By Nellie Akalp
Good timing—in comedy, cooking, and so many other aspects of life—contributes to success. It also has its perks when starting a business. If you’re preparing to launch a new company or transition your existing company from a sole proprietorship or partnership to an LLC or corporation, timing matters when forming your business entity.
In this article, I’ll discuss what to think about as you decide on the best time to file your business registration paperwork with the state and explain how a delayed filing (a.k.a. delayed effective date) might be advantageous.
How your formation filing’s timing can affect your LLC or corporation
Entrepreneurs have three timing options when registering their business entity with the state. Here’s how each can affect your business:
Mid-year
If you register a brand new LLC or corporation mid-year, you will be subject to all the tax and other reporting requirements associated with your entity for that year. And if your existing company switches to an LLC or corporation mid-year, you must submit two sets of income tax returns because your company operated as two different entity types during the tax year.
For example, suppose you operated as a sole proprietorship through May 20, 2024, and you registered an LLC that went into effect on May 21, 2024. When filing your 2024 income taxes, you would need to file the appropriate tax returns to report your sole proprietorship’s taxes through May 20 and another set of tax forms to report your LLC’s taxes from May 20 through December 31.
Likewise, a mid-year business entity effective date means that you’re subject to the compliance and reporting requirements associated with both business structures for that year. Although that might not be a big deal for businesses switching from a sole proprietorship or partnership to an LLC or corporation, it could become cumbersome if converting from an LLC to a corporation.
Year-end
Typically, states must receive AND process an entity’s registration form before it’s considered effective. Processing times may vary between just a few days to several weeks, with expedited filings completed in five to ten business days.
Keep in mind that Secretary of State offices across the country experience high volumes at this time of year, and it’s not uncommon for backlogs to happen. So, a late-November or December filing could potentially delay your business entity’s effective date—even a month or more into the new year depending on how far behind the state is in processing its filings.
January 1
A January 1 effective date provides a clean start for LLCs and corporations. For example, sole proprietorships and partnerships that change to an LLC or corporation will have just one set of tax forms for the tax year vs. the two sets of returns required if switching entity types mid-year.
Also, an LLC that’s effective January 1 rather than at the end of the previous year is not subject to franchise taxes for the prior year. Likewise, other compliance formalities kick in for the current year rather than the previous year (as would be the case had the LLC or corporation been formed mid-year or at the end of the year).
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Securing a January 1 effective date with a delayed filing
Some states allow what’s called a delayed filing to give business owners some control over their LLC’s or corporation’s effective date. With a delayed filing, you can submit your formation paperwork in advance and set a future date (i.e., a delayed effective date) for when you want your entity to be officially registered.
Different states have different rules for when they’ll accept a delayed filing, so it’s important to check with your state to confirm that: a) they allow delayed effective dates; and b) how far ahead of time they allow delayed effective date requests.
Examples of state time frames for delayed filings
Alabama: Up to 90 days before the requested effective date.
California: Up to 90 days before the requested effective date. (Note that in California, LLCs and corporations that submit their formation paperwork after December 18 will be considered to be in business effective January 1 of the next year, provided they do not conduct business between December 18 and December 31 of the current year.)
Florida: Up to 90 days before the requested effective date.
Illinois: Up to 60 days before the requested effective date.
Pennsylvania: Up to 90 days before the requested effective date.
Rhode Island: Up to 90 days before the requested effective date.
Texas: Up to 90 days before the requested effective date.
Virginia: Up to 15 days before the requested effective date.
Generally, it’s best not to wait too late to submit a delayed filing if you want a January 1 effective date. As I mentioned before, Secretary of State offices get very busy toward year-end, and they might not have an opportunity to process all formation filings before January 1. And remember, usually forms must be received AND processed before an entity is considered effective. So, if a business owner submits their registration paperwork on December 22, 2024, requesting a delayed effective date of January 1, 2025, they might end up with a later effective date if the state’s office is unable to process the formation paperwork until after January 1.
Also, be aware that not all states allow delayed filings. They include:
- Alaska
- Connecticut
- Delaware
- Hawaii
- Idaho
- Louisiana
- Maryland
- Minnesota
- Nevada
- New Jersey
How to request a delayed effective date
Consider your desired effective date and submit your formation paperwork within the state’s acceptable time frame. For instance, if someone wants to form an LLC in Alabama with an effective date of January 1, 2025, they will need to submit their delayed filing on or after October 2, 2024.
The formation documents (articles of organization for LLCs and articles of incorporation for corporations) should reflect the desired effective date. If a state allows delayed filings but doesn’t have a designated field on its form to request an effective date, the business owner can add a provision to request a specific date.
Is a delayed filing right for you?
A delayed filing gives business owners some control over the exact date their business entity becomes effective and avoids extra paperwork at tax time. It can also potentially defer certain fees (like the LLC franchise tax) and reports (like annual reports). Even if you submit the formation paperwork toward the end of the year, your LLC or corporation won’t be on the hook for those requirements until the following year because that’s when the entity became effective.
A delayed filing may or may not be advantageous for your situation, so consider consulting with your attorney or tax advisor for guidance.
About the Author
Nellie Akalp is a passionate entrepreneur, business expert, professional speaker, author, and mother of four. She is the founder and CEO of CorpNet.com, a trusted resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states.
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