In Delaware, No-Par-Value Can Cost a Bundle
In “How Many Shares Should My Corporation Authorize and Issue?“, I warned that “If you are forming a Delaware corporation with a large number of shares, be sure to specify a low par value, such as $0.0001 per share, to avoid having to pay excessive annual fees to the state.” This post (based on a Quora answer that I provided) gives more details about this issue.
There are two methods for calculating Delaware’s annual franchise tax.
For no-par shares, the method that produces the lower tax (Authorized Shares Method) still produces a tax of many thousands of dollars for a corporation having millions of authorized shares - up to $180,000.
For a startup with millions of low-par-value shares and no assets, the Assumed Par Value Capital Method yields the minimum tax of $350 (increased in 2010 – used to be $75).
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.