At year’s end, most businesses are balancing accounts and closing their books on what hopefully has been a successful year. It’s also the time of year when many business owners huddle with their leadership teams, legal experts, and accountants to explore the possibilities of restructuring using methods such as incorporating, converting to a Limited Liability Company, and other changes.
If you’re pondering such a move, and you plan to do business in California, you’ll want to weigh the benefits of what’s known as the state’s 15-Day Rule, which can save businesses money and time.
For example, under California’s 15-Day Rule, if a business incorporates between December 17 and December 31 of the current year (aka the “15 days”), that business can avoid filing corporate tax returns for the year and does not need to pay the state’s $800 minimum Franchise Tax Board tax. Plus, filing for structural changes before year’s end sets your business up nicely to hit the ground running in the new year and begin enjoying any associated legal and tax benefits as soon as possible. By waiting to file in January, you will be in line with hundreds if not thousands of other business owners doing exactly the same thing.
To the right business at the right time, these are significant advantages. Yet as a business owner or company leader, how are you supposed to know when the time is right and what course you should pursue?
All in the Details
Let’s look at the consulting firm, “Big & Better.” It is filing papers to become a corporation on December 20 of this year. Because it will not conduct any business between December 17 and December 31 of this year, it will meet the conditions of California’s 15-Day Rule. As a result, Big & Better Inc. will not need to file a California corporate tax return for this year, nor will it have to pay the $800 minimum tax for this year that is due next year on April 15.
If Big & Better Inc. were to file even one day sooner than 15-day window—December 16 for instance—or make any revenue between December 17 and December 31, the benefits of the 15-day rule would vanish.
What’s Right for You?
Timing, as they say, is everything and success in business is very much a matter of timing and preparation. That’s where Shoup Legal adds value. We put our years of experience and expertise to help you weigh factors unique to the law, to your company, and to where you’ve been and where you’d like to see yourself going.
We understand that no two businesses are alike. What’s right for company “A” may not be right for company “B,” and so on.
- Should you incorporate and when?
- What form of incorporation makes sense?
- Is forming an LLC better for you?
- Are you legally required to use one form of entity?
- Given recent changes in California statutes, in the coming years, how will LLCs, Limited Liability Partnerships (LLPs), and Limited Partnerships (LPs) be treated differently as compared to corporations?
While other businesses are pumping the brakes and knocking off for the holidays, Shoup Legal can be helping you prep and file restructuring paperwork right now. That way, as the new year begins, you and your team will be at the front of the line ready to implement what’s next for your business, while others remain stuck behind the annual bottleneck of tens of thousands of other filers.
Download our Business Incorporation Guide for help understanding the different options available to you, including whether taking advantage of the 15-Day Rule makes sense for you. If you have questions, do not hesitate to contact us at (951) 445-4114 or [email protected].