Should you incorporate your small business now or opt for a delayed incorporation filing? Generally, I tend to advise small business owners to incorporate as soon as possible. This ensures startups receive limited liability protection and may begin establishing credibility from day one of being in business.
However, I will edit this advice a bit towards the end of the calendar year. The end of the year means the Secretary of State’s office sees an influx of filing submissions. As a result, the state turnaround times for processing can be unpredictable. A standard incorporation that could be processed within a few days when filed earlier in the year could take a few weeks, or longer, to process if it is filed now.
Rather than waiting to see when your small business will be incorporated, it is often a much better decision to choose a delayed incorporation filing. Let’s review what this term means and the benefits it provides small business owners.
What’s a Delayed Incorporation Filing?
A delayed incorporation filing allows small businesses to set an effective date for when their company is officially in business.
Typically, most entrepreneurs incorporate a business through a standard filing process. This means their application paperwork is submitted and filed in the order in which it is received by the Secretary of State. Some entrepreneurs may decide to speed up the process with an expedited filing. An expedited filing means paying a little extra in filing fees to prioritize the business and its paperwork.
However, neither standard nor expedited filings guarantee small businesses an “effective on” date. Many variables, from state processing times to the existing backlog of filings, can make it difficult to predict when you’ll fully be in business. A delayed filing solves this problem by allowing you to pick a specific date and reserve it within 30 to 90 days out into the future.
Benefits of a Delayed Incorporation Filing
What else can a delayed filing do for your business? Here are some of the additional benefits for entrepreneurs.
Let’s use an example that your filing paperwork was successfully processed in December 2021. This means you have officially registered your business!
It also means that you are responsible for paying any fees for 2021 as well as all fees for 2022. You are also required to report and pay taxes for both calendar years to the IRS. Even if you were only incorporated for one month, you must pay taxes and fees associated with each year that your company is in existence. Otherwise, you could be penalized by the state and fall into bad standing. If taxes and fees remain unpaid, your business may even be involuntarily dissolved by the state.
However, let’s say that you submitted your paperwork for a delayed incorporation filing in December 2021. This means you will be able to reserve an effective on date in 2022. You would only be responsible for paying taxes and fees associated with 2022, not for the 2021 calendar year. This allows you to save some extra money and put it towards your business and its future expenses.
Setting a Significant Date
One of my favorite aspects of a delayed incorporation filing is that it allows entrepreneurs to set an effective on date that holds personal significance.
A meaningful start date for a small business may include examples like these:
- A date commemorating a special achievement, like graduating from a trade academy where you were able to finesse your skill set.
- The birthday of a loved one who was influential in supporting your business.
- A month specific to your industry, like opening a jewelry shop in February to celebrate love.
No Additional Costs
Did I mention that a delayed incorporation filing doesn’t come with an additional cost?
Outside of the incorporation filing fee, there are no extra expenses to submitting paperwork for a delayed incorporation filing.
Extra Time to Focus on Business
What else does your business need before it’s incorporated and officially up and running?
Filing delayed incorporation paperwork allows you to tie up any loose ends associated with the business. Do you need to obtain your federal tax ID? How about apply for business licenses? Maybe you would like to review your business plan one more time. Completing paperwork for a delayed filing gives you a bit of wiggle room to round up everything else you may need for your small business.
Is a Delayed Filing Right for Me?
If you are unsure about whether a delayed filing is right for you or your small business, the best advice is to meet with a legal professional. Ask questions about the process and find out if your state of incorporation allows delayed filing requests.
Finally, it’s important to make sure that you are ready to commit to a delayed incorporation filing. Remember that once you set this effective date, you have officially set your date of incorporation. You will not be able to go back on this decision afterward, so it’s critical that you equip your small business with everything it needs to succeed moving forward.