The Articles of Incorporation (AoI) is known as a charter document; it helps establish the legal existence of a company in North America (United States, Canada, and Mexico) and some jurisdictions worldwide, including Japan and South Korea.
It’s a regulatory document that outlines a company’s operations and its purpose. Regulatory authorities establish the minimum requirements for Article contents within a given jurisdiction.
Articles of Incorporation are a baseline, minimum requirement to conduct commercial activity as an independent legal entity. Depending on circumstances, however, management teams can expand beyond just the basics to suit specific business circumstances.
The Articles of Incorporation (AoI) can be considered the “constitution of a company.” At a minimum, it must meet the rules and regulations governing the particular business structure within a jurisdiction.
The articles state the organization’s purpose and broad strategies to accomplish its short-term and long-term goals.
Generally, the articles detail a company’s legal form, purpose, capital structure, governance, records, and other terms of its existence.
Purpose of the Articles of Incorporation
There are many reasons why it might make good business sense for a company to incorporate. If it does, the filing of Articles of Incorporation is one of the most important requirements for authorities to ensure that a business is abiding by local regulations. Without AoI, a business could not operate as a separate legal entity.
The document is often referred to as just the Articles. It should detail the name of the company and its legal form, as well as other important items like its purpose, its capital structure, corporate governance considerations, as well as how and where the administration of corporate records will be managed.
Some jurisdictions may refer to Articles as a Certificate of Incorporation, as a Memorandum of Incorporation, as Articles of Association (AoA), Memorandum of Association, Constitution, or Articles of Organization (among others).
Common Components of the Articles of Incorporation
Articles of incorporation are relatively similar worldwide, but the exact terms still vary across jurisdictions. Here is a public example from Alphabet Inc., Google’s parent company. In general, it includes the following:
The company name and its business form
The intended purpose of the company
How the capital structure will be organized
How the corporate governance function will be implemented
Details about the corporate record-keeping and general administration
Company Name and Form of Business
In order to qualify as a separate legal entity, a company must have a name that is distinguishable from other businesses; this is outlined in the Articles. An address is also typically included to ensure that the company registration is attached to a legal address somewhere within the same legal jurisdiction.
In some geographies, rules exist that require specific suffixes such as “Inc,” “Ltd,” or “LLC;” these legally denote a specific form of business structure. Many jurisdictions also prohibit certain words if they’re deemed to be offensive or if they raise the potential to cause confusion among the general public.
Generally, a company may exist in perpetuity; however, Articles may also expressly limit its duration and outline how it may legally cease operations or existence, depending on specific circumstances or events.
Purpose of the Company
The purpose of a for-profit business or organization is to pursue benefits for its shareholders. They accomplish this by delivering value to stakeholders or to society in general.
Non-profit organizations, on the other hand, seek to generate social benefit by providing other, less tangible value to members or to society. Whatever the intended benefit is being sought, the organization’s Articles of Incorporation must expressly stipulate this purpose.
While general purpose statements like “management” are permitted in some jurisdictions, many others require that an enterprise’s purpose be outlined in specific detail (i.e., “the operation and growth of a restaurant chain”).
A non-stock corporation or other companies limited by guarantee may be known as non-profit companies in some jurisdictions. For example, in Delaware, certificates for such organizations simply state that there is no capital stock and any conditions of membership.
The relationship between stakeholders and the company is represented here. The company grants rights and responsibilities in exchange for stakeholder support.
Directors, officers, shareholders, or members rights and obligations, fall in this category.
As directors and officers are agents for the company’s owners, jurisdictions have corporate governance rules that outline their duties and liabilities. For example, in Canada, there is a duty of care
. For shareholders, this can include dissenters’ rights. Companies may offer indemnity for directors within the articles of association to attract high strong candidates.
Articles may customize methods that directors, shareholders, and members can make decisions as a group, through annual general meetings, etc. Some jurisdictions also specify the minimum frequency of meetings, who participates, how voting rights are allocated, and the minimum votes that can bind the company, etc.
Administration of Corporate Records
Maintaining, accessing, and distributing records to stakeholders are sometimes stated within the Articles, but they may also fall under local business rules.
On the other hand, Articles can limit access to financial records if there are no legal and unconditional rights for shareholders. For example, it may state shareholders have no right to review records at the registered office at any time. To compel its production for review may require litigation.
Submissions of other records after incorporation (e.g., annually or quarterly) are common. Production of records for tax authorities and for the court are some examples. Generally, hard records allow independent confirmation of operations beyond the individuals involved in the company.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:
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