CT tip: Although the formation document is called Articles of Incorporation in most states, in some states it may have another name. For example in Delaware, this formation document is a “Certificate of Incorporation,” Also, while the filing office in many states is the secretary of state, in some states, the filing office is another department.
What must be included in articles of incorporation?
Every state has somewhat different requirements regarding what must be included in the Articles of Incorporation. Typically, the Articles must contain, at the very least:
- the corporation’s name and business address
- the number of authorized shares and the par value (if any) of the shares
- the name and address of the in-state registered agent
- the names and addresses of its incorporators
If there will be more than one class of shares, the Articles must include the number of authorized shares of each class and a description of the rights of each class.
Some states require that the Articles of Incorporation include additional information, such as:
- the corporation’s purpose
- the number of the initial directors
- the names and addresses of the initial directors.
- its duration, if not perpetual
Can the articles of incorporation be customized?
While the Articles of Incorporation seldom require a great deal of information, every state permits the Articles to include other provisions related to:
- managing the business and regulating the affairs of the corporation
- defining, limiting, and regulating the powers of the corporation, its directors, and its shareholders
While these provisions cannot be inconsistent with state law, the states allow the Articles to alter certain statutory rules, known as default rules, that would otherwise apply to the corporation.
Example: State A has a default rule that both shareholders and directors have the right to fill vacancies on the board of directors. However, State A also provides that the corporation, in the Articles, can “opt out” of that default rule and provide that only shareholders will have the right to fill vacancies on the board of directors.
By including various optional provisions, the Articles can be used to customize the corporation to meet the needs of the interested parties.
Example: State B’s default provisions state that an affirmative vote of two-thirds of the shareholders is required to remove a director from office. However, the Articles may provide instead that only a majority vote is needed (which might meet the needs of the shareholders but not necessarily the directors.)
Other common provisions:
- naming initial directors (when not required by law)
- the insertion of preemptive rights to help maintain the voting power of existing shareholders
- the insertion of cumulative voting provisions will enhance the voting power of minority shareholders.
What is the role of the incorporator?
Incorporators sign the Articles of Incorporation and deliver them to the state for filing, together with the state required filing fee. An incorporator may be a natural person or, in many states, a corporation (such as a corporate service company) and does not have to have an on-going relationship with the company, such as shareholder or director. In most states, only one incorporator is required and few specifically impose residency or age requirements on incorporators.
If the Articles identify the corporation’s initial directors, the incorporators’ powers cease upon the filing of the Articles. If Articles do not name the initial directors, the incorporators must elect the directors. After the election of the initial directors, the powers and responsibilities of the incorporators cease.
What happens after the articles are filed?
The secretary of state’s office reviews the Articles to ensure they are complete and that the corporate name is acceptable and available. The corporation’s existence begins when the state accepts the Articles of Incorporation unless the Articles provided for a delayed effective date. (This is sometimes helpful for financial and tax planning.)
In addition to the filing with the state filing office, some states require an additional filing or recording on the county level. Furthermore, some states require publication of the incorporation in one or more local newspapers.
Once in existence, the corporation must hold the initial meetings of shareholders and directors, adopt bylaws, appoint officers, and issue stock. These events must be properly recorded in the corporate record book. The corporation must also apply for a federal tax identification number (EIN) before doing business or opening bank accounts. Many times, the corporation will need to obtain business permits—even for an online business. In some cases, the corporation might also want to file an S corporation election with the IRS.
The Articles of Incorporation may be thought of as the “birth certificate” of a corporation. In most cases, only basic information is required. However, it is important to remember that statutory requirements, such as what form to use, where to file, what fees to pay and to whom, etc., vary greatly from state to state. And, in many cases, the parties will want to customize the Articles to override statutory default provisions. For these reasons, it’s important to work with compliance experts who are aware of the nuances of each state’s requirements and can help their customers with these requirements.