What Are Articles of Incorporation?
Articles of incorporation are a set of formal documents filed with a government body to legally document the creation of a corporation. Articles of incorporation generally contain pertinent information such as the firm’s name, street address, agent for service of process, and the amount and type of stock to be issued. The articles of incorporation are used to legally form the corporation.
- Articles of incorporation is the documents filed with a government body (usually the state) that signifies the creation of a corporation.
- In the U.S., articles of incorporation are filed with the Office of the Secretary of State where the business chooses to incorporate.
- Broadly speaking, articles of incorporation include the company's name, type of corporate structure, and number and type of authorized shares.
- While the articles of incorporation are used almost exclusively outside of the company, other documents such as bylaws, operating agreements, or business plans are more useful internally.
- By filing articles of incorporation, corporations may gain favorable tax advantages, the ability to issue stock and raise capital, or shield owners from liability.
Understanding Articles of Incorporation
Many businesses in the U.S. and Canada are formed as a corporation, which is a type of business operation that is formed in the state where the company carries out its operations. To be recognized legally as a corporation, a business must incorporate by taking certain steps and making certain decisions required under corporate law. One such step is filing a document known as articles of incorporation.
Articles of incorporation are in the document necessary to register a corporation with a state and acts as a charter to recognize the establishment of a corporation. The document outlines the basic information needed to form a corporation, the governance of a corporation, and the corporate statutes in the state where the articles of incorporation are filed.
Articles of incorporation are also referred to as the "corporate charter," "articles of association," or "certificate of incorporation."
Where to File Articles of Incorporation
In the U.S., articles of incorporation are filed with the Office of the Secretary of State in the state where the business chooses to incorporate. Some states offer more favorable regulatory and tax environments and, as a result, attract a greater proportion of firms seeking incorporation.
For example, Delaware and Nevada attract about half of the public corporations in the U.S., in part because of the state laws that protect their corporations. Once established, the articles become a public record and provide important information about the corporation.
Many states charge filing fees for a business that incorporates in the state, whether the business operates there or not. A business that is incorporated in one state and is physically located or doing business in another state must register in the other state as well, which involves paying that state's filing fees and taxes.
Depending on the state of incorporation, a company may pay filing fees ranging from $50 (as in Iowa, Arkansas, and Michigan) to $275 (as in Massachusetts) as of 2020. The fees can vary depending on whether the articles of incorporation were filed online or by mail.
Articles of Incorporation Document Requirements
The articles in the document vary by state, but the following items (i.e. "articles" are typically included:
- Name of corporation
- Name and address of the registered agent
- Type of corporate structure (e.g., profit corporation, nonprofit corporation, non-stock corporation, professional corporation, etc.)
- Names and addresses of the initial board of directors
- Number and type of authorized shares
- Duration of the corporation, if it wasn't established to exist perpetually
- Name, signature, and address of the incorporator, who is the person in charge of setting up a corporation
Most states also require the articles to state the firm’s purpose, though the corporation may define its purpose very broadly to maintain flexibility in its operations. Amazon’s certificate of incorporation, for example, states that the corporation’s purpose is “to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.”
Other provisions outlined in a company’s articles of incorporation may include the limitation of the directors’ liability, actions by stockholders without a meeting, and the authority to call special meetings of stockholders. Each state has certain mandatory provisions that must be contained in the articles of incorporation and other optional provisions that the company can decide whether to include.
While domestic companies will submit an article of incorporation, foreign corporate entities must file a certificate of registration to operate in a given state.
Articles of Incorporation vs. Other Documents
Articles of Incorporation vs. Bylaws
While the articles of incorporation are externally-filed formation documents, bylaws are more of use to a company when used internally. Bylaws set the internal processes and organization of how the company should be run. Bylaws outline the rules and procedures for the management of a company. Not all states require a company to maintain bylaws, though many require a company to formally memorialize the bylaws.
Articles of Incorporation vs. LLC Operating Agreement
Articles of incorporation are required state filings to form a corporation, while LLC operating agreements are used exclusively for LLCs. In addition, the articles of incorporation outline the information structure of the company. Meanwhile, operating agreements often outline how internal disputes will be resolved between members or owners. An LLC operating agreement acts more of a personal protection document than the articles of incorporation.
Articles of Incorporation vs. Business License
A business license often permits a company to operate within a specific jurisdiction or industry. It gives the holder the right to start and run a business in the designed geographical location that issues the license. The rights granted by a business license are often more specific and niche than the articles of incorporation; though similar information may be required for both, the articles of incorporation simply legally form an organization and is the highest governing document for a corporation.
Articles of Incorporation vs. Business Plan
A business plan is an internal document that may be shared with major customers, investors, or lending institutions that communicates the formal operating plan of a company. Often a strategic document, a business plan is mainly used by internal management as a roadmap for decision-making. This is in stark contrast of the articles of incorporation which are information-only, non-strategic requirements for legal reasons.
A company should internally maintain a copy of its articles of incorporation request.
Importance of Articles of Incorporation
A corporation should take care when filings its articles of incorporation as these formation documents carry great significance. For starters, they are legally required to structure a new business or company. The corporation can not form and be recognized by the state as a legal business entity until the forms are registered.
Once a business is incorporated, it often has a greater ability to raise capital via stock issuances. A corporation cannot sell stock until is incorporated via the filing of its articles of incorporation. Corporations may also receive more favorable tax treatment compared to individual or personal tax rates.
In addition, there are personal liability considerations for companies being formed. Individuals are often held liable for a company's obligations until it is incorporated. By forming a legal corporation, business owners may be shielded from some personal liability for the company's debts. This liability protection cannot occur until the articles of incorporation have been filed.
Example of Articles of Incorporation
The image below captures the first few requirements from the Secretary of State form required by the state of Washington. This form is to be completed and returned to the government agency for review.
Some sections simply require a check mark for applicability or a 'yes/no' mutually exclusive selection. Other areas (such as the purpose of the corporation) require written response. As designated by the top of the form, this specific article of incorporation document template is for specific use for the formation of non-profit corporations.
The Washington State Articles of Incorporation form ends with the certification section in which an incorporator must certify the information given is correct to the best of their knowledge. The incorporator is also required to provide some personal information along with their signature.
The form above had been filed by Parrot Foundation, a Washington nonprofit organization. A snipped of Parrot Foundation's articles of incorporation has been provided below as an example of the dates, structure, and business purpose a company may request when filing its articles of incorporation.
What Is the Purpose of the Articles of Incorporation?
The purpose of the articles of incorporation is to legally form a corporation. The filing submits information to a state agency, and the state agency officially determines whether the corporation can be recognized as a formal company. Once incorporated, the business may receive a number of different benefits (mentioned below) via its status as a corporation.
What Are the Benefits of Filing Articles of Incorporation?
By filing articles of incorporation, a company can officially become incorporated. Once incorporated, the company may receive favorable tax benefits and have the ability to raise capital by issuing stock. In addition, the owners of the corporation have different liability over company debts once a corporation is formed.
How Do You Write Articles of Incorporation?
Articles of incorporation are filed with your state's Secretary of State office. That department provides a form that requests a variety of information about your newly forming corporation. Upon completing the required fields, the form is submit back to the Secretary of State for review. The state agency that reviews the form will contact you should they have any clarifying questions regarding your information.
Can One Person Submit Articles of Incorporation?
Yes, it is possible to incorporate a business with just one employee. That single owner will be responsible for all aspects of the company. In addition, that sole individual will be the only shareholder. However, they may be listed as the only member on the articles of incorporation.
The Bottom Line
If a company wants to become a corporation, it must file articles of incorporation with its appropriate state agency. This formation document is required as part of the incorporation process, and the articles provide the state a variety of information about the company and its incorporators. Different from other legal documents that outline how a company will operate internally, the article of incorporation is intended to help external parties evaluate and form a corporation.