You’ve decided to structure your business as a corporation. This life-changing decision comes with substantial paperwork, as you can probably assume. Perhaps most important legal document required for forming a corporation are the articles of incorporation. Your local secretary of state must approve this document in order to officially recognize your business as a corporation.
It’s safe to say that filing articles of incorporation is a pretty big step in making your corporation a reality. Actions of this magnitude deserve the utmost accuracy and care. This guide will explain the information required for your articles of incorporation along with how to file the documents.
Since this step is essentially confirming your decision to form a corporation, the first thing you should do before filing is ask yourself: Are you 100% sure that a corporation is the right structure for your business?
C-corporations and S-corporations are the only types of businesses required to file articles of incorporation. Both options are very different from other business entities, like limited liability companies (LLCs) and sole proprietorships.
These two entities are much easier to start and maintain than corporations. There’s less obligations, less paperwork, and the tax systems for both are fairly uncomplicated, especially compared to an S-corp. With an LLC, you get the best of both worlds: The personal protection of a corporation without all the regulations and paperwork.
That isn’t to say there aren’t numerous major advantages to forming a corporation. You stand to pay significantly lower taxes than the other two entities. It’s just better to know the pros and cons of each option. So, before moving forward, speak to a business lawyer or accountant who understands the tax differences between corporations and other entities.
Despite the pluralization (“Articles” instead of “Article”), articles of incorporation are technically just one document. Think of it as an application to be legally recognized as a C-corporation or S-corporation in your home state.
The articles contain basic information about your business such as the corporation’s name, address, names of directors, and number of shares. You can file them yourself, with a business lawyer, or through an online legal service.
Choosing a name for your corporation seems like a quick and easy task. But according to legal regulations, your corporation’s name cannot be identical or even similar to another corporation. Regulations also state that the corporation’s name must end with “Inc.,” “Corp.,” or some other corporate identifier.
You can check if your desired name is available through your state’s online database. In most states, their database allows you to reserve a name for a number of days while you prepare your articles of corporation. In New York, for example, you can reserve a name for up to 60 days, but you have to send your reservation request by mail.
Name reservations are only necessary, however, if you are not prepared to file at that very moment. If your desired name is available and your articles are ready, you can go ahead and file.
A “registered agent” is an individual or company that receives legal and financial documents addressed to your corporation. You need a registered agent because owners of corporations are notoriously busy and prone to misplacing paperwork. Most of these documents can be handled by the registered agent with no involvement from the business owner.
You could even say that the registered agent’s primary purpose is to prevent business owners from claiming they shouldn’t be penalized because they were “too busy” to respond to a certain notice.
Though most states allow business owners to name themselves as registered agents, this usually isn’t the best idea. Complying with legal obligations is a major aspect of owning a corporation. Failing to do so can result in serious penalties, even lawsuits. The risk of severe penalties is said to be higher for S-corps, due to their significantly lower tax bills. For example, if an S-corp fails to respond to an annual reporting notice, the state could terminate its legal status.
It is therefore recommended to choose an experienced business lawyer as your registered agent. This individual must have a physical address in your business’s state and be available to receive mail during standard business hours.
Each state has its own requirements for their articles of corporation. Most states, however, ask for identical information. You can check your state’s requirements by visiting the website of your secretary of state or attorney general. Taking care of these requirements before you begin filling out the document will greatly speed up the incorporation process.
Here’s the basic information required for your articles of incorporation:
The legal name of your corporation must not be identical or similar to another corporation in your state. It must also end with a corporate identifier.
This is the address of the physical location in which your business operates. The business’s home state must be the same state that is receiving the articles of incorporation.
Your registered agent will receive legal and financial documents concerning your business by mail.
This is description of your business’s products and services. The level of detail required for this section varies from state to state. Some states require a highly specific description while others only ask for a general overview.
The shareholders of a corporation do not make decisions regarding management and company policy. Such decisions are reserved for the board of directors, the members of which are chosen by shareholders. The board of directors then hires officers (CEO, COO, CFO, etc.) to handle day-to-day operations.
This section, however, is only required in some states. You will be asked for the names and home addresses of each director and officer.
C-corps have no limit for the number of shares they can issue. An S-corp, on the other hand, is only permitted to issue up to 100 shares. This section asks for the number of shares that are available, as opposed to the number of shares that have already been issued. Most corporations do not issue every available share right off the bat, usually because they intend to attract more shareholders.
This section asks for the classes of stock offered by your corporation. C-corps can issue both common and preferred stock, while an S-corp can only issue one class of stock. Hence, an S-corps has just one available answer to this section, whereas a C-corp has two.
Your incorporator is the individual or company that fills out and files your articles of incorporation. Yes, your incorporator can be your registered agent. Their responsibilities are very similar and therefore tend to overlap. But unlike your registered agent, your incorporator actually signs your articles of incorporation and typically plays a larger role in assembling your board of directors. In some cases, the incorporator essentially runs the corporation until the board of directors is fully formed.
There are three ways to fill out and send articles of incorporation to the state. You can file yourself, with a business lawyer, or through an online legal service.
The first option is the fastest and cheapest because in most states, you can file online. Depending on your state, the filing fee can range from $100 to $300.
Option number two makes the most sense if you have a business lawyer on retainer or your corporation has issued a massive number of shares. Still, it is perfectly understandable to hire a business lawyer solely to be 100% sure that you have filled out the documents correctly. The consultation probably won’t be too expensive because, as you can see, the document is not long at all.
Online legal services (the most popular of which being LegalZoom) fill out the document for you by having you complete a questionnaire about your business. As long as you have all the required information by your side, this questionnaire won’t take too much time. The service will then submit the form for you as well. Most online legal services charge approximately $150, but you also have to pay your state’s filing fee.
Like all other important corporate paperwork, you should make a copy of the document and save it in a secure place.
As long as you have provided the correct information, your state will file your articles of incorporation after you file it to them. This final filing officially registers your corporation with your state. A formal certificate of incorporation will arrive via mail approximately 3-6 weeks after the state’s filing.
Filing articles of incorporation is just the first of many initial steps towards establishing a corporation. You must now turn your attention to additional obligations, specificially more paperwork and meetings.
Here are the next steps to take after filing your articles of corporation:
Some states require initial reports. They are due within or two months after your official incorporation, depending on your state. In terms of content, initial reports are essentially a condensed version of your articles of incorporation. Required information includes your business’s location, registered agent, and basic descriptions of your directors and officers.
Most states require new corporations to publish a notice in a local newspaper that, once again, contains much of the same information in your articles of incorporation. This includes your business’s name, address, and number of shares.
Due dates for annual reports vary from state to state. They are usually due the next March or April after your first year in business. Required information depends on your state as well, but they mostly contain financial data for potential shareholders.
Corporate bylaws are the most important legal document of any corporation. Only certain states require corporations to have bylaws in place in order for legal recognition. Your board of directors should still draft corporate bylaws, however, even if your state does not require them. Formal adoption of corporate bylaws shows that your board of directors has officially come to an agreement in terms of management structure. This includes the responsibilities of shareholders, directors and officers along with the company’s primary goals.
Your first board of directors meeting should take place shortly after your official incorporation. The length of the meeting, along with all of the board’s decisions, must be documented.
This is where you begin issuing shares of stock. Much like the board of directors meeting, all decisions must be documented.
Amidst all these other obligations, corporations must also find the time to handle responsibilities required by any new business. This includes obtaining any required licenses, opening a business bank account, and applying for an employer identification number. That last task is a legal requirement of all US corporations.
Earlier, we explained that the biggest downsides of corporations are paperwork and obligations. Well, there you have it. In order to benefit from the various advantages of corporations, you must adhere to a slew of obligations. Ignoring the wrong one can result in the revocation of your corporate status.
You won’t have to worry about penalties as long as you have a good business lawyer and accountant. These individuals will make sure you stay compliant and never fall behind on taxes. Much like any other major business endeavor, the only truly effective way to steer clear of danger is to surround yourself with the right people.
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