If you’re thinking of setting up a business, you can structure it in several ways. Under state law, a corporation is a type of business organization that’s considered a separate legal entity from its owners. It’s different from a sole proprietorship, partnership, or LLC, offering its own unique set of advantages and disadvantages to the business owner.
If you opt to set up your business as a corporation, the first step is to file the necessary documents with the government so that it will be officially recognized as one. The name of the document that you need to create and file is called the articles of incorporation.
In this guide, we’ll cover what articles of incorporation are and what they purpose they serve. We’ll discuss their contents and explain what each piece is for. We’ll also check out some tips to help you avoid mistakes along with the steps to create and file your articles of incorporation.
What Are Articles of Incorporation?
When you want to establish a business as a corporation in the United States, you need to file articles of incorporation with the Secretary of State. Also known as a corporate charter or a certificate of incorporation, your articles of incorporation are a set of legal documents that contain basic information about the company and identify it as a corporation. Once filed, the articles become public record.
What Do Articles of Incorporation Contain?
The exact details shown on the articles of incorporation will vary from state to state but most will have the same basic information. Let’s take a look at what you need to include.
Name of the Corporation
This refers to your business’s legal name. It has to be unique and not be similar to another company in your state. An attempt to register a similar-sounding name (especially if they operate within the same market) will most likely end in rejection. A company trying to use Uberrr as the name of its corporation will likely get disapproved due to its likeness to Uber. To check for uniqueness, see the section “What’s Your Company’s Name” below.
Details of the Registered Agent and Registered Office
This is the entity who will receive official government correspondence and other business-related documents on your company’s behalf. This includes the name and location (street address) of your registered agent. This person can be an officer from your corporation or a third party commercial registered agent you hired for this purpose.
Initial Board of Directors
These are individuals who will be responsible for establishing corporate bylaws, which are rules that direct the operations of the corporation. To use an analogy, the initial board of directors can be compared to airline pilots who operate at the top. They oversee everything and steer the plane towards the preferred destination.
Address of the Corporation
The principal office address of the corporation needs to be stated within the articles of organization. Larger businesses may have headquarters located in various areas of the country, which makes it more important for them to identify their principal office.
Number of Shares of Stock
Business owners are required to specify the number of shares of stock that the corporation will issue. This includes the class (common or preferred) and par value of the stock. Par value is the original value of the stock when it’s issued. It’s up to the board of directors to decide if they want to issue all the shares now, or a portion of them now and a portion later. A corporation may have single or multiple shareholders and is required to issue at least one share of stock.
Note that C corporations are allowed to issue an unlimited number of shares while S corporations are only allowed to issue up to 100 shares of stocks. We’ll go over the different types of corporations below.
Duration of the Corporation
This refers to the length of time, identified in years, that your corporation will be in operation. If you only intend to operate for a set number of years, specify the number. Otherwise, you can choose a perpetual duration, which means your company has no intended close date. Depending on your state, a perpetual duration may automatically apply if you don’t provide a specific length of time.
Purpose of the Corporation
Most states do not require a specific statement regarding the nature of your business products or services, though some might. On those rare cases, we still suggest that you be broad with your description. A company providing digital marketing services, for example, may simply state their purpose is “to provide digital marketing services and engage in any lawful activity for which corporations may be incorporated in this state.”
There should be at least one incorporator who will sign all the articles of incorporation. An incorporator is a person who performs the process of incorporation. His or her role stops once the corporation is formed. The owners of the business usually act as the incorporators themselves, but sometimes they hire a third party from a legal firm for this purpose.
Things to Consider Before Filing Articles of Incorporation
It’s not uncommon for companies filing articles of incorporation to bump into problems during the process. Here are some questions to ask yourself before you begin so you can avoid potential issues.
What’s Your Company’s Name?
The company’s corporate name should be unique and have a corporate identifier (“Inc.” or “Corp.”). Because your name has to be unique (to prevent trademark infringement), use the search database of the Secretary of State’s website in the state where you’ll establish your corporation.
Some states like NY and California allow you to reserve a corporate name if you send a reservation request via mail. However, if you’re planning on filing articles of incorporation ASAP, there’s no need to reserve the corporate name since the incorporation (which will grant you the rights to the name) will be processed within a few weeks
What Type of Corporation Should You Choose for Your Business?
Choosing the right type of business structure is crucial because it has a significant impact on how the business is going to be taxed, your level of control as the owner, limitation of liability, and more. It’s important to consult with a lawyer who can advise on the perfect legal structure to fit your needs. There are 4 main types of corporations in the United States:
- C Corporation: This is a type of corporation wherein the owners and shareholders are taxed separately from the business entity. Meaning that the business must pay business taxes on its earnings and the business owners and shareholders must pay personal taxes on their personal portion of the earnings.
- S Corporation: This is a type of corporation that the IRS allows to pass income directly to its shareholders, so they only need to pay taxes on their personal tax returns. This helps the company avoid the double taxation that occurs in C corporations.
- Non-Profit Corporation: An organization that has been granted tax-exempt status and makes use of 100% of its earnings to execute its mission and goals.
- Limited Liability Company: Combines the limited liability features of a corporation with the pass-through taxation of a sole proprietorship or partnership.
Where to Incorporate Your Business
Deciding where to incorporate your business is almost like choosing where to set it up, as you have to consider several factors for maximum benefits and advantages. Each state has its own set of guidelines (taxes, fees, and state laws) when it comes to the process of incorporation.
Delaware is a popular go-to state for 66% of Fortune 500 companies. Why? Aside from having the most advanced and flexible business formation laws in the US, they have a separate court that lets judges resolve business disputes instead of juries. This allows them to settle cases faster than other areas of the United States, and many business owners would rather have a case decided by a judge than a jury.
You should also consider elements like formation fees, franchise taxes, and annual filing fees, as these will impact your corporation’s bottom line.
Who Is Your Registered Agent?
A registered agent is an entity (a business or a person) whose main job is to receive correspondence from the government and other compliance documents related to the business.
The registered agent must be a resident of the state where the business is registered. They are also required to have a physical mailing address (PO boxes are not permitted) so all important documents can be safely delivered and received.
Steps for Filing Articles of Incorporation
Filing articles of incorporation is a pretty straightforward process. But we suggest you hire an attorney to assist you in filing the articles of incorporation so you can be sure all important items are addressed. An attorney can also provide legal advice about setting up your corporation and keeping it in good standing. Here are three ways you can file articles of incorporation:
Filing Through the Secretary of State’s Office or Website
The first step is to visit the local Secretary of State’s official website. Check out the page for corporations and look for documents that may involve articles of incorporation or certificate of incorporation. Complete all required fields of the articles of incorporation form.
After filling out all necessary information, pay the filing fee. Depending on the state, you may be allowed to file the articles of incorporation completely online. Some areas will require you to mail it, however. For those states, you need to mail payment along with the documents.
Include a completed “Return Receipt After Mailing” form when you have it mailed at your local post office. You also have the option to personally deliver the articles of incorporation to the Secretary of State if you prefer. Remember that non-receipt of the documents may cause the incorporation of the company to fail.
Filing by Using Online Legal Help Services
If you want an easier way of filing your articles of incorporation, you can get help from online services like LegalZoom, IncFile, or RocketLawyer. They will ask users to fill out a step-by-step questionnaire that includes basic information like the corporate name and other provisions.
They will then create and file the articles of incorporation with your Secretary of State, including the creation of organizational minutes and corporate bylaws.
Once they receive the filed articles of incorporation back from the Secretary of State, they will send it to you together with other formation paperwork and instructions on what you need to do next.
Filing With the Assistance of an Attorney
Should you wish to delegate most of the tasks required to incorporate your business, you can always hire an attorney. Expect the process to be similar to using online legal services except that of course, you’d be working with them directly.
Ready to Incorporate Your Business?
Incorporating a business may sound like its a lot of work, but in reality, it isn’t. Using the steps mentioned above, you should be able to set up your corporation without much difficulty.
Study and understand all the important items that are included in your articles of incorporation. And always do your due diligence and consider hiring professional legal services to ensure a smooth process of incorporating your business. You’ll be a big time corporation in no time.