Need to cancel a Delaware entity on the last day of the calendar year? You are certainly not alone! The good news is you can claim some peace of mind by filing your document ahead of time with a future effective date of December 31st. However, there are some important rules to be aware of before you submit your filing.
Let’s review the inherent benefits of future effective dates and how to use them on Delaware business entity filings.
Why Use a Future Effective Date?
As many businesses operate on calendar years (January through December), the most common future effective dates and times are for the end of the year or the beginning of the year.
Filing an entity’s documents with a December 31st future effective date allows you to get a jump on year-end wrap up while still having the documents coincide with the end of the calendar year. Plus, filing early with a December 31st future effective date provides opportunity to fix any issues that could cause rejection, as they will be pointed out at the time of filing. Future effective dates help you avoid last-minute problems that could derail time-sensitive filings.
When forming a new Delaware business entity, future effective dates allow you to file at the end of the current calendar year and specify a future effective date in the new year. This is particularly helpful with respect to tax obligations. As the entity will not exist until the effective date in the new year, the entity won’t incur any Delaware franchise taxes for the current calendar year. Keep in mind that the entity would be responsible for taxes in the new year, which would be paid in the following year. If it is a corporation, the business would also be responsible for the annual report for that year.
Remember that effective dates can be used for any date of the year, not just the end of the year. Effective dates and times are commonly used for dissolutions, cancellations and mergers throughout the year, but can be used for any type of business entity filing at any time.
Rules for Delaware Effective Dates and Times
Before you include a future effective date on your Delaware filings, be aware of the following details:
- Effective dates and times can be used for any type of business entity filing.
- Effective dates for corporations can’t be more than 90 days into the future.
- Effective dates for LLCs and LPs can’t be more than 180 days in the future.
- The date of submission will be the filing date, but the filing is not ‘in force’ until the effective date.
- Effective dates can be made for any day of the year, even Saturdays and Sundays.
- Effective times are not required but if included, the time must be specified as Eastern Standard Time or Delaware will not index the time given.
Important note: If an entity is being terminated before the year’s end using a future effective date, Delaware requires all taxes and, if applicable, annual reports for the current year be paid/filed before or at the time of filing.
Using Past Effective Dates
It is also possible to specify a past effective date on a filing. If so, the verbiage “for accounting purposes only” must be included on the filing. If the past effective date is in the previous year, this statement does not absolve the entity from tax or reporting obligations for that year.
Knowing your way around of effective dates and times in Delaware can be extremely useful. Effective dates and times provide flexibility (as well as tax advantages) for year-end terminations, new year formations and all the dissolutions, cancellations and mergers that happen in between.
Need some year-end filing assistance? Our team is ready to help.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.