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 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 $200,000 (as of 2018).
For a startup with millions of low-par-value shares and no assets, the Assumed Par Value Capital Method yields the minimum tax of $400 (as of 2018).
For information about how these two franchise tax methods evolved, please see Delaware’s Franchise Tax – A Tale of Two Methods.
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.
Business Entities, Startup, Tax
Trackbacks & Pingbacks
[…] This post was mentioned on Twitter by Dana Shultz, Dana Shultz. Dana Shultz said: In Delaware, No-Par-Value Can Cost a Bundle – http://dana.sh/cMdPhV […]
[…] headaches for the company in areas where the par value figures into local laws—for example, Delaware corporation taxes. If a company doesn’t assign a par value to its shares, local authorities may use their own […]