Articles of Incorporation

Articles of Incorporation are a legal document filed with the state government to establish a corporation legally. These documents provide details about the corporation, including its name, purpose, registered agent, and structure, and are a crucial step in forming a legal corporate entity.

Articles of Incorporation are a crucial legal requirement for forming a corporation. By filing these documents, businesses can establish their corporate identity, gain legal recognition, and enjoy the benefits of limited liability and enhanced credibility. Understanding the components, filing process, and importance of Articles of Incorporation helps entrepreneurs and business owners navigate the incorporation process effectively, ensuring a new venture is established on a solid legal foundation or a current venture is expanded accordingly.

• Legal Foundation Document: Articles of Incorporation are the primary legal documents required to form a corporation. Filing these documents with the state is mandatory.
• Corporate Identity: Establishes the corporation's legal identity separate from its owners, increasing liability protection and asset separation.
• State-Specific: Requirements and filing processes vary by state.
• Amendments: Can be amended to reflect changes in the corporation's structure or operations over time.

Purpose of Articles of Incorporation

The main purpose of the Articles of Incorporation is to provide the state with essential information about a new corporation, ensuring it is legally recognized and can operate within the state. The document serves as the foundation for the corporation's legal existence. While more small businesses in the U.S. tend to be formed under an LLC structure, corporations account for billions of dollars in the economy and, therefore, need to be set up and tracked accordingly by the state.

Critical Components of Articles of Incorporation

• Corporate Name: The corporation's official name must be unique and comply with state naming rules. It may also include a designation at the end, like "Inc." or "Corp."
• Purpose: A brief description of the company purpose or the scope of activities the corporation will undertake, which can be a general statement allowing the company to engage in any lawful business activity.
• Registered Agent: The individual or entity designated to handle legal documents on behalf of the corporation.
• Incorporators: Names and addresses of the individuals responsible for filing the Articles of Incorporation.
• Share Structure: Details about the types and number of shares the corporation is authorized to issue. Shares are units of ownership in the corporation that individuals pay for.
• Principal Office: The primary business address of the corporation.

Filing Process

1. Preparation: Gather all the above necessary information, including the corporate name, registered agent, and share structure.
2. Completion: Fill out the Articles of Incorporation form provided by the state's Secretary of State (SoS) office or equivalent agency.
3. Submission: Submit the completed form and required filing fee to the SoS. These fees vary by state, but NerdWallet advises budgeting between $100 to $300.
4. Approval: Once approved, the state officially recognizes the corporation, and a certificate of incorporation is issued.

Importance of Articles of Incorporation

• Legal Recognition: This is a mandatory step in establishing a corporation. It establishes the corporation as a separate legal entity from its owners, providing liability protection.
• Regulatory Compliance: Ensures the corporation complies with state laws and regulations governing business entities.
• Operational Framework: Sets the foundation for the corporation's governance, including its bylaws and organizational structure.
• Credibility: Demonstrating formal legal status enhances the corporation's credibility with customers, investors, and partners. It also offers an opportunity for a company to grow significantly and offer public offerings and other share/stock options.

Remember that in addition to Articles of Incorporation at the state level, a business must often meet other licensing requirements from its state and local municipality.

State and Local Variations

The specifics for filing Articles of Incorporation can vary by state, though the general process will be similar. Some states may require additional information, such as the duration of the corporation or specific clauses about director liability and indemnification. For more details, follow this link to find your state's SoS website. It's essential to consult the state's specific guidelines where the corporation is being formed.

Example Scenarios

Small Business Incorporation

A group of entrepreneurs started a tech company as an LLC under the original founders. They are rapidly expanding internationally and have decided to incorporate to attract more prominent investors. They check with their state for a streamlined version of the Articles of Incorporation, usually another premade form, allowing the LLC assets to transfer to a new corporation automatically.

Newly Incorporated

Fellow Mom-boss Kim Kardashian needs to incorporate a new clothing company to protect her personal assets. She files Articles of Incorporation with her state, outlining the company's name, purpose, and share structure.

Nonprofit Corporation

A group of community members wants to create a nonprofit organization to address local environmental issues. They file Articles of Incorporation as a nonprofit, specifying their mission and structure to gain legal recognition and qualify for tax-exempt status.

Tips when Forming a Corporation

• Choose a Unique Name: Ensure the corporate name is unique and complies with state naming rules to avoid rejection. Many states have an online database to check name availability.
• Registered Agent: Select a reliable registered agent or third-party service that can consistently receive legal documents on behalf of the corporation.
• Professional Help: Consider consulting with a business attorney or professional service to ensure all filing requirements are met, especially at the level of incorporation.
• Keep Updated: Regularly review and update the Articles of Incorporation to reflect any significant changes in the corporation's structure or operations.

Corporations & Taxes

After incorporating, businesses can choose how they file taxes for the corporation. When filing Articles of Incorporation, a company automatically becomes a C-Corp. Companies can take it a step further and file IRS Form 2553 (additional forms may be required for state-level taxes) to become an S-Corp. Below are the pros and cons to figure out which is suitable for your company: