The Delaware Authorized Shares Method, Explained

What is the Delaware Authorized Shares Method?

The Authorized Shares Method is one of two ways a Delaware corporation can calculate its annual franchise tax. It is the default the state uses when it mails you a notice, and it scales with the number of shares your certificate of incorporation authorizes — not the number you have actually issued to founders or investors. The more shares you are permitted to issue, the higher the figure climbs.

The method only applies to corporations. A Delaware LLC has no shares and pays a flat $300 franchise tax with no annual report, so neither share-based method touches it. If you are still choosing between an LLC and a corporation, the LLC vs corporation franchise tax comparison lays out how differently the two are taxed. This page is about the corporation side, and specifically the method most likely to produce a shocking number on your notice.

The reason the Authorized Shares Method matters so much is that it is what Delaware prints first. Founders who do not know there is a second method sometimes wire tens of thousands of dollars they never owed. Understanding the brackets — and knowing the Assumed Par Value Method exists — is the difference between a $400 bill and an $85,000 one. This is general information, not tax advice for your specific company.

What are the Authorized Shares Method brackets?

The brackets are fixed by Delaware statute and are simple to read once you know them. There are three tiers, and the third one is where the number can run away from you:

• Up to 5,000 authorized shares: a flat $175. This is the franchise tax minimum under the method.
• 5,001 to 10,000 authorized shares: a flat $250.
• Each additional 10,000 shares (or part thereof) above 10,000: add $85 per block. A partial block counts as a full block — 10,001 extra shares is rounded up to two blocks, not one.

The grand total is capped at a $200,000 maximum for a standard corporation. On top of the franchise tax itself, every Delaware corporation also files a $50 annual report, which is a separate line item due at the same time. So the smallest possible corporation pays $175 in tax plus $50 in report fee — $225 total — by March 1. That “or part thereof” rule on the third tier is the single most important phrase on this page, because it is why authorizing a round 10,000,000 shares produces a five-figure notice.

How do I calculate the Authorized Shares Method step by step?

The calculation is mechanical once you separate it into the three tiers. Walk it in order:

• Step 1 — Check the first 5,000. If your total authorized shares are 5,000 or fewer, stop. You owe $175. Most very small holding corporations land here.
• Step 2 — Check the next 5,000. If you are between 5,001 and 10,000 authorized shares, you owe $250 flat. Stop there.
• Step 3 — Count the blocks above 10,000. Subtract 10,000 from your total. Divide the remainder by 10,000 and round up to the next whole number — that is your block count. Multiply by $85.
• Step 4 — Add $250 to the Step 3 result. The $250 covers the first 10,000 shares; the block charge covers everything above. That sum is your Authorized Shares figure, capped at $200,000.

A few worked numbers make the brackets concrete. A corporation with 100,000 authorized shares owes $250 for the first 10,000 plus 9 blocks of 10,000 at $85 — that is $765 — for a total of $1,015. A corporation with 1,000,000 authorized shares owes $250 plus 99 blocks at $85, or $8,415, for a total of $8,665. And the familiar 10,000,000-share startup owes $250 plus 999 blocks at $85, or $84,915, for a total around $85,165. The pattern is clear: the figure roughly tracks $85 for every 10,000 shares you authorize above the first 10,000, which is why the number explodes once you cross into the millions.

That is the entire method. The hard part is not the arithmetic — it is remembering that this figure is not necessarily what you pay. Before you accept it, you should always run the franchise tax calculator to compare it against the Assumed Par Value Method and pay whichever is lower.

What does a small corporation pay under this method?

For a corporation with a conservative share structure, the Authorized Shares Method is genuinely cheap and predictable. Authorize 5,000 shares or fewer and you sit at the $175 minimum every year, no matter how the company performs. Add the $50 annual report and your total state cost is $225 a year — flat, with no calculation needed. This is why some small or single-owner corporations that do not need a large cap table deliberately authorize a small number of shares.

The trade-off is flexibility. A 5,000-share ceiling leaves little room to issue stock to co-founders, advisors, an option pool, and investors without amending the certificate later. Most companies on a funding track accept a slightly more complex tax picture in exchange for a larger authorized pool. If you are weighing the corporation structure against the simplicity of a flat fee, the Delaware C-Corp guide and the Delaware LLC overview walk through which structure fits which goal before you lock in a share count.

One more nuance helps small corporations budget. Because the first 5,000 authorized shares all sit at the $175 minimum, there is no franchise-tax penalty for authorizing 1,000 shares versus 5,000 — both land at $175. So a founder who wants a little headroom can safely authorize the full 5,000 without paying a cent more than someone who authorized 100. The cost only begins to climb at 5,001 shares, where you jump to the $250 tier, and then meaningfully at 10,001, where the per-block charge kicks in. Knowing exactly where those thresholds fall lets you choose a share count deliberately rather than copying a template and absorbing a surprise notice. If you later need more shares, a certificate amendment can raise the authorized count, though that also raises your Authorized Shares figure going forward.

Why does the Authorized Shares Method produce huge startup bills?

The classic startup certificate authorizes 10,000,000 shares with a tiny par value — a standard template choice that leaves room for founders, an option pool, and future rounds. Under the Authorized Shares Method, that number is brutal. The first 10,000 shares cost $250, and the remaining 9,990,000 shares break into 999 blocks of 10,000 at $85 each, or $84,915. Add them and the notice reads roughly $85,165.

That figure is exactly what prints on the official Delaware notice each January, and it is almost never the real number. Founders see it, panic, and some pay it — a costly mistake. The method counts authorized shares, so it has no idea that the company has issued only a fraction of them or that it holds modest assets. The Assumed Par Value Method does account for those facts and almost always produces a far smaller figure for an early-stage company. The lesson is blunt: never pay the Authorized Shares notice at face value. If you want the flat-fee simplicity of a $300 obligation instead, the Delaware LLC route avoids share-based math entirely.

How does the Authorized Shares Method compare to Assumed Par Value?

The two methods answer different questions. Authorized Shares asks “how many shares are you allowed to issue?” Assumed Par Value asks “how many did you issue, and what are you worth?” For a company with many authorized shares but modest issued shares and assets, the second question gives a much smaller answer. Delaware lets you pay whichever method is lower.

Notice the apparent contradiction: Authorized Shares has a lower minimum ($175 vs $400), yet startups almost always pay less under Assumed Par Value. That is because the two minimums apply to completely different companies. A 5,000-share holding company hits the $175 Authorized Shares minimum; a 10-million-share startup blows past it and is rescued by the $400 Assumed Par Value floor. The full mechanics of the second method live on the Assumed Par Value Method page.

When should I switch from Authorized Shares to Assumed Par Value?

The rule of thumb is simple: switch whenever the Assumed Par Value figure is lower, which is the case for the vast majority of corporations that authorized more than a few hundred thousand shares. Practically, that means any venture-track startup with a standard 10,000,000-share certificate should compute both and use Assumed Par Value, because the Authorized Shares number will almost certainly be the larger of the two.

You do not have to pick the method in advance or commit to it forever — you choose it fresh each year when you file. The Delaware online portal shows the Authorized Shares amount by default, then recalculates once you enter your issued shares and total gross assets for the Assumed Par Value Method. To switch, you simply enter those two figures and pay the lower result. The one prerequisite is having accurate numbers ready: an up-to-date issued-share count and a finalized total-gross-assets figure from your Form 1120 balance sheet. Run the franchise tax calculator first so you know the target number before you open the portal.

How do I pay the franchise tax under the Authorized Shares Method?

Payment runs through the Delaware Division of Corporations online portal using your seven-digit business entity file number, and it is due by March 1 for corporations. The portal handles both the franchise tax and the annual report in one session. Here is the path:

• (1) Open the franchise tax portal and enter your file number from your certificate of incorporation.
• (2) The system pre-fills the Authorized Shares amount. Do not stop here if it looks high.
• (3) If the figure is large, enter your total issued shares and total gross assets to recalculate under Assumed Par Value, then let the portal show you the lower of the two.
• (4) Complete the annual report fields — officer and director names and addresses.
• (5) Pay the tax plus the $50 report fee by card or ACH and save the confirmation.

If you would rather not touch the portal, we can run both calculations and file and pay the lower amount on your behalf. See how it works and our pricing for the all-inclusive service. Always confirm current rates and rules on the state portal before paying — figures here are illustrative, not a quote.

What happens if I pay the Delaware corporation franchise tax late?

Missing the March 1 corporation deadline triggers a $200 penalty immediately, plus 1.5% interest per month on the unpaid balance. More damaging than the dollars is the loss of good standing: while out of good standing, your corporation generally cannot obtain a Certificate of Good Standing, which banks, investors, and other states routinely require. A missed deadline can quietly stall a financing round or a bank application at the worst possible moment.

The penalty applies whether the underlying tax was $225 or $200,000, so a small corporation that forgets March 1 still eats the full $200. The deeper details, including how interest accrues over time, are covered on the Delaware franchise tax late fee page, and the full calendar of corporation and LLC dates lives on the franchise tax deadlines page. The cheapest insurance is simply paying on time — or having a service track the date for you.

Does the Authorized Shares Method apply to non-resident-owned companies?

Yes — and the method does not care where the owners live. A Delaware corporation owned entirely by founders abroad calculates franchise tax exactly the same way as one owned by Delaware residents: by authorized shares (or Assumed Par Value), with the same $175 minimum, the same $200,000 maximum, and the same March 1 deadline. There is no exemption for being based overseas or for having no US income, because the franchise tax is a state maintenance fee, not an income tax.

Non-resident founders should also be clear that the corporation structure carries federal filing obligations that have nothing to do with franchise tax. Most non-resident founders form an LLC rather than a corporation, and a foreign-owned single-member LLC files a pro-forma Form 1120 plus Form 5472, where failure can carry a $25,000 penalty. If a corporation is the right structure for you, see the non-resident guide and the federal Form 1120 walkthrough. You will also need an EIN to operate and bank. Note that an S-corp election is not available to non-residents — S-corp owners must be US citizens or residents.

How does the Authorized Shares Method fit into the BOI / FinCEN picture?

It does not — they are separate worlds, and it is worth keeping them apart. The Authorized Shares Method is a Delaware state franchise tax calculation. Beneficial Ownership Information (BOI) reporting is a federal FinCEN matter with no connection to your share count or your franchise tax bill. Under a March 2025 FinCEN interim final rule, BOI reporting was removed for US domestic reporting companies, and US persons are generally exempt; only certain foreign reporting companies were left with an obligation.

Because that area is still evolving, confirm the current requirement directly with FinCEN or a qualified advisor before assuming you do or do not need to file — our FinCEN reporting and BOI report pages track where the rule stands. What has not changed is the franchise tax: your corporation still computes it by authorized shares or Assumed Par Value and pays by March 1 regardless of where BOI rules land. Treat the franchise tax (state) and any BOI obligation (federal) as two separate calendar items. None of this is legal or tax advice.

How does DelawareLLC.co handle franchise tax calculations for you?

When you work with us, the franchise tax is part of the compliance tracking we include rather than an upsell you discover later. For a corporation, that means we run both the Authorized Shares and Assumed Par Value calculations so you are never staring at an $85,000 notice wondering what is real. We file and pay the lower amount on your behalf before March 1 and send you the confirmation, so the company never quietly slips out of good standing.

We also flag the obligations that travel alongside the tax: the separate $50 annual report, the registered agent renewal that runs about $99 per year, and — for entities that need it — federal items like tax filing deadlines. Support is over WhatsApp, our filing and EIN work carry a money-back guarantee, and the whole point is that compliance stops being something you have to remember. If you are comparing structures first, the LLC vs corporation tax page and the Delaware LLC cost breakdown show exactly what each path costs in Year 1 and Year 2.