Embarking on a business venture is an exhilarating journey, albeit fraught with a complex labyrinth of legal obligations and administrative intricacies. Amidst the excitement of nurturing a great business idea, the bureaucratic hurdles might seem overwhelming. One of the critical steps in this journey, particularly if you are aiming to establish your business as a corporation, is filing your Articles of Incorporation. This guide will unravel the intricacies of the Articles of Incorporation and offer insights into its pivotal role in setting your business on the path to success.
What Are Articles of Incorporation?
Articles of Incorporation, also referred to as a certification of formation or a charter, represent a set of documents submitted to a government body to legally affirm a corporation’s establishment. They entail general information about the corporation, including the business name and its location.
This cornerstone of corporate formation is often conflated with bylaws. The latter outlines the rules and regulations that govern a corporation, defining the roles and responsibilities of the company’s directors and officers. While the Articles of Incorporation serve as the foundation, bylaws can be considered the building blocks that constitute the legal framework of the corporation.
Why are Articles of Incorporation so Crucial?
Articles of Incorporation serve a fundamental role in establishing a company within its home state. Through these documents, a business owner notifies the state of key aspects of the business, including:
- The purpose of the corporation
- Name and address of the registered agent
- Quantity of authorized shares and amounts of common stock
- Names of any incorporators
Certain states may also require a copy of the company bylaws, which guide the operation of the corporation by detailing the rights and duties of shareholders and the board of directors.
The benefits of filing Articles of Incorporation are twofold:
- Debt Protection: The act of legally forming a corporation provides business owners with a protective shield against company debts.
- Capital Generation: Post incorporation, businesses can swiftly raise capital by selling stock. Your business plan can illustrate how the sale of stock will facilitate capital raising.
Dissecting the Contents of Articles of Incorporation
Though the specifics might vary by state, the following components are typically included in the Articles of Incorporation:
- Name of your business or corporation
- Name and address of the corporation’s registered agent
- Type of corporate structure
- Names and addresses of all board of directors members
- Types and quantity of authorized shares that the corporation can issue
- Duration of the business (if not meant to be permanent)
- Your name, signature, and address; if you are not the incorporator, you provide this information for the actual incorporator
It’s worth noting that businesses may want to amend their Articles of Incorporation post-establishment. This can be achieved through a restatement or restated Articles of Incorporation.
Filing Articles of Incorporation
As a legal requirement for structuring a new or established company as a professional corporation, nonprofit corporation, or other categorization, filing Articles of Incorporation is an integral part of setting up a corporation. Each state imposes different paperwork requirements and rules for this filing process.
State officials thoroughly review applications for Articles of Incorporation. Ensuring you comply with all regulations and pay the necessary fees will pave the way for your corporation status. Upon approval, officials will inform the company of its new legal standing.
Elevating your Business with Articles of Incorporation
Diving into the world of business ownership can be daunting, with the legal aspects adding an extra layer of complexity. However, with a comprehensive understanding of the legalities, you can navigate this process smoothly. The journey to incorporating your business begins with the pivotal step of filing your Articles of Incorporation.
By clearly defining your business’s purpose and structure, identifying your registered agent, and outlining your share structure, you can establish your business’s legal backbone. In doing so, you not only set your business on the path to success but also protect yourself from potential debts and create opportunities to raise capital.
In the bustling landscape of business ownership, the process of filing Articles of Incorporation can be your compass, guiding your venture toward a secure and successful future.
Articles of Incorporation for Foreign Corporations
Although intended primarily for American corporations, Articles of Incorporation find their equivalent in foreign corporations operating in the U.S. through a certificate of registration. This legal document, not unlike the Articles of Incorporation, varies in its content and application process across states.
Is It All The Same? Distinguishing Between Articles of Incorporation and Articles of Organization
In the vast ocean of corporate legalities, the Articles of Incorporation often get mixed up with Articles of Organization. However, they cater to different business classifications as per the Internal Revenue Code: Articles of Incorporation cater to corporations, while Articles of Organization are for Limited Liability Companies (LLCs).
Setting up a business as an LLC offers legal and financial protections to the business owner. LLCs often take precedence over corporations for companies planning to possess real estate holdings or other assets with fluctuating values.
Just like corporations, LLCs benefit from tax and liability advantages according to the Internal Revenue Code’s stipulations. However, unlike corporations, LLCs face limitations in transferring holdings and are not an ideal choice for businesses seeking outside investors.
Before diving into filing either of these documents, scrutinize your state’s rules and regulations. In certain states, the terms “Articles of Incorporation” and “Articles of Organization” are used interchangeably.
Understanding LLC Operating Agreement: Is It the Same as Articles of Incorporation?
If you are preparing to register your company as an LLC, you will need both Articles of Organization and an LLC Operating Agreement. The latter is a legally binding document that lucidly outlines the LLC’s structure, management, operations, and finances. It elucidates each member’s roles, responsibilities, relationships, and rights, alongside detailing each member’s ownership percentage and share of profits and losses.
A well-defined LLC Operating Agreement can prevent potential misunderstandings when it comes to profit and loss allocation or share distribution. These formal guidelines can help dodge conflicts that might otherwise arise while verbally sorting out these matters.
The following information is usually included in your company’s LLC Operating Agreement, with specific state requirements potentially calling for additional details:
- Percentages of each LLC member’s ownership
- Each LLC member’s voting rights and responsibilities
- Each LLC member’s duties and powers
- Rules for holding board meetings
- Capital contributions of all LLC members
- Protocol for distributing the LLC’s profits and losses among members
- Protocol for transferring interest in the company, such as buy-sell provisions, buyout provisions, and ownership transfers upon an LLC member’s death
- LLC dissolution protocol
With the assistance of an attorney, you can craft an LLC Operating Agreement. This agreement should incorporate organization, capital contribution, management and voting, distributions, membership changes, and dissolution.
Reaping the Benefits of an LLC
Transforming your business venture into an LLC can open a multitude of doors for success. Here are a few of the myriad benefits of an LLC:
- Personal Asset Protection: In the event of your company facing legal action, your personal assets are safeguarded unless you have been involved in fraudulent or criminal activities as an LLC member.
- Pass-through Taxation: The earnings of an LLC are treated as members’ personal income rather than business income, thereby enabling you to dodge double taxation.
- Simplicity: With fewer paperwork requirements and formalities than corporations, setting up an LLC is a relatively straightforward process.
- Flexibility: LLCs have the liberty to structure their ownership, taxation, and management according to their requirements.
- Credibility: The designation of an LLC adds a professional edge to your business, indicating a serious commitment to business practices.
- Flexible Profit Distribution: LLCs can decide how profits are distributed among the owners, without necessarily reflecting ownership percentages or being equal for each LLC member.
- Access to Business Loans: An LLC can establish credit history, which can open doors to small business loans, further facilitating the growth of your company.
As you navigate the entrepreneurial journey, understanding these key distinctions and legal requirements can save you from potential pitfalls. With this guide, you are better equipped to make informed decisions, whether your venture is an LLC, a corporation, or a foreign corporation operating within the U.S. Just as the Articles of Incorporation serve as a guide to establishing a corporation, the Articles of Organization and the LLC Operating Agreement lay the groundwork for your LLC’s success.
What to do after starting an LLC
- Register for taxes: You must register your LLC for state taxes. If you sell products, you must also register for sales tax. If you hire employees, you must register for payroll taxes and unemployment insurance.
- Hire an accountant: Although finding a small business accountant for your LLC can be tricky, it’s not nearly as challenging as doing your own LLC taxes. Finding the right person or firm is among the most critical early steps of launching your LLC.
- Register for business permits: Your LLC likely requires additional permits besides articles of incorporation. Your industry may determine these requirements – for example, selling alcohol requires additional permits. Your branding may also require additional permits if you want to register a DBA name.
- Obtain business insurance: There are several dozen types of business insurance your LLC may need. Take the time to learn about each, and sign up for any policies that work for your budget and circumstances.
- Adhere to labor laws: Your LLC must follow several labor laws pertaining to employee citizenship, wages, workers’ compensation and more. You may want to consult an attorney as you get started to ensure you’re compliant.
What is an S corporation, and must it file articles of incorporation?
Yes, an S corporation must file articles of incorporation. That said, an S corporation differs substantially from a C corporation, which more closely resembles the traditional idea of a corporation.
What is an S corporation?
An S corporation combines a C corporation’s limited liability with the tax advantages you would get as a partnership or LLC. The primary tax advantage in question here is pass-through taxation – namely, S corporation income is taxed as personal income. That means your corporate profits and losses appear on your and your shareholders’ personal tax returns.
This arrangement was highly advantageous for the many decades during which federal personal income tax rates were lower than their corporate counterparts. However, the Tax Cuts and Jobs Act has lowered corporate tax rates enough to negate this benefit somewhat. That said, S corporation taxation structures still avoid the double taxation of paying taxes on corporate income and then again on personal income.
How do you start an S corporation?
To start an S corporation, you’ll file articles of incorporation per the instructions in this guide. You’ll also file IRS Form 2553 to receive S corporation status at the federal level. That’s important because articles of incorporation are effective at the state level only, whereas business entity types exist at the federal level.
What is a B corporation?
Unlike other corporation types, B corporations are not official tax or government structures. Instead, a B corporation is a certificate your business can earn while being an S corporation, an LLC or another type of business. It signifies that your company meets certain rigorous social standards that the nonprofit B Lab has set. These are the “highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.”
How to start a B corporation
To gain B corporation status, you must ensure that your state acknowledges this classification. If not, you can consider incorporating in a nearby state. You must then apply for a thorough audit through B Lab, which will survey factors such as how you treat your employees, environment and community. If you score high enough, you’ll become a B corporation, and you should expect random audits in the future.
After qualifying, you must share your scores on the B corporation website and legally commit to prioritizing your stakeholders. But before any of this, you’ll need to have incorporated your business.
When can I use articles of incorporation?
Articles of incorporation separate the business owner from the business by creating a separate legal entity for the business. Incorporating reduces a business owner’s personal risk because the business becomes financially responsible for its debts and legally responsible in the case of lawsuits.
Any business type 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 often 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 variations by state, the forms all ask similar questions and use a fill-in-the-blank format. The crucial information includes the following:
- The business or corporation name
- The recipient of all legal notices and official mailings
- The purpose and duration of the business
- The incorporator
- The directors
- How many authorized shares of stock can be issued
- How many classes of stock the corporation will be allowed to issue
Where do I submit the forms, and how much is the filing fee?
Once you’ve filled out the proper documents, you can submit them by mail, in person at the secretary of state’s office or electronically on the secretary of state’s website, depending on your state.
The filing fee also varies by state, but it generally runs between $50 and $300. Other charges may apply at the time of the filing, again depending on the state.
After you’ve filled out all of the forms and paid all fees, the secretary of state’s office will review the forms to ensure 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.