“Authorized Shares Method” is one of two methods that a Delaware Corporation can use to calculate its annual franchise tax. The Authorized Shares Method calculation is based solely on the number of Authorized Shares initially authorized by the Delaware Corporation in its Certificate of Incorporation.
Under the Authorized Shares Method, the annual franchise tax usually equals $250, plus $85 for each additional 10,000 Authorized Shares (or portion thereof) above 10,000 Authorized Shares, with a maximum annual tax of $200,000. Startups formed as Delaware Corporations often authorize 10,000,000 Authorized Shares in the Certificate of Incorporation, which would result in a tax bill of almost $85,000, a prohibitively high amount for most Early-Stage Companies.
Although the Authorized Shares Method is the default method of calculation reflected in the annual franchise tax bills issued by the State of Delaware, Delaware Corporations can choose the alternative Assumed Par Value Capital Method to calculate their annual franchise taxes, which typically results in significantly lower tax liability.
For more information about the Authorized Shares Method, please refer to How to Calculate Franchise Taxes as provided by the Delaware Division of Corporations.