Authorized-Shares vs. Assumed-Par: Picking the Cheaper Delaware Franchise Tax Method

If you’ve formed a Delaware C Corporation and received a surprisingly high tax bill, the culprit is usually one thing: Authorized Shares. Delaware offers two methods for calculating Franchise Tax, but most founders default to the expensive one without realizing it.

This blog explains the difference between the Authorized Shares Method and the Assumed Par Value Method, so you can choose the one that saves your startup money in 2025.

Relevant IRC Codes & Definitions

While Delaware Franchise Tax is governed by state law, the method you use impacts your business expense deduction on federal returns. Key tax code references include:

• IRC §162 – Franchise taxes are generally deductible as ordinary business expenses.
• IRC §446 – Establishes the need for consistent, reasonable methods in reporting business transactions.
• IRC §263 – Denies deductions for capitalized expenses (important if overpaying Franchise Tax due to incorrect methods).

IRS & State Form References

Federal Forms:

• Form 1120 – U.S. Corporation Income Tax Return
• Franchise Tax amounts are claimed as business expenses on Schedule C of Form 1120.

Delaware Franchise Tax Filing:

• Method 1: Authorized Shares Method
  • Default calculation
  • Based only on number of shares
  • Quickly becomes expensive for startups with large authorized share counts
• Method 2: Assumed Par Value Capital Method
  • Based on total assets and issued shares
  • Typically much cheaper for early-stage or pre-revenue startups

Real-World Example

Case Study:
MindMesh AI Inc. has 10 million authorized shares, no revenue, and $20,000 in total assets.

• Authorized Shares Method:
  • Franchise Tax: $70,175
• Assumed Par Value Method:
  • Franchise Tax: $400 minimum

Result: A $69,775 savings just by selecting the right method.
Lesson: Never use the default method unless you’ve evaluated both options.

Step-by-Step: Choosing the Right Calculation Method

1. Log into your Delaware franchise tax portal
2. Enter your corporation’s data:
   • Authorized shares
   • Issued shares
   • Total gross assets
3. Let the system calculate both methods
4. Compare the totals
5. Select the method with the lowest tax liability
6. Pay and file by June 1, 2025

Conclusion

The Authorized Shares Method is the default—but rarely the best. SaaS and AI founders often authorize millions of shares early, but issue far fewer and have limited assets. In that case, the Assumed Par Value Method can save you thousands in Delaware Franchise Tax.

Don’t pay more than you legally owe.

Call to Action

Want to make sure you choose the cheaper Delaware Franchise Tax method?

👉 Schedule a consultation with Anshul Goyal, CPA, and we’ll run the numbers, calculate both methods, and file your Annual Report and Franchise Tax on time.

Disclaimer

This article is provided for general information purposes only and does not constitute tax, legal, or financial advice. Each corporation’s structure—including authorized shares, issued shares, and total assets—can materially affect tax outcomes under Delaware’s Franchise Tax law.

Anshul Goyal, CPA EA FCA, is a licensed Certified Public Accountant in the U.S., an Enrolled Agent before the IRS, and a Chartered Accountant from India. He represents founders in federal and state-level tax compliance, Delaware corporate structuring, and IRS audit support. For case-specific advice, please consult with a licensed CPA before filing.

FAQs (Top 5 High-Searched)

Q1. Which method is cheaper for startups: Authorized Shares or Assumed Par?
A1. Usually the Assumed Par Value Method, especially if you have high authorized shares but low issued shares and assets.

Q2. Can I change methods after selecting one?
A2. Yes, as long as you haven’t filed and paid yet. Compare before submission.

Q3. What’s the minimum Delaware Franchise Tax?
A3. $400 when using the Assumed Par Value Method.

Q4. Does the IRS care which method I use?
A4. No, but it impacts your deductible expense reported on Form 1120.

Q5. Is this tax due even if I have no revenue?
A5. Yes. Delaware requires all corporations to file and pay annually.

About Our CPA

Anshul Goyal, CPA EA FCA, is a U.S.-licensed Certified Public Accountant, Enrolled Agent, and Chartered Accountant (India). He’s advised 2,000+ startup founders, optimized over $200 million in tax savings, and helped C Corporations remain in good standing while minimizing their Delaware Franchise Tax obligations.