Most founders pick an authorized share count the way they pick a wifi password: whatever the lawyer suggests, typed in fast, never thought about again. Ten million shares is the number that gets used almost by default for Delaware C-corps. It is also the single decision most responsible for the franchise tax bill that shows up months later and makes founders think Delaware sent it to the wrong company.
The bill is not random. It is a direct, calculable consequence of the authorized share count and par value you locked in at incorporation, and it is fixable before it ever becomes a problem.
What actually drives the bill
Delaware calculates franchise tax two ways, and the state bills you using whichever method produces the higher number unless you correct it. Under the Authorized Shares Method, tax scales directly with how many shares exist on paper, whether or not any of them are issued.
A company with 5,000,000 authorized shares owes $42,665 under this method. Push that to 10,000,000 and the bill jumps to $85,165. None of that reflects revenue, funding stage, or actual company size. It reflects a checkbox filled in during incorporation.
The Assumed Par Value Capital Method looks at authorized shares, issued shares, and total gross assets together, and for most early-stage startups it produces a bill closer to $400 to $500 a year. Founders who get hit with a five-figure surprise almost always qualify for this lower number and simply never elected it.
The mistake happens at incorporation, not at tax time
Lawyers often authorize a round number like 10 million shares "for flexibility," without walking founders through what that number costs every year regardless of which calculation method eventually gets applied. Par value gets set without discussion too, and a par value that is not close to zero makes the Assumed Par Value Method less effective even when you do elect it.
By the time the bill arrives, the decision that caused it was made a year or more earlier, by someone who was optimizing for legal flexibility, not for the founder's annual compliance cost.
A framework for picking the number, not a default
Instead of authorizing a round number because it sounds safe, size it to what you can justify using over the next 18 to 24 months.
- Founder and early employee shares. Start with what is actually issued or committed today.
- Option pool. Add the pool size your next round will likely require, typically 10 to 20 percent post-money.
- Expected dilution from your next raise. Estimate the new shares a priced round would add, based on a realistic valuation range.
- A modest buffer, not a blank check. Add 20 to 30 percent on top for the unexpected, not 3x for comfort.
For most seed-stage SaaS companies, this lands somewhere between 8 and 10 million shares, which is why that number shows up so often. The problem is not the number itself. It is authorizing it without connecting it to par value or to the calculation method you plan to elect every year.
Set par value at $0.0001 or lower. A near-zero par value combined with the Assumed Par Value Method is what actually keeps the bill in the hundreds of dollars instead of the tens of thousands, regardless of how many shares you authorize within a reasonable range.
If you already over-authorized
You have two real options. You can amend your certificate of incorporation to reduce the authorized share count, which requires a board resolution and a filing fee, and makes sense if the excess was large and unintentional.
Or, more commonly, you leave the authorized count alone and make sure every annual report is filed using the Assumed Par Value Capital Method, not the default Authorized Shares Method Delaware bills you under automatically. This alone is what turns an $85,165 bill into a few hundred dollars, without touching your cap table at all.
Either way, this is not a decision to make reactively in March when the bill lands. It is a five-minute check you can run any time.
The one thing to check before you sign anything
Before you sign a certificate of incorporation, or before your next charter amendment for a new round, ask your lawyer two direct questions: what authorized share count are we using and why, and what par value comes with it. If the answer does not include a plan to elect the Assumed Par Value Method on your annual filing, that is the gap that turns into a five-figure surprise.
The number on your incorporation documents is not a formality. It is the single input that determines whether Delaware franchise tax is a rounding error or a real line item in your budget every year.
Frequently asked questions
How many shares should a startup authorize at incorporation?
Most VC-backed, seed-stage startups land between 8 and 10 million authorized shares, sized to cover current ownership, the next option pool increase, and expected dilution from the next round, plus a modest buffer.
Does authorizing more shares always increase franchise tax?
Only if Delaware calculates your bill using the Authorized Shares Method. If you elect the Assumed Par Value Capital Method and keep par value near zero, a higher authorized share count has a much smaller effect on the bill.
Can I lower my authorized share count after incorporation?
Yes, through a certificate of amendment approved by your board, though most founders find it faster and cheaper to simply switch their annual filing to the Assumed Par Value Method instead.
Is a low par value always better?
For franchise tax purposes, yes. A par value near $0.0001 keeps the Assumed Par Value Method calculation low. There is no meaningful downside to a near-zero par value for a typical venture-backed startup.