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.
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.