- Filing articles of incorporation is legally required for any business owners planning to structure a new or established company as a corporation.
- Each state has different required paperwork and rules for filing articles of incorporation. All filings are handled through the secretary of state.
- Applications for articles of incorporation are reviewed by state officials, and as long as all regulations are followed and appropriate fees are paid, the business is notified of corporation status.
Starting your own business is a big step, and the legal issues involved can be confusing. Thinking of a business idea is hard enough, but then there are forms to fill out and technicalities to deal with, especially if you're structuring your company as a corporation. Here's what you need to know about one of the first and most important steps of incorporating your business: filing your articles of incorporation.
What are articles of incorporation?
The articles of incorporation, sometimes called a certification of formation or a charter, are a set of documents filed with a government body to legally document the creation of a corporation. This type of document contains general information about the corporation, such as the business's name and location.
Articles of incorporation can easily be confused with bylaws, which lay out the rules and regulations that govern a corporation and help to establish the roles and duties of the company's directors and officers, the Houston Chronicle reported. According to Investopedia, bylaws work in conjunction with the articles of incorporation to form the legal backbone of the business. [Read related article: What Is a C Corporation?]
Why are articles of incorporation important?
Articles of incorporation are important because they establish a company within its home state. The articles of incorporation inform the state of key aspects of the business. When filing, the business owner lets the state know the corporation's purpose, the name and address of the registered agent, the number of stock shares and amounts, and the names of any incorporators. Also, some states request a copy of company bylaws. The bylaws help to keep a corporation running smoothly by outlining the rights and responsibilities of the shareholders and board of directors.
A business owner benefits from articles of incorporation in several ways. By becoming a legal corporation, the business owner is protected from company debts. After incorporation, capital can also be raised quickly through the sale of stock. [Are you interested in business plan software to help you get your company off the ground? Check out our reviews and best picks.]
Are articles of incorporation the same as articles of organization?
Articles of incorporation and articles of organization are similar filings, with one main difference: Articles of incorporation are for companies looking to form a corporation, while articles of organization are for limited liability companies (LLCs). Establishing a business as an LLC provides legal and financial protections to the business owner. LLCs are usually preferred to corporations for companies that plan to have real estate holdings or other assets that change in value.
Like corporations, LLCs provide tax and liability benefits. Unlike corporations, LLCs cannot easily transfer holdings and aren't a good choice for those looking to have outside investors. Before filing either document, it is important to review each state's rules and regulations. In some states, articles of incorporation and articles of organization are used interchangeably.
When can I use articles of incorporation?
The articles of incorporation are used to separate the business owner from the business. Articles of incorporation create a separate legal entity for the business. Personal risk is lowered, since the business becomes financially responsible for debts and legally responsible in the case of lawsuits. Any type of business can file articles of incorporation. A new business may launch as a corporation, or a business structured as a sole proprietorship can later become a corporation. Smaller businesses typically become S corporations and pay taxes only on dividends, while large businesses become C corporations, which pay corporate taxes and must have a board of directors to operate.
How do I fill out the forms?
The first step is to structure the business as a corporation. The specific documents vary by state, but each includes several questions about the business and its owners. The forms are easily found online, but don't be alarmed if they are called something other than articles of incorporation.
Despite varying by state, the forms ask similar questions and use a fill-in-the-blank format. The most crucial information includes the following: the corporate name, the recipient of all legal notices and official mailings, the purpose of the business, the duration of the business, the incorporator, the directors, how many shares of stock can be issued, and how many classes of stock the corporation will be allowed to issue.
Where do I submit the forms, and how much does it cost?
Once the proper documents have been filled out, they can be submitted by mail, in person at the secretary or department of state's office, or electronically on the secretary or department of state's website, depending on your state. The fees also vary by state, but they generally run between $50 and $300. Other charges may apply at the time of the filing, again, depending on the state.
After all of the forms have been filled out and all fees have been paid, the secretary of state's office will review the forms to make sure the name isn't already in use and that all other information meets the state's requirements. If everything is correct, the state files the forms, making the business a legal corporation. Some states offer more favorable regulatory and tax environments and, as a result, attract a greater proportion of firms seeking incorporation, according to Investopedia.
Where do I find the forms?
Every state has a different form, so here are links to each state's form, which can be filled in online or printed out, completed and sent to the secretary of state's office.
Additional reporting by Chad Brooks.