Unlike some states (like Delaware) that tax you annually based on the number of shares you have authorized, the District of Columbia does not base its annual Franchise Tax on your stock count.
In DC, the quantity of shares only affects your one-time setup fee (the filing fee for your Articles of Incorporation). Once the corporation is formed, your annual tax is based on your income and gross receipts, not your shares.
Here is the breakdown of how stock affects your costs:
1. The Setup Fee (One-Time Cost)
When you file your Articles of Incorporation (Form DBU-1), the fee is calculated based on your Authorized Capital (the total value of all shares you are allowed to issue).
| Authorized Capital Value | Filing Fee |
|---|---|
| Up to $100,000 | $99 |
| $100,001 to $500,000 | $550 |
| $500,001 to $1,000,000 | $1,100 |
| Over $1,000,000 | $1,650 |
Pro-Tip for the “Minimum” setup: Most small corporations set their initial stock at 10,000 shares with a $0.01 par value. This equals $100 in authorized capital, keeping you in the lowest $99 filing fee bracket while giving you plenty of shares to distribute to founders.
2. The Annual Franchise Tax (Recurring Cost)
As mentioned, this tax is based on money made, not shares authorized.
- $250 Minimum: You pay this if your DC gross receipts are $1 million or less.
- $1,000 Minimum: You pay this if your DC gross receipts are over $1 million.
- 8.25% Rate: If your net income is high enough that 8.25% of it exceeds the minimums above, you pay the 8.25% instead.
3. The Biennial Report (Every 2 Years)
Every two years, you must file a report to keep the corporation active.
- Cost: $300 flat fee.
- Stock impact: None. The fee is the same whether you have 1 share or 1,000,000 shares.
Summary: What is the “Sweet Spot”?
If you want to keep your costs at the absolute minimum:
- Max Stock for the $99 fee: Ensure the (Number of Shares) × (Par Value) does not exceed $100,000.
- Example: 1,000,000 shares at $0.10 par value would trigger a $550 fee.
- Example: 1,000,000 shares at $0.0001 par value (common for startups) equals $100 in capital, keeping your fee at $99.
- Max Stock for Taxes: There is no maximum. You can authorize 100 million shares, and as long as your “Authorized Capital” value was declared correctly at the start, it won’t increase your annual taxes.
A small warning: If you choose “No Par Value” for your shares, DC may default to assigning a value (often $1.00 per share) for fee calculation purposes, which could accidentally push you into a higher filing fee bracket. It is almost always safer to assign a tiny par value (e.g., $0.0001).