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Articles of Incorporation
Ever wondered what are articles of incorporation? These are documents that provide the state within which your business will be running, useful information about your business. The information that you will provide in this document is public information, therefore anyone who wishes to access it should be able to get it in the public domain.
In contrast to a general partnership or a sole proprietorship that is usually formed as soon as you are ready to start running the business, an LLC or a corporation has to be formed within the state before it can be considered a legal entity. Different states actually have different requirements for the incorporation of companies.
Features of Articles of Incorporation
The information that is needed will vary from one state to the other. However, there are some common elements that must be present, which you will come across in almost every other state that you visit. The following are some of the important features that have to be present in your document before your company is fully incorporated and registered:
You have to indicate the name you wish to trade as, as a company. This will be your identifier. This is usually followed by a unique identifier, such as Company, Corporation or Incorporated, which can also be available as abbreviations, Co., Corp., or Inc. respectively?
Before you submit the articles of incorporation template, it is wise to run a name availability search so that you know whether the name you want to use is already in use by another entity or not. Whichever the name you choose to work with, it is up to the state where you seek incorporation to verify and ascertain whether the name you are using is not in use, or is not deceptively similar to one that is already in use. Therefore, the state reserves the right of approval.
Purpose of your business
In this section, you will outline the reason why you are getting into the business. What are you incorporating this company to do, or what services do you aim to provide? Under this clause, there are two options, General or Specific.
In the case of a General clause, your company is basically being forced to take part in any kind of legally acceptable business. On the other hand, a Specific clause will limit your business to provide a careful and elaborate explanation of the nature of services or business that you will engage in, and you will be limited to the provision of the aforementioned only.
A registered agent
Technically, each state expects your corporation to have a registered agent at the time of incorporation. The role of the agent will be receiving any important documents, especially legal and tax related for your business. The agent has to have a physical address –P.O. Boxes are not allowed, and the agent has to be reachable during the normal work hours.
In order to make sure that all their documents are received on time and properly handled with the discretion that they desire, most of the businesses prefer to use a registered agent service provider for this. It is also easier this way because the agents will also provide a host of other compliance services.
An incorporator is an individual or the company that is tasked with filing the Certificate of Incorporation with the respective state where you are making your application. You will need their address, signature, and name included. In case you are filing your application on the internet, the incorporator must be a representative of the service provider guiding you through incorporation.
While filing the application, you also have to indicate the number of shares you are authorizing. It does not matter the size of your corporation, you must always have stock because this is what represents the ownership of the company.
Take note that you do not necessarily need to indicate the total number of shares authorized, because your company can hold shares that are not issued, in order to issue them later in the future, or to raise the ownership of any of the shareholders at a later date.
Before you declare large amounts of share capital, you also have to understand that in some states, you will be charged franchise taxes depending on the number of outstanding shares your company owns.
The face value of the shares of a company is simply the least stated value. In most cases, this is nowhere close to the actual value of the shares of your company. The actual value of the shares of your company are the fair market values, or Articles the value that someone would be willing to pay to own them. In the case of a public company, this would be determined by the price that investors would be comfortable paying for each share at the exchange, and in the case of private corporations, it is determined by the book value or the overall value of the company.
In most states, it is mandatory that the names and physical addresses of the directors at the formation of the company are indicated in the documents of incorporation. These are the people who are responsible for overseeing the affairs of the corporation and making all the important decisions.
The articles of incorporation template must also indicate who the officers of the company are. These include people like the secretary, the vice president, the president and so forth.
It is also important to highlight the legal address at which the company will be located. This is usually optional in some states, but where necessary, it has to be present.
Difference between Bylaws and Articles of Incorporation
While the terms bylaws and sample articles of incorporation might appear to be used interchangeably from time to time, this is not always the best way to go about it. These are two terms that mean different things altogether, and it would be wise to make sure that you know how to use them, and what they mean.
In many scenarios, you will come across articles of association also referred to as a charter, or a certificate of formation. These are documents that contain the basic, general information about a company that anyone would love to know about. On the other hand, bylaws have information on the set rules and regulations under which the company will be run. There are also corporate bylaws, through which the duties and roles of the officers and directors of the company are established.
Other than the definitions, there are unique features that set bylaws and articles of incorporation apart from one another. These are as follows:
For articles of incorporation, a lot of states usually avail fill in the blank articles. This is because the nature of information needed is pretty much the same. Things like the location and legal name of the company are some of the crucial details that have to be available.
For the sake of bylaws, there is no fill in the blank options available for corporate bylaws. This is particularly because different corporations are unique in their mode of operation. The provisions of operation in each organization will, therefore, vary from one organization to the other.
There is always a fee applicable when applying for and filing articles of association. The cost might not be the same in all the states. Completing these articles is one of the most important steps that you have to take as a company to make sure your firm is incorporated.
However, there is no cost applicable when filing corporate bylaws.
Submitting the files
In order for your company to be duly considered and registered, the articles have to be submitted to the department of state or the secretary of state, after which your firm will be considered a corporate entity. This can either be submitted in person at the office of the department or secretary of state or sent by mail depending on the nature of your incorporation.
In the case of bylaws, you are not required to file these with any government agency. The bylaws under which your company is run must be maintained at your primary location of doing business. These are internal documents, and they establish the procedure of operation in your company.
In the articles of incorporation, there has to be a mention of a number of stock options that the corporation has the authorization to issue. This is mentioned alongside the value of the stock per share.
The bylaws on the other hand mention either the amount of stock or the value of the stock the company owns. They might, however, indicate the voting rights of each of the shareholders depending on the types of shares that they own. A good example is a differentiation between the privileges of common shareholders compared to those who own preferred stock.
There is a unique process of amending articles of incorporation, different from the procedure for amending bylaws. In the course of any amendment necessary, such as the change of the name of the business or business location, these have to be filed with the secretary or the department of state.
On the other hand, in the event that the bylaws of the corporation are changed, the shareholders and directors simply have to vote before any of the laws are changed. Changes to the bylaws must be accepted by a majority of the shareholders, or that percentage of which is acceptable as per the bylaws of the company.
Just as was the case during the initial filing, it is mandatory for the company to pay a filing fee when making amendments to the articles of association, but this is not the case with amending the bylaws.
Importance of articles of incorporation
For the success of any company, it has to be incorporated under the laws of the state wherein it will be in operation. However, have you ever wondered why it is important for you to incorporate your company? Herein are discussed the main reasons why you must incorporate your company. The following are three of the most important ones:
- For the sake of liability
- Prove you are a credible business
- Create a legal entity
Any incorporated business is supposed to exist in perpetuity. This is one of the perks that you will come to appreciate about incorporation. What this means is that the life of the company will in no way be affected by the dismissal, death or withdrawal of any one of the owners. This means that the existence of your corporation supersedes the presence of any of the office holders. The offices will, therefore, hold more weight than the office holders, who are replaceable.
Limited liability clause
One of the most important reasons why you need to incorporate your business is to keep the operations of your business and your personal business safe from any unforeseen liabilities. Once incorporated, the company is a separate legal entity. This means that your creditors can only deal with the company, and not your personal assets and effects in the event that they need to satisfy any lawsuit that is brought against the business. Anything that you own will never come under threat in case the company is facing liquidation or something of the sort.
An incorporated business usually benefits from a number of tax deductions from a number of operational costs. With such benefits, your corporate tax liability will be cut down significantly. Some of the expenditure under which you will enjoy tax liability includes the cost of employee wages, the cost of production, the cost of materials, the cost of insurance and retirement plans. In case you have entertainment expenses and business travel arrangements, these will also enjoy such tax deductions.
Improve the image of your company
One of the reasons why it is wise to incorporate your company is because this enhances the image of your company, and adds credibility to your operation. With the addition of terms like Inc. and LLC, the perception of the general public towards your business is enhanced.
It is easier for people to trust and engage in business deals with your company because of the positivity that this brings to your image. Besides, banks and investors will also find it easier to do business with your company in the event that you need financing for one reason or the other.
Attract quality management
An incorporated company usually has a centralized management system. With this in mind, the shareholders have a unique interest vested in the authority of the Board. It is up to the Board to delegate duties to different officers in the company.
In the case of a business that is not incorporated, decision making is usually decentralized, which opens it up to manipulation from time to time depending on the personal assertions of the decision maker. Besides, given that this is an incorporated company, it is easier to attract some of the best officers in the industry for the role of management, which is good for the sake of the future of the company.
Requirements of Articles of Incorporation
The organization of corporations into legal entities is governed by state statutes. The structure of your organization is actually obtained from your articles of incorporation. Acting as proof of the existence of your corporation, the following are some of the key requirements that you need for the articles of incorporation:
Any provisions in the articles of incorporation have to meet the state statutes for them to be legally binding. There are mandatory provisions which have to be in your articles of incorporation, including the following:
- Purpose of the formation of this corporation
- Name of the corporation
- Address of the corporation
- Intent to corporate
- The duration of the corporation, or existence in perpetuity
These are guidelines that govern the internal affairs relating to any organization. It is mandatory that they are indicated in the articles of incorporation, and they include the following:
- Share transfer restrictions
- Shareholders’ rights to purchasing shares
- The corporation’s right to purchasing its own shares
Now that you know what are articles of incorporation, follow these instructions to the letter and file your sample articles of incorporation accordingly. You will be given express authorization to conduct your business within the jurisdiction of the state where you are incorporating your business.
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