What Are Articles of incorporation?
To establish your own business, part of the legal paperwork required by your state will need you to draft articles of incorporation that set out your company's rules in writing and file them with the relevant state agency.
Articles of incorporation are documents filed with a government body to document a corporation's creation legally.
The basic structure includes general information about the business, including:
- The business name
- The business location
- The registered agent for the business
- A breakdown of the corporate structure
- The name of anyone eligible for authorized shares
In addition, they set out in what capacity the company is being created- as an S-corporation or a C-corporation and may include some specific rules for shareholders.
Here is an article that outlines articles of incorporation in a little more depth.
How Do You Draft Articles of Incorporation?
When you incorporate your company, there are two things you need to do:
- Create your business plan
- Draft your articles of incorporation.
To draft your articles of incorporation, you will need to use an online template or have an experienced attorney assist. Here are the three main steps to completing them:
Step One
Search to see if an entity exists for your preferred company name. Make sure when you search you include corporate suffixes such as Corp., Co., Inc., or Ltd. to describe your organization.
Step Two
Determine which tax structure your company will use. In general, most companies will be a C Corp unless the state or federal requirements for your business require that an S-Corp be registered.
Step Three
Once drafted and reviewed, you need to file them with your Secretary of State’s Office. Fortunately, you can operate outside your incorporation state. Still, you will likely need to file a foreign registration for the other State if you do.
Here is an article on drafting articles of incorporation.
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What is Included in the Articles of Incorporation?
Articles of incorporation, sometimes called certificates of incorporation, are relatively short compared to lengthy contracts. The good news is that the state government generally provides forms, so it’s easy to include everything you need.
The following elements are generally included in Articles of incorporation:
- The Full Name of the Corporation
- The Address of Business
- A Registered Agent
- A Purpose for the Business
- Delineation of Stock Shares
- A Named Incorporator
- A Named Director
- Named Officers, if more than one.
- A Duration or “Perpetual” Timeframe
- A Filing Fee
- A Franchise Tax
- A Contact Email
- An Effective Date
- A Director’s Liability Limitation Statement
- Identification of Closing Month for Taxes.
Finally, don’t forget that all members should sign and date the document. You should also pay the filing fee upon submitting the document to your Secretary of State’s office.
While articles of incorporation are short, template documents, it doesn’t mean they are easy to complete. The information you provide can affect your company indefinitely or result in unwanted legal issues. Seek immediate legal advice if you have questions related to your specific situation.
Here is an article that outlines what is needed in articles of incorporation.
Why Do You Need Articles of incorporation?
Drafting articles of incorporation can be a complex process, but it is worth it in the end for many reasons. Some of these benefits include:
- Protection from Liability: Articles of incorporation effectively separate you from liability that may be claimed against the organization. In this case, your personal assets are protected.
- Ability to Raise Capital: If you plan on trying to raise capital for your business, most lenders will require them. Also, if you plan on selling stock, they are needed. Some states do allow businesses to issue stock without filing articles of incorporation.
- The ability for Employees to Purchase Stock: Creating a corporation allows your employees to benefit by being part owners of the business through stock purchases.
- Unlimited Life: Corporations are not limited by time. Usually, they continue in perpetuity.
- Structure for Business: Setting up these articles requires you to formalize how you will run the business. This is beneficial for identifying your business structure.
- Tax Savings: Part of the reason you open a corporation is to save on taxes. Without articles of incorporation, you will not be recognized as an entity eligible for these breaks.
- Ease of Ownership Transfer: When you finally decide to sell, transfer of ownership with articles of incorporation is a breeze because only a name will change, and the general structure of the organization will stay the same.
Here is an article that outlines why you need articles of incorporation.
What Do Articles of Incorporation Look Like?
Articles of incorporation will vary in length depending on how complex the organization is. For articles of incorporation example templates, you can visit here.
Here is an article with an online template to complete articles of incorporation.
Does Every Company Need an Articles of Incorporation?
The term Articles of incorporation may be familiar to you. Still, you might not know exactly what it is or if your business needs one.
Suppose you are creating a C-Corp or S-Corp. In that case, the Articles of incorporation are required to set up a bank account and establish a legal identity. Keep in mind banks may require additional documents, such as corporate resolution or an operating agreement, to open a business account. Also, if your company plans on raising money from investors or issuing stock, filing incorporation articles is mandatory in most states.
If you are creating an LLC, you do not use articles of incorporation. You would use Articles of Organization instead because articles of incorporation are specifically for corporations.
Here is an article on understanding when you would need articles of incorporation.
What Types of Lawyers Draft Articles of Incorporation?
Many people are surprised to learn that there is more than one type of lawyer who can help them with incorporating their business.
Any lawyer experienced in business law should be able to assist you in drafting your articles of incorporation. However, if you want to ensure that everything is done correctly, you may want to hire a corporate lawyer.
Corporate lawyers specialize in forming businesses and can help you choose the best legal structure for your company. They will also provide general information about what's involved in forming a corporation and the various types of corporations.
Here is an article explaining why you should use a lawyer to complete articles of incorporation.
What Does it Cost to Draft Articles of Incorporation?
Articles of incorporation costs differ by location. However, in most states, it costs between $50 and $200 to file the necessary paperwork with the state government. The cost varies depending on the state and the type of corporation being formed.
To run your business as a legal entity, many states require that you complete articles of incorporation. Still, even if it isn’t needed, they are a good idea. They help formalize how you will be doing business and protect you from liability.
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