What to Include in Articles of Incorporation
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How to Write an Article of Incorporation
All business entities exist under state law. That is, state law recognizes the formation of a business entity. If a business entity is formed in one state, it must generally register to do business in another state if it carries on activities there. This certifies to the second state that the business entity validly exists under another state’s laws and to record its presence in the state. To learn more about business entities, visit the LawTrades blog.
The most developed or structured form of business entity is the corporation. It allows for the division between the owners and those who control the company for the benefit of owners. The structure of the company is laid out in two documents, the Articles of Incorporation and the Bylaws. The articles of incorporation is a document filed with the state (generally the office of the secretary of state) that brings the corporation into existence. Once the articles of incorporation are accepted or approved by the state, the state will issue a certificate of incorporation or charter to the incorporator(s). Once the state issues this document, the corporation exists. The incorporators must then undertake a number of actions to finish organizing the corporation to operate as a business entity.
What Terms or Provisions are Included in the Articles of Incorporation?
Each state will have its own statutes concerning what information is required in the articles of incorporation. The most commonly required provisions are as follows:
• The Incorporator(s) - The incorporator is the individual organizing the filing and signing articles of incorporation. That is, she is the individuals seeking to bring the corporation into existence. There may be more than one incorporator. This is very common with existing businesses seeking to reorganize as a corporation. The incorporators generally serve as promoters. They establish the agreements necessary to structure and fund the corporation after it comes into exists. The articles of incorporation must provide the name and contact information (address and phone number) of the individual(s) serving as incorporator.
• Corporate Name - The incorporator must identify (and may reserve) a corporate name prior filing for formation. Reserving a name allows the incorporator to secure the company’s name prior to filing the articles and while undertaking promotion efforts. The important aspect is that the name cannot be taken by another business entity within the state. It is important to not that this reservation and check of availability is separate from trademark law. Reserving a business name and using it for business operations may still infringe upon another company’s trademark in that name. The state will have specific requirements for or limitations on the name. At a bare minimum, the state will require that the name include a state-recognized indication of corporate status, such as Corp., Inc., Ltd., etc., at the end of the company’s name.
• Principal Business Location -The incorporators must identify the primary business location. More specifically, however, the state wants to know the location where business records will be maintained. This information will be publicly available. This is important, as owners (and sometimes individuals dealing with the business) must know where they can access the companies records. The types of records kept at this location will be those relevant to corporate governance and fiscal performance.
• Corporate Purpose - Most states no longer require that a corporation state its purpose. Nonetheless, most incorporators state the company’s purpose out of good measure. In any event, the incorporator will always include a statement that the corporation may conduct business “for any lawful purpose”. This puts the state and the public on notice that the corporation is not a special purpose entity. That is, the company may seek to expend or contract it services in the future, within legal limits.
• Registered Agent - All corporations must designate a registered agent. As the name implies, this individual is an agent of the company for receiving legal correspondence from the state or other interested parties. Notably, the state will send notices, such as: the certificate of incorporation, notice of annual dues, taxation matters, etc. Most importantly, if a company is being sued, the plaintiffs may perfect service of process by delivering (or having delivered) the summons and complaint to this individual. If the registered agent is inaccurate or cannot be located, states may still deem service of process to be valid when sent to this address. This can cause the company to be unaware of the legal notice and potentially in default for failing to answer the relevant legal claims.
• Type of Equity - The articles of incorporation lay out the equity structure of the company. That is, it will designate the types of classes of shares authorized to be issued. All companies must authorize at least one class of share, known as common shares. Startups and larger corporations will routinely authorize multiple classes of shares. The articles should state the number of shares authorized and the value at which these shares will be issued. This is known as the par value of the shares. It is important to not that a company may authorize as many shares as it so chooses. It does not, however, have to actually issue of the shares authorized. In fact, it is rarely the case that the company will issue all of its authorized shares. One major limitation on the number of shares authorized is the amount of the taxes that the state attributes to the company based upon the number of shares authorized. For example, Delaware charges a franchise tax at the time of corporate formation that is based largely on the number of authorized shares. The par value of any shares issued is generally very low to allow for liquidity and avoidance of tax repercussions when issuing said shares to existing owners.