What are Articles of Incorporation?
Articles of Incorporation are a set of formal documents that establish the existence of a company in the United States and Canada. For a business to be legally recognized as a corporation, it must file these documents with the Secretary of State or company registrar where the company chooses to operate. Some states, such as Nevada and Delaware, attract a large number of firms seeking incorporation due to their favorable tax advantages and regulatory environments.
The main components of the Articles of Incorporation include the name of the corporation, type of corporate structure, registered agent, number of authorized shares, and names and signatures of the owners of the corporation.
Many states charge a filing fee for companies that choose to incorporate in their jurisdictions. The state fee for filing articles of incorporation for a for-profit corporation ranges from $50 to $500, as of 2017. For non-profit corporations, the filing fee ranges from $0 to $125. The fee varies depending on whether the incorporators file the articles of incorporation by mail or through the registrars’ website. If a company is incorporated in one state and conducts business in other states, it must register in the other states as well. It must also file the required fees and taxes that are charged to companies in each state.
Purpose of Incorporating
The following are some of the advantages that accrue to a business that operates as a corporation:
1. Establishment of perpetual existence
Perpetual existence means that the corporation will continue to operate in the future even with the exit or death of the owners and executives. It makes corporations more permanent over an unincorporated business that may be terminated by the death or withdrawal of all or some of its owners. Incorporation also makes it easy to transfer ownership of the company to another entity.
2. Tax advantages
Incorporating a business in certain states enables firms to enjoy tax cuts on some of their operating costs. Some of these costs include the cost of production, employee wages, insurance costs, retirement benefits, and investments in green energy. The tax cuts help the corporation reduce its overall tax liability substantially.
3. Protection from liabilities
An incorporated entity operates as a separate entity from the owners, and this means that the personal assets of the owners/founders are protected from business liabilities. For example, if the corporation owes money to creditors, the creditors cannot auction the personal assets of the owners, such as residential properties, motor vehicles, and bank accounts to pay the business debts. However, if the business operates as an unincorporated entity, the owners face the risk of losing their assets to pay business debts.
4. Enhanced corporate image
Operating a business as a corporation adds credibility and trust to the company. Customers tend to trust businesses with the terms “Inc” or “Incorporated” at the end of their brand name. Trading as a corporation also helps gain the trust of investors and banks that are planning to invest in or finance the business.
Information Needed in Articles of Incorporation
The specific information included in the Articles of Incorporation varies from state to state, but the following are the typical details that are included:
1. Name of corporation
Companies that file for incorporation must indicate the name that the business will use to conduct its operations. The name must include the term “Inc” or “Incorporated” to differentiate the company from non-incorporated businesses.
2. Name and address of the registered agent
The business filing for incorporation must provide the name and address of someone who will receive important documents and legal papers on behalf of the corporation. The business needs to choose someone who will be reachable at all times during regular business hours. Companies that operate outside the state where they have been registered usually hire a registered agent service to receive official communications on their behalf.
3. Type of corporation
The business should disclose the type of corporation that it intends to register. The main types of corporations include non-stock corporations, stock corporations, and non-profit corporations. There are different fees for the various types of corporations.
4. Areas of operations for the corporation
Each state imposes different rules, depending on the purposes for which the corporation is formed. The business must disclose what it is selling and the type of business it is involved in.
5. Names and addresses of the initial directors
The business must provide a list and address of all nominated directors who run the corporation. The list may also include the names and addresses of the corporate officers such as the president, vice president, secretary, and treasurer.
6. Duration of the corporation
The business must indicate whether it will operate perpetually or for a fixed period of time.
7. Name and address of the incorporator
The incorporator is the person preparing the incorporation documents and who is in charge of setting up the corporation. He/she files the Articles of Incorporation with the state in which the corporation is registering and is responsible for providing any other documents required by the state until the corporation is fully registered. Thereafter, the incorporator has no other formal duties once the corporation has been set up.
Requirements for Articles of Incorporation
When filing the Articles of Incorporation, the incorporator must be meet the following requirements:
1. Application and fee
When applying for incorporation with the Secretary of State or registrar, the incorporator is required to file the application documents and pay the filing fee in the state of its principal address. The filing fee ranges from $50 and can sometimes be as high $500, depending on the type of company and the state it is incorporated in. The incorporators can get pre-printed forms at the Secretary of State offices or download the online form from the registrar’s website.
2. Required provisions
The contents of the Articles of Incorporation must comply with state laws and statutes on registration of corporations. Some of the required provisions in the Articles of Incorporation include name and address of the corporation, statements indicating the purpose for which the company is incorporated, duration of incorporation, etc. The incorporator must meet all the required provisions for the corporation to be approved.
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