Should Your Business Incorporate Now or Choose a Delayed Filing?
When should you incorporate a business? The short answer is to do it prior to starting or launching the company. The sooner your business incorporates as an entity formation, the sooner it receives limited liability protection that ensures the safety of your personal and professional assets.
However, is there a “best” time to incorporate a business? For example, is it better for a business to incorporate during a specific season, such as spring or winter? How much of a factor does timing play in business incorporation?
Let’s examine two of the most popular options for incorporating a business: choosing a delayed filing versus incorporating now instead of at a later date.
Choosing a delayed filing to incorporate your business
What’s a delayed filing?
There are three types of filing options available to entrepreneurs. Small business owners may choose a standard or expedited filing for their business. (More about those two options in a moment.) Or they may choose to file as a delayed incorporation filing.
A delayed incorporation filing gives small business owners the chance to pick the effective date that their startup is officially in business. This is often a popular choice for businesses incorporating at the end of the year.
Example of a delayed incorporation filing
Let’s use an example: Deborah’s Doughnuts wants to incorporate its business in November and plans to submit its filing paperwork that same month.
However, it can be difficult for businesses to attempt to quickly incorporate in the final months of the calendar year. Many Secretary of State offices become backlogged with high volumes of filing paperwork, causing them to complete incorporation paperwork in the order in which it is received. If Deborah’s Doughnuts completed a standard filing, for example, it’s possible that the business may not be incorporated that same year. The company would essentially have to sit back and hang tight until it’s their turn.
Now let’s return to delayed incorporation filings. These filings allow entrepreneurs to set “effective on” dates for their businesses. You may reserve the date anywhere from 30 to 90 days out into the future.
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- Should You Incorporate as a Sole Proprietor or LLC?
Delayed filing benefits
Having a delayed filing provides extra benefits to small businesses. Some of these include, but aren’t limited to, the following:
- Saving money. Setting an effective date, especially if you plan to file at the end of the year, helps you save money on . If your business incorporates in December, for example, you will need to pay taxes and annual reporting fees for that year—even if you were only in business for about a month. A delayed incorporation filing, however, allows you to set a date into the future. This ensures that you know when your business is officially live and responsible for the taxes in that calendar year.
- Saving time. Do you need to complete other filings for your small business, like obtaining a tax ID or filing for necessary business licenses? Are you worried that you are pushing yourself to launch the business before you’re ready? A delayed incorporation filing reserves the effective date for your business. Once you know when you’ll be officially in business, you can use this time to concentrate on other necessary registrations, such as filing for a trademark or designating a registered agent.
- You can pick a special date. One of the sweet aspects of a delayed incorporation filing is that small business owners have an opportunity to choose a meaningful start date for their business. This may be the birthday of a loved one that inspired the business or a date commemorating a special achievement in your life, such as a graduation. Whichever date you choose, a delayed filing presents the ability to open your doors on a date that holds special meaning to you.
Choosing to incorporate now
Standard filing vs. expedited filing
If you decide to incorporate right now rather than opt for a delayed incorporation filing, you may choose between a standard or expedited filing for your small business.
What’s the difference?
A standard filing is a basic incorporation filing. Business owners will complete an application specific to their entity formation, such as an LLC or corporation, pay a filing fee, and submit these materials to the Secretary of State in the state they wish to incorporate their business. Standard filings are processed in the order in which the Secretary of State receives the filing. Be prepared to wait several days, or even a few weeks, for the paperwork to be fully processed.
An expedited filing differs slightly from a standard filing. You will still need to complete the application materials and pay a filing fee; however, the filing fee may be slightly more expensive. An expedited filing alerts the Secretary of State that your business has priority. This filing gives businesses a slight opportunity to cut ahead in line, so to speak, and to be filed faster, usually within a few days.
When is the best time to incorporate?
Ultimately, the decision as to when your business incorporates will be determined on a business-by-business basis.
Some companies may choose to incorporate out of urgency. For example, your business may offer seasonal offerings perfect for the autumn months. If it's June, choosing a delayed incorporation filing would be beneficial to the business to set its effective date just as fall begins. Or you may have offerings perfect for the current season. With that in mind, you may decide to file a standard or expedited filing to incorporate your business.
It’s also a good idea to examine the types of liability surrounding your business. Let’s say you’re in a high-risk industry, like trucking, and your business is not incorporated. You may not want to wait to incorporate the business and provide it with limited liability protection.
Take some time to determine your incorporation needs. If you need to consult a professional for advice or questions, seek out their assistance. You may also find it helpful to reach out to your local Secretary of State with additional questions about the filing process.
What happens after incorporation?
Once you figure out the best filing method for incorporating your business, prepare the rest of your small business for the effective date. This is the date when your business will officially be in existence, and once you commit to it, there’s no going back.
Make sure you have registered for and obtained all of the necessary documents to operate your business smoothly. Remember to pay all of the fees and stay up to date with tax and renewal deadlines, which will allow your newly incorporated business to stay in compliance and good standing with its state of incorporation.
