Planning to Incorporate Before Year End? Hold That Thought.

It’s the end of the year and many founders are itching to start their Next Big Thing ASAP, but if you were about to pull the trigger on a new corporation over the last few weeks of the year, don’t! Just a few days can save you $450.

TLDR: Delaware charges an annual franchise tax based on your company’s authorized shares and assets. For high-growth startups with millions of authorized shares (which you’ll need for future equity grants), the minimum franchise tax is $450. Here’s the catch: even if you incorporate on December 30th, you owe the full $450 for that entire tax year. But if you wait and incorporate in early January, you won’t owe franchise taxes until March 2027—buying you over a year before that first payment is due. It’s the same company, the same structure, just better timing. The only reason to rush incorporation in late December is if you have capital that needs to land in the company before year-end or you’re converting an existing entity you want closed out in 2025.

Why Should You Wait To Incorporate Your Startup?

There is a surge in new business interest right around the year-end/new year time frame. While any time is a great time to start a startup, there is a minor technicality right around the year-end boundary that founders of high growth startups should pay attention to.

Most US based (or US hopeful) high growth startups should be Delaware C Corps with millions of authorized shares to incentivize future employees, advisors, and other contributors appropriately. Delaware has an annual obligation called Franchise Tax that is based on the shares and gross assets of the company. Companies with millions of shares have a slightly higher franchise tax minimum than companies with less than 5,000 shares ($450 instead of $175) but you’ll save far more money and hassle in the long run just starting out in the millions—amending things is more expensive than the slight year-one savings.

While most startups will pay the bare minimum franchise tax for the first several years of operations, even being incorporated for just 1 hour in the calendar year means you are on the hook for those taxes. So, unless you’ve got thousands of dollars on the line that needs to get into your company today, or you’re converting an entity you want wrapped up in 2025, it’s prudent to just wait until the first week in January to incorporate. You won’t have to file and pay your franchise taxes until Q1 2027 since you’ll only be in operations in 2026.

Here’s a quick video of Pete and Ryan going through franchise tax and formation best practices in more detail.

This is considered a “startup best practice” that founders may overlook. We created Mission Control to support founders and remind them of things like this.

There’s a lot of these subtle yet significant trip ups in early startup land and we try to help founders navigate them. Hell, for the whole month of December our SaaS product that incorporates Delaware C-Corps (Gust Launch) automatically gives founders the option of deferring their filing until the new year based on the same info above. Those kind of smart defaults and guardrails are what makes Gust’s founder offerings different: industry standard tools with guidance that meets you where you’re at instead of assuming you know all this already.

We also run Gust’s Mission Control program that is an always-on, equity-free, human supported accelerator to get founders informed, unblocked, and making progress on their venture.

If you are interested in converting your LLC or C Corp from a state other than Delaware, we can help! We’re building out a conversion solution, apply here and we’ll be in touch.

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