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Your Guide To
Articles of Incorporation Basics
Filing articles of incorporation with your Secretary of State or other corporate registration division is the first official step in your corporation’s existence. It is quite easy to do if you understand what is happening. You need to get this right, so you’ll need some very basic information relating to the topic. I may be able help you with that. I have formed, operated and maintained hundred of companies – corporations, limited liability companies, partnerships and trusts – over the past twenty-five years.
This discussion is intended for you if you are forming your closely held corporation (or LLC) to operate your small business or professional practice, or to hold assets and investments. It is also intended to be informative – to help you avoid embarrassment when you discuss your corporate structure with your spouse, family, business associates, banker and professional advisors. It is not intended as legal advice.
[Note: While this discussion’s focus is mainly on “articles of incorporation”, a similar discussion could apply to a limited liability company. For example, an LLC’s counterpart to a corporation’s articles is its “articles of organization”. Certainly LLCs are different from corporations; however, there can be similarities in the way they are formed and operated.]
WHAT IT IS
A corporation is whatever the state says it is. Thus saith the United States Supreme Court:
“A corporation is an artificial being, invisible, intangible and existing only in contemplation of law. Being a mere creature of law, it possesses only those properties which the charter of its existence confers upon it.”
— The Trustees of Dartmouth College v. Woodward, 17 U.S. 518, 636 (1819) US Supreme Court
Companies are formed under state (not federal) statutes. The state general corporation laws apply equally to your small closely-held corporation as well as to large publicly traded corporations. There are four primary sources of corporate law:
- State statutes, the general corporation laws
- Court rulings, case law;
- Federal statutes regarding securities, mergers and acquisitions, taxation, etc.; and
- The corporate articles, bylaws, and other governing instruments.
There are two primary privileges the state grants to your new corporation: 1) its right to a separate legal existence distinct from its owners and operators; and 2) its shareholders (stockholders) are not personally liable for the corporation’s debts and obligations.
State Statutes
Some corporate statutes are mandatory, such as rules regarding the use of certain words in a company’s name. For example, the state must usually grant prior approval for you to include the word “bank”, “insurance”, “trust” or “trustee” in your corporation’s name. (In Great Britain, the word “royal” is restricted.). Also you cannot commonly use a corporate name that is deceptively similar to that of another corporation, LLC, limited partnership or other entity already in existence in your state.Your corporate name will likely be required to end with a term that identifies it as not being a natural person, and one that puts the public on notice that as a separate legal person it is responsible for its own debts and obligations. This is especially true if you plan to use your own or another human name for the corporation. Corporate name endings that send the right message are: Incorporated, Incorporation, Inc., Corporation, Corp., Company, Co., Limited, Ltd., and so forth. (For limited liability companies, name endings are: Limited Liability Company, Limited Liability Co., LLC, L.C., Limited, Ltd., and so forth.)
Other statutes may only apply when the articles of incorporation or bylaws are silent regarding certain operational, procedural or practical matters affecting shareholders’ rights, elections, or technicalities. So, the corporate articles and bylaws may be the most important source of the corporation’s regulations and internal operations rules – perhaps more important than state statutes in governing the practical administration of the corporation.
Court Rulings
Case law is the state court’s interpretation of the general corporation statutes, and it addresses issues that may not be covered by the state statutes, articles of incorporation or bylaws – issues not addressed elsewhere.
Federal Statutes
Federal laws do not govern the creation of corporations as that is done at the state level. However, there are federal laws that affect the issuance and sale of securities; stocks, bonds, futures, options, etc.; mergers and acquisitions; taxation; international trade or commerce, etc.
Articles of Incorporation
A corporation's life begins upon filing and acceptance of its articles of incorporation, or granting of a certificate of incorporation, usually from the Secretary of State or other corporate registration division. Usually included in the articles are the following:
- The corporation’s name, including an appropriate ending word
- The resident agent’s name and address within the state of incorporation
- The resident office address within the state of incorporation
- The total number of authorized shares and their par value; or the total amount of authorized share capital; and their classes (if any)
- The names and addresses of the first corporate directors
- The purpose of the corporation
- The duration of the corporation
- The name and address of the incorporators
- Any other optional information you want to include in the filing
AMENDING ARTICLES OF INCORPORATION
It has been said the articles of incorporation are a contract between the corporation and its shareholders. Articles can be amended by actions taken by the directors with shareholders’ approval. Usually this is followed-up by filing the amendment with the Secretary of State or other corporate registration division.
RESTATING ARTICLES OF INCORPORATION
Articles of incorporation may be restated. This is a different process from amending the articles. Over time, if you have made several amendments to your corporation’s articles, it can be complicated to track the amendments and define the current articles in a manner that is easily understandable to business associates, lenders, title companies, or others with whom you will conduct important corporate business. The solutions is to restate the current articles completely and concisely as they now are. This restatement can be filed with the Secretary of State or corporate division and certified for official corporate business use. Simple.
BYLAWS
Bylaws usually govern the administration, management and operation of the corporation. They would generally contain the corporation's internal rules and regulations for:
- Shareholders’s rights, meetings, voting, proxies
- Provision for the election, removal and replacement of directors and officers
- Calling, notice, and conduct of shareholder, director and committee meetings, annual, regular, general and special
- Care and custody of corporate formal records of actions and proceedings, and the corporate seal
- Provisions for the voting, registry and transfer of corporate shares
- General and specific provision for the operation and management of the corporation that is not in any conflict with the articles or state statutes.
Bylaws are not superior to the articles of incorporation, but supplement them. Bylaws are not filed with the state because they are a private corporate internal governing document, not a matter of public record. In some cases, state statutes do not require a corporation to have bylaws, but others do. So, it is common practice for a corporation to adopt bylaws, and that is the likely the best practice.
Bylaws can be amended by a resolution of the directors. However, generally the directors cannot lawfully amend the bylaws to infringe upon any shareholder rights. It is not unusual for the shareholders to ratify and approve an amendment to the bylaws. If the bylaws conflict with the articles, the articles will prevail.
PRE-PLANNING
Some preparation before finalizing and filing the articles of incorporation is prudent. When I plan to create a new corporation, I look at several items that will impact my final decisions:
- In which state will the new company be created?
- Does the state provide or require there own forms for filing the articles
- In which state will the new company conduct most of its business?
- What company name is available for use?
- How much authorized capital will the company initially have?
- Who will be the company’s resident agent and what is their annual fee?
- What are the initial filing fees for the articles of incorporation?
- What will be the annual renewal filing requirements and filing fees due?
If you understand the requirements and implications of filing articles of incorporation, you can do the filing yourself. Many state corporation divisions make additional information and forms available for you on their official state websites.
There is an entire industry that specializes in corporation and LLC creation services, including attorneys, paralegals, accountants, resident agents, estate and financial planners. A professional advisor, lawyer or certified public account who specializes in this area of law and taxation can be invaluable in your pre-planning, implementation, and continuation of your business incorporation, LLC or other business entity. I strongly recommend and encourage you to always seek out the counsel of competent licensed professionals before you make important legal and tax decisions.
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For more information, please see:
Arizona Articles of Inc.
Florida Articles of Incorporation
Sample Articles of Inc.
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