If you're incorporating a new startup before the end of the year, you might be able to save around $400. How? By avoiding the 2022 Delaware franchise tax.
Delaware franchise taxes aren't pro-rated, which means that a Delaware corporation incorporating on December 31, 2022 will have to pay the same franchise tax for 2022 as one that incorporated on January 1, 2022. If you have investors ready to wire funds, this probably isn’t a big deal. But if you're not in a rush, it could be a waste of money.
To avoid this, you can take advantage of a little-known feature of Delaware law that allows you to specify the effective date of an incorporation. If you specify January 1, 2023, your corporation won't exist until then, which means it won't need to pay the 2022 franchise tax.
Of course, you won't be able to do other legal paperwork or open bank accounts until the incorporation is effective. Why might a January 1 effective date still make sense for you? Two reasons:
You want to make sure no one else takes your startup's name.
It can feel like a minor miracle to find a name you like that isn't already taken. By filing your incorporation paperwork, you can secure the name you want when the filing is accepted, even if the incorporation won’t be effective until later. You could reserve the name instead, but that adds unnecessary expense and complexity to the process.
You want to hit the ground running in 2023.
Maybe you’ve decided to wait until after the end-of-year holidays to focus on your new startup. Filing your incorporation paperwork before you ring in the new year can help save you some time in 2023.
In addition, the start of a new year can be busy for the Delaware Division of Corporations, which can lead to delays in processing new incorporations. Filing ahead of time can help you beat the crowds and avoid those delays.
We've quietly made January 1 effective date incorporations available to startup founders for many years, and are excited to bring them back again. From now until the end of the year, you'll be able to have your incorporation take effect on January 1, 2023 when you incorporate a new startup on Clerky.
Of course, if you prefer, you can still choose to have it take effect immediately when the Delaware Division of Corporation files it.