Incorporation day. Two people at one table, a form between them, two boxes to fill and under ten minutes to fill them: how many shares to authorise, and what par value to give them. The boxes are filled and the form goes off. The notice then arrives towards the end of February: an email forwarded by the registered agent, a figure on it far larger than anyone expected, and the words “franchise tax” underneath. The founder’s question is a fair one — the company has no revenue, no office in Delaware, not even a customer yet, so what exactly is being taxed? The answer was settled at that table.
Delaware’s franchise tax is not a tax on profit. It does not ask whether the company earned anything, where it trades, or what is sitting in its bank account. It is the annual price of keeping the entity alive in the state, and its base is the company’s share structure — the numbers written into the certificate of incorporation, not the numbers in the accounts. For a founder trained on Turkish company law, that is the first thing that feels upside down: in Turkey, writing a generous ceiling into the articles of association (esas sözleşme) carries no recurring annual cost of its own. In Delaware it does.
The second surprise is that the decision is expensive to reverse. Reducing the authorised share count later means amending the charter, obtaining shareholder approval and making a fresh filing — not a conversation anyone wants to open in the middle of a financing, when everyone’s attention is elsewhere. So the number chosen on day one usually stays with the company for several years, and is billed again each of them.
Authorised, issued and outstanding are three different numbers
This is where the confusion nearly always begins. The figure in the certificate of incorporation is the maximum the company may ever issue; it is not the number of shares the founders hold. When a founder says “the company has this many shares”, they are usually quoting the authorised ceiling, while the investor across the table has an entirely different figure in mind. Most of the arguments over an early cap table come out of that mismatch.
- Authorised shares. The ceiling recorded in the charter, above which the board simply cannot issue. Under one of the two franchise tax calculations this figure is, on its own, the entire tax base.
- Issued shares. Those actually created by board resolution and allotted to a shareholder. On incorporation only a modest slice of the authorised ceiling is normally issued.
- Outstanding shares. Issued shares less anything the company has bought back and holds itself; dilution and voting arithmetic run off this number rather than off the ceiling.
The option pool sits precisely on top of that distinction: it is carved out of shares that are authorised but not yet issued, it is not outstanding until options are exercised, and it is nonetheless counted in the fully diluted figure. The percentages argued over with an investor are percentages of that fully diluted base, and while the ESOP documents define the pool, the room underneath it comes from the charter. Set the ceiling too tightly and every pool top-up becomes a charter amendment, which reduces the exercise to collecting signatures. We saw exactly that at a software company with export revenue: by the time the first employee options were granted the ceiling was already full, the pool could not be created until the charter had been amended, and the hiring timetable ended up moving at the pace of that paperwork.
What does par value actually measure?
Par value is the nominal accounting value assigned to a share in the charter. It says nothing about what a share is worth, and it is not meant to. In a priced round (Series A) the price per share follows the valuation agreed with the investor; par value only marks a theoretical floor beneath it. That is why par value is normally kept sensibly small — a tiny fraction of a cent — which is settled market practice rather than any rule.
Delaware corporate law, the DGCL, permits shares to be issued either with or without par value; this is a drafting choice, not an obligation. The choice is not free, though, because par value feeds directly into the second franchise tax calculation. Founders who pick a comfortable round number because it “looks tidier” tend to learn the price of that tidiness when the first bill lands.
There are two calculations, and you pay the lower one
Delaware allows the tax to be worked out in two ways, and the company pays whichever produces the smaller figure. The sentence sounds trivial. It is in fact the entire mechanism that decides whether the bill is unremarkable or startling.
- Authorized Shares Method. It looks only at the authorised share count: 175 USD for 5,000 shares or fewer, 250 USD for 5,001 to 10,000 shares, and a further 85 USD for each additional 10,000 shares above that, with 175 USD as the minimum.
- Assumed Par Value Capital Method. It charges 400 USD for each million, or fraction of a million, of assumed par value capital, and carries a minimum of 400 USD. Because it also takes total gross assets and issued shares into account, its result is not driven by the ceiling alone.
Both calculations are capped at 200,000 USD, with the cap applied at 250,000 USD for large corporate filers. The annual report fee sits on top of the tax: 50 USD for non-exempt domestic corporations and 25 USD for exempt domestic corporations. The annual report and the franchise tax are due by 1 March each year, and that date applies whether or not the company has begun trading.
The real mistake is treating the state’s notice as the final word. That notice is produced using the share-count calculation alone. A company that wants the benefit of the other one has to run the figures itself, declaring its issued shares and total gross assets in the filing. Skip that step and you pay more than you owe — a fact most companies discover in year two, when somebody finally reads the assessment properly.
How many shares, and at what par value?
A workable rule falls out of the two calculations. Raising the authorised count pushes up the result of the share-count method; raising par value inflates assumed par value capital and so pushes up the result of the other one. Do both and both come out high — the company still pays the lower figure, but the lower of two large numbers is no comfort.
Most founders want a generous ceiling, and they are right to want one: it leaves room for an option pool, for adjustments between co-founders, and for future rounds, and a larger share count makes individual transfers easier to price. What keeps that preference affordable is holding par value very low. The smaller the par value, the smaller the assumed par value capital, and the more genuinely usable the second calculation becomes. A high ceiling paired with a high par value is, in our experience, the most expensive combination on offer.
Two questions settle the drafting. Who will receive shares or options over the next two to three years, and at what minimum accounting value should those shares be carried? The first answer gives you the ceiling, the second the par value. Deriving both from those answers, rather than inheriting them from someone else’s template, is what turns the first bill into an ordinary line of expenditure.
What changes in practice for a Turkish founder
In a Turkish joint stock company (anonim şirket) the share structure is fixed in the articles of association (esas sözleşme), and a company that adopts the registered capital system (kayıtlı sermaye) authorises its board to issue up to a ceiling. The logic resembles authorised shares in Delaware, with one decisive difference: in Turkey a high ceiling carries no recurring annual charge. In Delaware it does. Because the Turkish instinct is to set the ceiling wide and spare oneself the paperwork later, importing that instinct lands straight on the invoice.
The second difference shows up in the choice of vehicle. Seen from Turkey, an LLC looks simpler and cheaper to run. But the instrument institutional investors are equipped to buy — with share classes, options and preferences — is the corporation. Getting the structure right before a round is almost always cheaper than converting during one.
The third is calendar discipline. 1 March matches nothing in the Turkish corporate year, and the reminder arrives as one more email from the registered agent. Companies that leave that email unopened meet the consequences of late filing for the first time during a due diligence exercise, which is the worst available moment to explain them. Pointing the registered agent’s correspondence at an address more than one person in the company actually watches, rather than a founder’s personal inbox, is a duller precaution than it sounds and a more effective one.
In short, the ceiling and the par value in the charter are not housekeeping; they are the two numbers that set the balance between cost and flexibility for the next few years. Choose the ceiling from what the cap table actually has to carry, keep par value as low as it sensibly goes, confirm the bill by running the second calculation yourself instead of trusting the state’s notice, and fix 1 March in the company’s calendar. Those four steps remove most of the first-year surprise; the remainder is a matter of keeping the share register accurate.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
Author
If this is on your desk
Templates and checklists are free in the Founder Academy; for a specific situation, book a 30-minute intro call.
Founder AcademyBook an intro callMore from Vircon Insights
Secondary Sales in Turkish Startups: Consents, Structure, Tax and the Policy Every Company Should Write
August 10, 2026How SAFEs Work under Turkish Law: Discounts, Caps and the Limits of the TCC
September 2, 2026Why Write a Family Constitution? The Value of a Document No Court Will Enforce
August 26, 2026After the Flip: The Ten Mistakes Turkish Founders Make in Year One of the Delaware Topco
August 6, 2026ESOP After the Flip-Up: Migrating Turkish Option Plans into a Delaware Topco
August 5, 2026Where Investor Rights End: Veto Lists, Information Rights and the Board
September 6, 2026Related Practice Areas
Corporate Law
Share transfers, capital increases, board structuring, governance.
View service →Startup Law
Incorporation, founder agreements, ESOP, term sheets, regulatory matters.
View service →US Company Formations & Flip-Ups
Delaware C-Corp, flip-up structures, SAFE/convertible notes, 83(b).
View service →