Going out of town, but need to cancel your Delaware entity on the last day of the year? No problem! You can file your document now and include a future effective date of December 31st. This will enable you to enjoy your vacation without worrying about making the filing on time.
There are, however, some important rules you must remember with Delaware effective dates and times:
- Effective dates and times can be used for any type of business entity filing. It is important to keep in mind that the date of submission will be the filing date, although the filing is not “in force” until the effective date.
- Effective dates can’t be more than 90 days into the future.
- Effective dates can be made for any day of the year, even Saturdays and Sundays.
- Effective times can also be included, but are not required. The time must be specified as Eastern Standard Time or Delaware will not index the time given.
- If you would like a past effective date, the verbiage “for accounting purposes only” must be included. (Note that if the past effective date is in the previous year, the “for accounting purposes only” statement does not absolve the entity from tax or reporting obligations for that year.)
The most common uses of effective dates and times are for the end of the year or the beginning of a new year.
End-of-Year Effective Dates
Many businesses operate on calendar years (January through December). Businesses are closing out their books and winding up their affairs at the end of the year, therefore it is very common for an entity to file a document using December 31st as the effective date. This allows the entity to file the document, so they can have that out of the way, but have the filing coincide with the end of the calendar year. The other big advantage to filing early with a later, end-of-year effective date is that you can have the confidence that the filing will be done because any issues that could cause rejection will be pointed out at the time of filing, giving you the opportunity to fix them and avoid last minute problems that could derail your plans for time-sensitive filings. It is also important to note that Delaware requires that all taxes and, if applicable, annual reports for the current year be paid/filed at or before the time of filing for entities that will be terminated before year end with the future effective date
Keep in mind that effective dates can be used for any date of the year, not just the end of the year. This use of effective dates and times is commonly used for dissolutions, cancellations and mergers, but can be used for any type of business entity filing.
New Year Effective Dates: Tax and Reporting Ramifications
When forming a new Delaware business entity by filing at the end of the calendar year and specifying an effective date early in the new year, the entity will not incur taxes for the current year. The entity also gains the advantage of not having to report to the IRS for the current calendar year. The future effective date also means that the business does not have to elect directors/officers or draft bylaws or operating agreements until the effective date. This allows the business time to attend to these details.
Filers, however, need to keep in mind that when a future effective date is set for January 1st or further into the new year, the entity becomes responsible for that year’s taxes, which are paid in the following year. If it is a corporation, the business would also be responsible for the annual report for that year.
Knowing the basics of effective dates and times in Delaware can be extremely useful. Effective dates and times provide flexibility, as well as tax advantages, with the most common times to utilize them being the end of the calendar year for terminating entities or the new year for formations. You are now capable of handling your corporate affairs before that big vacation with no worries!
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.