Articles of Incorporation: Meaning, Documents Required and Importance

What is Articles of Incorporation (AOI)?

Articles of incorporation are a series of official documents submitted to a government entity that legally establish the formation of a corporation. Articles of incorporation often include information, such as the company’s name, street location, agent for service of process, and the amount and kind of stock to be issued. The articles of incorporation serve to incorporate the corporation legally. They contain all of the information the state needs to establish the new business, hence articles of incorporation are considered very essential and fundamental to the business. Information regarding registered corporations is public information; hence, the data provided in the articles of incorporation constitutes the basis of that public record.

Geeky Takeaways:

• Articles of incorporation are the paperwork filed with a governing authority (typically the state) that establishes a corporation.
• In the United States, articles of incorporation are submitted to the Secretary of State’s office in the state where the business wishes to incorporate.
• The major information included in articles of incorporation is the company’s name, type of corporate structure, and the number of authorized shares.
• Corporations that file articles of incorporation may benefit from tax breaks, the capacity to issue stock and generate cash, and the protection of owners from liability.

Document Required under Articles of Incorporation

The articles in the document vary per state; however, the following things (i.e., “articles”) are usually included:

• Corporation name and registered agent’s address.
• Corporate structure (profit company, nonprofit corporation, non-stock corporation, professional corporation, and so on).
• The names and addresses of the first board of directors.
• The number and kind of authorized shares.
• Duration of the corporation, assuming it was not founded to remain forever.
• Name, signature, and address of the incorporator, who is in charge of forming a corporation.
• Most states also require the articles to identify the firm’s objective; however, the company might define it broadly to ensure operational flexibility.

Other clauses included in a company’s articles of incorporation may include the limits of directors’ responsibility, shareholder actions taken without a meeting, and the right to summon special stockholder meetings. Each state has their own guidelines regarding the AOI.

Importance of Articles of Incorporation

1. Basic Business Document: A business should exercise caution while submitting its articles of incorporation, as these formation documents are extremely important. They are legally compelled to form a new corporation or company. The corporation cannot be formed or recognized by the state as a legitimate business entity until the forms are registered.

2. Provides Fundamental Business Details to the Public: The articles of incorporation are essential because they contain all of the information that the state needs to establish the new business. Information regarding registered corporations is public; therefore, the facts provided in the articles of incorporation serve as the foundation for that public record.

3. Gives Separate Existence to Corporations: Personal responsibility is also a problem for newly founded firms. Individuals are frequently held responsible for a company’s responsibilities until it is established. By incorporating a formal corporation, business owners may be able to avoid personal culpability for the company’s obligations. This liability protection cannot begin until the articles of incorporation are submitted.

4. Perpetual Succession for Corporations: The article of incorporation allows your company to continue to be registered with the government indefinitely. This implies that even if the owners die or leave the company in the future, the company will continue to operate with new management. Furthermore, when an entity gets a certificate of incorporation, it has the right to transfer ownership to another organization.

5. Preferential Tax Treatment: Once a company is incorporated, it has a better capacity to obtain cash through stock issuances. A corporation cannot sell shares until it has filed its articles of formation. Corporations may also enjoy preferential tax treatment relative to individual or personal tax rates.

Articles of Incorporation vs. Other Documents

1. Articles of Incorporation vs. Business License: A business license often allows a corporation to operate in a given area or industry. It grants the bearer permission to establish and operate a business in the designated geographical area where the license is issued. The rights provided by a business license are frequently more precise and specialized than the articles of incorporation; while comparable information may be necessary for both, the articles of incorporation merely constitute an organization and are the highest governing instrument for a company.

2. Articles of Incorporation Against Business Plans: A business plan is an internal document that may be presented to important clients, investors, or financing institutions and that explains a company’s official operating strategy. A company plan, which is often a strategic document, is primarily employed as a decision-making roadmap by internal management. This is in sharp contradiction to the articles of incorporation, which are purely informational and not strategic for legal purposes.

3. Articles of Incorporation vs. Bylaws: While articles of incorporation are submitted outside, bylaws are more useful for a firm when utilized within. The bylaws provide the internal processes and organization for how the firm should be operated. Bylaws set out the rules and procedures that govern a company’s administration. Not all states require a corporation to keep bylaws, but many do require the firm to legally commemorate the bylaws.

Articles of Incorporation- FAQs

What is the distinction between articles of incorporation and LLCs?

The distinction between a corporation and an LLC is the information submitted to the state, the structure of the firm, and how it is taxed. A corporation files articles of incorporation; an LLC files articles of organization. The corporation has a board of directors and will be taxed as a separate business, but the LLC does not have a board of directors and can choose how to be taxed.

How may the articles of incorporation be amended?

The modification may only be made in a formal meeting when voting is held. If the shareholders agree to the modification, the adjustment can be made as soon as the corporate secretary or the relevant authorities certify the documents.

How can I submit articles of incorporation?

The incorporator should begin by gathering information, arranging items in a sequence, filling out the form, evaluating the information, and signing it. One thing they should underline is the state in which they want to function. As a result, they should file and copy it for future dissemination.

Can one person submit articles of incorporation?

Yes, it is feasible to establish a firm with only one employee. That single owner will be accountable for all elements of the business. In addition, that individual will be the sole shareholder. However, he may be named as the sole member in the articles of incorporation.

Why are articles of incorporation necessary?

Articles of incorporation are required because they provide tax benefits, a positive business image, and freedom from responsibility.

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