What are Articles of Incorporation?
A company’s articles of incorporation are a legal document that establishes a corporation and provides the government with relevant information to allow it to do business.
When you create a new corporation, you have to file articles of incorporation with the appropriate government body. In the articles of incorporation, you share relevant information about the business. This information includes the name of the company, the address, the purpose for which you’re forming the corporation, and the name and address of the registered agent. The registered agent is the point of contact for matters related to the corporation. Once the corporation files the document, it is a legal entity, and the information in the articles is a matter of public record. Depending on your state, you may also have to submit corporation bylaws, where you describe how your company will run.
Jane has opened her new (fictional) business, Downtown Books. Jane decides to incorporate her business, so she has to file articles of incorporation with her state’s secretary of state. Jane shares the name and location of her company. She also shares her name and address as the registered agent. Once the filing is complete, Downtown Books is now legally able to do business in her state.
Filing articles of incorporation is like registering for college…
Once you’ve registered for college, you’re allowed to begin taking classes. Your registration paperwork tells the school everything relevant they need to know about you. Similarly, filing your articles of incorporation tells your state everything they need to know about you and gives you the right to do business in your state.
A corporation is a type of business structure in which the business entity is legally separate from its owners. A corporation is an organization that has many of the same rights as individual people. Corporations can borrow money, enter into contracts, and engage in commerce. Because of the legal separation between the entity and the owners, owners are not generally liable for the actions of the corporation. So, if someone sues the corporation, they aren’t suing the individual owners.
When a business chooses incorporation (aka becomes a corporation), they have to complete specific actions. One of those actions is to file articles of incorporation in the state in which they are doing business.
The articles of incorporation share vital information about the company with the government and with the public. The articles of incorporation are critical because until the company files them, they are not officially a corporation. Without these articles, a company lacks the rights and protections that exist for corporations. These protections include the legal separation between the company and the owners.
For example, let’s say a customer sues a company. If the company is incorporated, the owners and employees of the company usually aren’t liable for the lawsuit. But if they haven’t filed their articles of incorporation, the business owners might be responsible.
Though the requirements for what to include in your articles of incorporation may vary slightly from state to state, there is some basic information that states will usually require.
The name of the corporation. A corporation is a separate legal entity from its owners, so it must have a distinct name. When you choose a name for your corporation, be sure to do your research to ensure someone else has not already selected that business name in your state, and be sure there are no trademarks on the name. If you choose a name that someone else has already trademarked, you might be on the receiving end of a lawsuit down the road. And if you decide on a name someone in your state already has, the state might reject your articles of incorporation. Most corporation names must include “Inc.” to indicate the status as a corporation.
The name and address of the corporation’s registered agent. The registered agent of a corporation is the contact person for the company. If someone needs to send documents to the corporation, such as for a lawsuit, the registered agent is who they will send them to. The registered agent could be an owner or employee of the company, or it could be a separate individual such as an attorney the corporation hires.
The purpose of your corporation. In the articles of incorporation in many states, the company must disclose the purpose of the company. The objective is generally not very specific. For example, according to Apple’s articles of incorporation, the company’s purpose is “to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.”
The name and address of the board of directors. If you’re going to have a corporation, you also have to have a board of directors. You’ll then need to list the names and addresses of those directors in your articles of incorporation.
The duration of the corporation. The duration of a corporation is the amount of time for which it will operate. A corporation may exist for a set amount of time or in perpetuity. For most corporations, the duration is perpetual, meaning they will exist indefinitely.
The type of corporate structure. There are different types of corporations. For example, an entity could file as a for-profit corporation or as a non-profit organization.
Information about the corporation’s stock. One of the critical differences between corporations and other types of businesses is that corporations have stock. When a company files articles of corporation, one of the things they must indicate is the number of shares of stock they will issue. Additionally, they may outline the rights and privileges one has by owning a share of stock. A corporation could also include restrictions regarding the transfer of stock, such as stating that someone cannot transfer stock without the approval of the board of directors.
The name, address, and signature of the incorporator. The incorporator is the person who is filing the articles of incorporation. This person could be an owner of the company, but that’s not necessary. There also might be more than one incorporator. The incorporator will have to share their name and address, and they must sign the articles of incorporation.
Preemptive rights of shareholders. A corporation might add preemptive rights to its articles of incorporation. These preemptive rights ensure that if the company issues new shares, current shareholders have a preemptive right to purchase them at their current equity percentage. Shareholders can waive this right, which allows others to buy those shares.
Procedures for amending or repealing bylaws. When an entity files articles of incorporation, they also must create their corporate bylaws. Within the articles, the company might outline the steps they must take to amend or repeal their bylaws.
The corporation’s fiscal year. A fiscal year is not always the same as a calendar year. Rather than running from January 1 through December 31, some corporations might choose to have their fiscal year run for a different 12-month period.
Indemnification for officers, directors, employees, and agents and limitations of liability. The indemnification and the limitations of liability are two sections in the articles of incorporation that specify who will not be held liable for actions of and against the corporation. The purpose of these sections is to indemnify (aka hold harmless) specific individuals. These components protect owners and employees from being on the receiving end of a lawsuit due to actions of the company or actions they took in the course of their job.
To file articles of incorporation, go to your state government. Often this occurs in the office of the Secretary of State. Most states have template articles of incorporation available, so you won’t have to start yours from scratch. Instead, you can just fill in the blanks within the template. Some states may instead refer to these articles as a corporate charter.
When you file your articles of incorporation, you’ll likely have to pay a filing fee. Depending on your state, you might also need corporate bylaws, which outline different parties responsibilities and outline how you’ll run your corporation. You often don’t need to hand these bylaws over to the state. You just need to have them internally.
Like a corporation, a limited liability company (LLC) is a business structure that allows an owner to separate themselves from their business legally. This separation helps them to limit their liability as an individual.
LLCs differ from corporations in a number of ways, including the ownership. In a corporation, there is company stock. Someone becomes an owner of the company by owning the company’s stock. So if you buy stock in Apple, you’re essentially part-owner of Apple.
LLCs, rather than having many owners in the form of shareholders, only have one owner (or a few owners, if the LLC is a partnership).
Because of the critical differences in the structure of corporations and LLCs, they have to file different paperwork to form their business officially. Instead of filing articles of incorporation, LLCs have to file articles of organization in the state in which they are doing business.
Articles of organization are documents that a company must file to establish itself as an LLC. Companies submit their articles of organization in the state in which they’re doing business, usually along with a small fee.
The articles of organization share essential information with the state government, such as the name of the LLC, a description of the company, the contact person and contact information for the company, and information about the owner(s), if different from the point of contact.
The requirements for creating your company as an LLC may vary slightly from state to state, so be sure to check with your state government for confirmation of what it requires.
What is Annual Percentage Rate (APR)?
Annual percentage rate (APR) quantifies the total yearly cost for loans and other forms of credit by including interest and often fees, but it doesn’t account for compound interest.
What is Attrition?
Attrition occurs when a company deliberately doesn’t replace workers who willingly left their jobs — typically in order to reduce staffing or reallocate resources.
What is a Fund?
A fund is a pool of money dedicated to saving, investing, or virtually any other purpose either by an individual, a business, a government, or any other type of entity.
What is a Balance Transfer?
A balance transfer is the transfer of a balance of debt from one account to another, often to transfer balances between credit cards.
What is Mutually Exclusive?
Mutually exclusive refers to the relationship between two or more events that cannot occur at the same time.