cured. Prevention. Decide where the business really operates before forming, using the state selection guide.
When Delaware Is Still Worth It
None of this argues against Delaware for the companies it was built for. A venture-backed corporation raising institutional money will be asked to be in Delaware, and the case law, the predictability of the Court of Chancery and the fluency of investor counsel with Delaware documents are worth real money at a financing. For those companies the franchise tax is a rounding error once the assumed par value method is being used correctly, and the Division's one to two day turnaround is the fastest in the country.
The companies that lose on Delaware are the ones that chose it for reputation rather than for a reason. A solo consultancy, a small online shop or a professional services firm operating in one state pays the $400 annual tax, a registered agent fee, a foreign registration in the home state and that state's annual filing, in exchange for benefits it will never use. If there is no investor asking for Delaware, forming where the business actually operates is usually cheaper and always simpler, and the basic entity guide and the single-member LLC guide cover what that looks like.
How File.Business Handles the Delaware Bill
We identify the correct obligation by entity type, compute corporate franchise tax under both permitted methods and file on the lower legitimate figure, submit the annual report before March 1, pay the LLC tax before June 1, and return the receipt. Entities on our compliance plan carry Delaware registered agent service and continuous status monitoring, which matters most for LLCs precisely because Delaware never asks them for anything else all year. If the entity is registered in more than one state, our annual report service keeps Delaware and every other jurisdiction on one calendar.
Delaware cost of ownership FAQ
How much is the Delaware annual tax for an LLC?
$400 a year, flat, due on or before June 1. Delaware charges the same amount whether the LLC trades or sits dormant, and the Division of Corporations does not prorate it. An LLC that is active in Division records at any point in a calendar year owes the full $400 for that year.
Do Delaware LLCs file an annual report?
No. Delaware states that LLCs, LPs and GPs are not required to file annual franchise tax reports with the Division of Corporations. There is a payment and no form, which is convenient and removes the one moment each year when someone would otherwise check the record.
What is the penalty for paying Delaware late?
A flat $200 penalty plus interest at 1.5% per month on the tax and the penalty. On an LLC's $400 that interest is $6 a month, or $72 across a full year, so one missed year is $600 before interest and roughly $672 with a year of it.
Why did my Delaware corporation get a bill for tens of thousands of dollars?
Because Delaware calculates first under the authorized shares method, which prices the shares named in the certificate of incorporation rather than the shares anyone owns. Ten million authorized shares produces $85,165 under that method. The assumed par value capital method usually produces far less for an early-stage company.
How is the assumed par value capital method calculated?
It works from total gross assets and total issued shares rather than authorized shares, and the rate is $400 per million or portion of a million of assumed par value capital, with a $400 minimum. A company holding modest assets against several million issued shares commonly lands on that minimum.
Is there a maximum Delaware franchise tax?
Yes. The franchise tax cannot fall below $175 or exceed $200,000, and large corporate filers are assessed up to $250,000. A corporation owing $5,000 or more pays in quarterly instalments rather than in one March payment.
Can File.Business handle the Delaware filing?
Yes. We calculate the corporate franchise tax under both permitted methods and file on the one that produces the lower legitimate figure, submit the annual report before March 1, pay the LLC tax before June 1, and return the receipt.
Delaware franchise tax, calculated both ways
We run the authorized shares and assumed par value calculations, file on the lower one, meet the March 1 and June 1 deadlines, and confirm acceptance.
More on Delaware: the corporate franchise tax calculation, the annual report and both deadlines, and the certificate of good standing an investor will ask for.
This guide is written from the official sources below. Fees, forms, and deadlines change; confirm the current requirement with the agency before you file.
Disclosure. File.Business is a private filing service, not a government agency and not a law firm. We prepare and submit filings at your direction, and nothing on this page is legal or tax advice. Filing fees, deadlines, and statutory references are current as of the last-updated date shown above and can change. Confirm current requirements with the relevant state agency before you file.
