The documents for incorporation differ by state, and the nature and type of the business looking to incorporate. In the United States, Corporations and Limited Liability Companies (LLCs) are the two main types of business entities, and require different documents to achieve that.
In this article, we will learn the differences between articles of incorporation and organization, their components, the filing process, and why they’re necessary.
Let’s get right into it!
Articles of Incorporation: Definition
The articles of incorporation – also known as a corporate charter, articles of association, or a certificate of incorporation – are legal documents filed to establish a company of a specific type as a business entity. In other words, they give the corporation its legal identity.
In practical terms, for a corporation to open a bank account, issue stock or shares, operate within a state, and engage investors, it must first file articles of incorporation.
In the United States, this is usually done with the Secretary of State or company registrar, depending on the state of incorporation. Delaware and Nevada are the most popular states for registering your corporation, because of their friendly regulations and minimal tax requirements.
Articles of Incorporation vs. Organization
Most people tend to confuse articles of incorporation with articles of organization, but they are not the same; now that we’ve defined the former, we’ll do the same for the latter.
The articles of organization are filed at the point of creating an LLC. In terms of function and components, they are no different from articles of incorporation. However, the regulatory requirements are different and might be stricter, depending on the state and industry the business is in. These are the primary thing to research for prospective owners learning how to incorporate their business.
The next step is filing your articles, so it’s time to learn how it works.
Filing Articles of Incorporation
The Required Documents
The components of documents to be provided upon filing articles of incorporation vary by state, but many of them are the same everywhere. Most of these components will be on the face of the certificate of incorporation, and they include:
- The corporation’s name and address
- The name and address of the registered agent responsible for accepting legal documents on behalf of the corporation; some states may require a formal agreement of the agent’s acceptance of this responsibility.
- The number and type of authorized shares; more details on this can be found in the articles of incorporation and their bylaws.
- The type of corporate structure (e.g., profit, nonprofit, etc.)
- The names and addresses of the founding board members
- The names, signatures, and addresses of the persons handling incorporation; a corporation can have multiple incorporators who do not need to be directors or stockholders.
- If applicable, the lifespan of the corporation, as some corporations are made to exist for a limited time and carry out a particular function.
- The number and type of stocks the corporation can issue.
Other components which are not required, but can be included, are:
- The limitation of directors’ liability
- Stockholder actions
- The assignment of authority to call stockholder meetings
- The purpose of incorporation, which may not need to be specific, depending on the state.
The Filing Process
The end goal of filing is to receive a certificate of incorporation.
After preparing the documents, the incorporator should schedule an appointment with the designated filing agency of their state. Procedures differ between states, but generally begin with paying a filing fee after submitting the required paperwork. The process is completed upon acceptance of the paperwork and approval of the corporation’s registration.
In most states, corporations must have both articles of incorporation and bylaws, even though bylaws are not to be filed. Bylaws only serve as internal documents setting out the rights and responsibilities of a corporation’s shareholders, directors, and other officials.
Benefits of Incorporation
Corporate Brand Identity
Customers are more inclined to trust and do business with a brand when its corporate identity is established, as are investors. Banks are more likely to finance your venture if it’s an official business, and you’ll certainly look better in the strict due diligence checks on your business. Where no official or formal records are found, chances are that funding will disappear for lack of confidence in the safety of investing in you.
A corporation’s tax liability can be reduced depending on the state of incorporation. This tax reduction is often justified through operational costs like insurance, green energy investments, employee retirement benefits, production costs, employee wages, etc.
Separation of Liability
Filing your articles of incorporation separates the corporation’s liabilities from those of its owners, in events of criminal activity, injury, or loss. The owners’ personal assets cannot be seized, auctioned, or sold if the business goes into debt. On the other hand, owners of unincorporated businesses are at risk of losing personal property in such situations.
Protection of the Business Name
Before an applicant is accepted, the state of incorporation will conduct a search to ensure that no other existing business or corporation has the same name. Applications for companies with an already taken business name won’t go through, because those names are protected – but only if their owners incorporated in time. Business owners also have the right to seek legal consequences for infringement of this protection.
For businesses with no preset lifespan, the articles of incorporation guarantee longevity and perpetuated existence. This means that, in the event of withdrawal or death of one or all owners, the business remains in existence. By extension, a transfer of ownership is an option for incorporated entities. Unincorporated entities suffer a different fate and cease to exist in such situations.