A franchise tax is an annual charge some US states levy for the privilege of existing as a registered entity there. It is not a tax on profit and is usually owed whether or not the business trades. Delaware charges LLCs a flat $300 a year; California imposes an $800 minimum; many states charge none at all.
Why does Franchise tax matter for founders?
Because it is unrelated to revenue, franchise tax is what makes a dormant company expensive. An unused California LLC can accrue $800 a year, and states commonly require outstanding franchise tax to be cleared before they will process a dissolution.
Where can I read more about Franchise tax?
Note: A plain-English definition for orientation, not legal or tax advice. Rules change - last checked 2026-07-21.