When's The Best Time To Incorporate a Small Business?

Is there a specific time of the year where it’s ideal to incorporate? Here’s an inside tip. There is no best or worst time of the year to incorporate a small business.

Best Time to Incorporate a Small Business

Depending on your offerings and services, you may find your company does well seasonally or has specific quarters where sales are strong. When figuring out when you should start and incorporate a business, the winter months may be an ideal starting point. “Start a business” is a popular New Year’s resolution. Many entrepreneurs use the last few months of the year to draft business plans and prepare to launch a new company in the upcoming calendar year.

What if you decide to start a business towards the end of the year? You may find it’s advantageous to consider a delayed filing rather than a standard incorporation filing. This allows you to set an effective date of incorporation. This date is usually scheduled for 30 to 90 days out into the future. Once the effective date arrives, the business’ incorporation paperwork will be complete. The company is officially in existence. This gives you the chance to start the year with a new business. Setting the effective date for the new year means your business is not obligated to file or pay taxes or conduct annual maintenance for the previous year. This is because the business was not officially in existence.

Incorporate a Small Business: Choosing an Entity

The entity formation you choose to incorporate your business depends on a few factors. You need to consider the type of business and plans to grow and expand the company over time. Some of the most popular entities include these three structures.

Sole Proprietor

Almost every small business starts as a sole proprietor. This is a default entity.

A sole proprietor allows the owner of the company to exercise complete control over the business. This may be an ideal option for an entrepreneur who wishes to be the boss. A sole proprietorship is responsible for everything which impacts the business.

However, a sole proprietor does not have limited liability. The business owner is liable for good and bad things which impact the company. A sole proprietor is not privy to receiving as many tax benefits. This is due to the unincorporated nature of the business. A sole proprietor is fully responsible for paying self-employment taxes to cover their Social Security and Medicare obligations. This may amount to thousands of dollars — and can feel like a bit too much tax responsibility.

Limited Liability Company (LLC)

An LLC is a popular entity formation to incorporate your business. LLCs have a flexible management structure and limited liability protection. This creates a separation between the assets of the owner and the business. The separation ensures the owner’s belongings, like houses and cars, are not used for collateral in the event of an unforeseen circumstance, like a lawsuit.

An LLC may choose how to tax the entity. LLCs, which are pass-through entities, are taxed as partnerships on the federal level. They may elect to be taxed as another pass-through entity, like an S Corporation. This means a limited liability company is able to avoid significant self-employment taxes.


A corporation is ideal for incorporating a business which has plans to create a global presence or offer an IPO.

This is a highly structured entity formation. Incorporating as a corporation means the business needs to elect a board of directors and corporate officers, take corporate minutes during meetings, and establish bylaws. Corporations may issue shares of stock and sell percentages of the business to its owners (shareholders).

Other Entity Formations

There are even more entities available to incorporate your business. Some of these include partnerships, C Corporations, and S Corporations.

If you are unsure as to which entity is the right fit for your business, meet with a legal or tax professional. Ask any questions you may have about the incorporation process, so you have peace of mind in moving ahead to incorporate your business.

Incorporate a small business today. Contact MyCorporation at mycorporation.com or give us a call at 877-692-6772.