Should a Non-Resident Form a US LLC in December, or Wait Until January?

If you do not need the company right now, forming in January is usually the cleaner choice. If a contract, a payment or a bank account depends on it before the year ends, form now: the filings that follow are manageable, and waiting has its own cost. The date matters less than the reason.

December 31 is not a deadline, and nothing penalizes forming on January 2 instead of December 30. It is a decision point, because most of what a US LLC owes is counted by calendar year, and a December formation starts that count with a year that is almost over.

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01What Does a December Formation Actually Start?

Two things begin the day the company exists. The first is the state's annual cost. Delaware, for example, charges LLCs an annual tax of $400 and states that there is no proration, so a company formed in the last week of December owes the same tax for that year as one formed in January, due June 1 of the following year. A January company owes its first tax a year later. Each state counts the first year in its own way, so confirm the rule for the state you plan to use.

The second is the federal return. A US LLC wholly owned by a foreign person is treated as a reporting corporation for Form 5472, and the IRS instructions count amounts tied to the entity's formation, including contributions to it, as reportable. If your company receives its first contribution in December, it can owe a pro forma Form 1120 with Form 5472 for that short year, due April 15, with a $25,000 penalty for missing it. Whether the short year triggers the filing depends on whether there was a reportable transaction, and a first contribution is one. Our guide to Form 5472 explains who files.

02When Does Waiting Until January Make Sense?

Waiting makes sense when the company is preparation rather than activity: you are still choosing a state, comparing structures, collecting documents, or planning a launch for the new year. A January start gives the company a full calendar for its first year, one set of books from the first day, and its first state and federal filings a year further out.

It also gives you time to choose the state well. Forming quickly to beat a date is a common way to end up in the wrong state, which costs more to undo than a month's delay. Our comparison of Delaware and Wyoming sets out the trade-offs.

03When Is It Better Not to Wait?

Do not wait if money or a contract depends on the company. A client who needs to pay a US entity, a marketplace account that requires a verified company, a property closing that needs a buying entity, or a bank account that takes weeks to open are all real reasons. Opening an account is slow for a non-resident and only starts once the company and its EIN exist, as we explain in opening a US business bank account. In those cases, forming in December is the sensible call.

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04What Should I Do in the Last Weeks of the Year Either Way?

• Choose the state before you choose the date, not the other way around.
• Tell the person preparing your taxes whether the company will exist or receive funds before December 31.
• If you form now, keep a record of the first contribution. Its date and amount are what the IRS form reports.
• If you wait, use the time to line up the registered agent, the operating agreement and the bank documents, so the company can start operating the day it is formed.

None of this is a reason to hurry. It is a reason to know which calendar year you are choosing to start in. If you would like a second opinion on yours, talk to an advisor and we will look at your timeline with you before you commit to a date.