Articles of Incorporation

If you’re starting a company, chances are you’ve given some thought to its structure. A corporation has a specific structure with associated tax and record-keeping obligations. Articles of incorporation are official public documents filed with the state where the business resides that declares its intention to maintain compliance with the tax and other reporting responsibilities of a corporation as required in that state.

Typically, articles of incorporation include:

• Names of principals involved
• Place of business (if not a physical office then an address where mail may be sent)
• Purpose of the corporation
• Class of stock
• Value of shares
• Names of directors and officers

Why File as a Corporation?

There are several types of business structuresthat correspond with the size and liability assumed by the owners. These include:

• Sole proprietorship – this is a business entity that is not distinguished legally or for purposes of taxation from its owner, who is most usually the only employee. Business income is recorded on the individual’s tax forms. Since the owner’s income and assets are intermingled with those of the business, liability for business errors does not exclude those items (from lawsuits, etc).
• Partnership – when two or more people enter a business together this is often the route they take. While partnerships have tax benefits, the liability side is high, as each partner may obligate the other for losses and lawsuits, which like sole proprietorships are not considered separate from the partner’s personal assets.
• Limited Liability Partnership – similar to a partnership but without the requirement that each partner is obligated by the other’s actions.
• Limited Liability Company – A form of “pass-through” corporation that protects its owners from liability yet doesn’t limit the number of shareholders.
• Nonprofit – a business created to further a goal rather than to expressly make money. These types of businesses usually require additional paperwork at the state level, particularly for fundraising purposes.

When deciding whether to file as a corporation, an organization must weigh the costs and benefits of that type of structure: the owners are not personally liable for issues the corporation faces, and there are certain tax benefits as well. Corporations may have shareholders whose shares may be publicly or privately traded, a complex issue of taxation that likely requires more specialized employees and a larger administrative workforce.

According to the Small Business Administration, a government office, about 70 percent of American companies are sole proprietorships that do not require incorporation. Similarly, partnerships do not require incorporation. The SBA allows you to look up business registration requirements by the state on its website.

S Corporations

This corporation structure was created in 1958. A hybrid between traditional corporations and partnerships, it does not pay income taxes itself but passes profits to shareholders (a so-called “pass-through” corporation). It may have up to 100 shareholders and must meet other requirements enumerated in the law. Like a standard “C” corporation, an S Corporation requires registration with the state where the business is based.

Paperwork

Most businesses rely on experts to handle their paperwork, including accountants and attorneys who will ensure the filing paperwork is complete and all requirements have been met. However, it is entirely possible for an individual to file articles of incorporation. Standard templatesmay be downloaded but it’s always recommended that one checks with the state to make sure the free online templates match the state requirements for disclosure.

What is Contained in Corporate Bylaws?

Bylaws are not public documentsfiled with articles of incorporation but they will tell you more about the company because these include information like the power and tenure (term length) of the board of directors, how shares are treated, what type of stock is used, information about board meetings, the frequency of audits, procedures for record keeping, rules for approving contracts and stock certificates, and procedures for the corporation’s annual meeting. The procedure for replacing board members will also be found here, a detail that can be crucial in corporate takeovers.

Where Do I Find the Form?

Every state has a different Articles of Incorporation form. Forms can be found on the state’s official website, which can be filled in online or printed out, completed and sent to the secretary of state’s office.