November 21, 2014

The Best Time to Incorporate a Business

incorporate a businessHave you been thinking about starting a business or incorporating a business or an existing sole proprietorship?

If so, you might be wondering what’s the best time to incorporate or form an LLC. Should you try to squeeze it in before the end of the year or wait until next year?

Below are three tips for determining when is the best time to incorporate your business:

If You Have Liability Concerns, Incorporate Right Away

If your business is involved in an industry or activities with a lot of liability, then you should incorporate or form an LLC as soon as possible in order to separate your personal finances from your business.

In this case, there’s no reason to wait and expose yourself to anymore liability than you need to.

If You’ll Gain Significant Tax Benefits From Incorporating, Do It ASAP

If your tax advisor has told you that you can significantly lower your taxes by incorporating, you will want to get your incorporation paperwork in as quickly as possible.

Of course, bear in mind that your corporation’s ‘start date’ is not retroactive. Any tax benefits you might receive from incorporating begin on the date you incorporate. This means you’ll typically have to file two business income tax returns for the year:

  • First, for the months that you operated as a sole proprietor (or whatever your previous entity may have been).
  • Next, another tax filing for the months after you incorporated.

If You’re Looking to Simplify Your Paperwork, Incorporate on January 1st

For small business owners that don’t have significant liability concerns, January 1 is the most logical start date since it eases the paperwork burden. You can start fresh in the new year as a corporation or LLC.  Additionally, you don’t have to worry about reporting taxes as two different entities during the year.

Because of this, January is the busiest time of the year for processing incorporation applications at many Secretary of State offices. In some cases, it can take up to 40-60 days to bring a Corporation or LLC into existence after you submit your filing documents with the state office.

If you’re using a document filing service, you can also look into something called a “delayed filing” that lets you complete your paperwork now and then delay your actual incorporation date until next year. This lets you effectively choose the date of incorporation and your application will be fast tracked to the front of the line in January.

Takeaway

If you have a pressing need to incorporate or form an LLC (i.e. you have liability concerns or will get significant tax benefits), then you should form your business entity as soon as possible.

However, if there isn’t a specific sense of urgency, look to incorporate in January and give your business a fresh start in the new year.

Benefits of Incorporating Photo via Shutterstock

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Nellie Akalp


Nellie Akalp Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

8 Reactions

  1. I incorporated two years ago and it has been so helpful. Just do it people. It’s not that hard and the benefits outweigh the cost.

    • Hi Robert – Congratulations on taking the step to inc your business and sharing your wonderful insights with the rest of our readers. Please feel free to reach out to me if I can help in any way in maintain your corporation in compliance; we work in all 50 states. – Nellie

    • Congrats, Robert. I think I’m bout ready to follow suit. I have no doubt that it will greatly beneficial to my business as a whole.

      Ti

  2. Thanks for the post. I think I’ll be incorporating in the first quarter of the new year. It’s about time that I make my business official. Thanks for the info and resources.

    Ti

    • Hi Ti – thanks so much for reading and commenting on my post! :) Please reach out to me anytime, as we would love the oppty to assist with your inc filing when you’re ready. Just mention SMBT and you can get a 10% discount for CorpNet.com services. :) – Nellie

  3. Thank you for pointing out the areas that should be learned to benefit from business incorporation. The steps may be difficult at first but with the right business data analysis, one can make a step forward and incorporate a business. This is really helpful for new entrepreneurs!

  4. HI,

    Thanks for kind help, here may in know what things that we should notice before starting the business?

  5. Time when you are determined to run your business is always the best time to start your business.

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