Legal News

Cost Saving Tip for Year-end Corporate (and LLC) Formation

Posted on 17/1/2015 | Category: Legal News

Here’s a small tip for the client who is considering formation of a new corporation or limited liability company (LLC) very late in the year. Wait. At least until December 17.

As most people know, California requires that every corporation and LLC pay an annual minimum franchise tax of $800 for the year in which such entity is formed, and that it file a corresponding tax return for that same year. However, there is an exception not widely published, which provides that any new corporation or LLC formed in the last two weeks of the year (typically, this means on or after December 17) is not responsible for paying the $800 minimum franchise tax for the year in  which it was formed, nor required to file a tax return for that same year.  In fact, were you to form a new entity on December 15, you would be required to pay the $800 for the entire year in which your entity was formed, and you would have to file a corresponding tax return for that same year. Not fair, but true. So, if your plan is to set up a new entity in order to hit the ground running on a new business for the new year, or you just acquired a new parcel of property late in the year and wish to protect as much through creation of a new LLC, and you are not otherwise required to have your new corporation or LLC formed before year’s end, you may be well-served to wait until the final two weeks of the year to form your entity.