Articles of Incorporation/Certificate of Incorporation
The Articles of Incorporation is the legal foundation for your corporation and is required by every state when you incorporate your business. It outlines the basic information for your business and once filed, is on public record. The common information included in this document includes:
While this is relatively straightforward, you do need to make sure that your name doesn’t conflict with the name of another business already registered in the state. Your business name will typically end with a corporate identifier, such as “Corporation,” “Incorporated,” “Company,” or “Inc.”
In most states, you don’t need to be specific about your purpose. A general statement like “to engage in all lawful business” will suffice. A few states will require a more specific description of what kind of products and services your business will provide.
This is the entity that will receive official papers and legal documents on behalf of your company once you incorporate your business. These documents include renewal notices from the state and any documents related to lawsuits. The registered agent must be located in the state where your corporation is registered and must have a physical street address. Since this document is on public record, many business owners prefer to use a registered agent service to ensure documents are professionally and discreetly handled.
This identifies the individual or company filing the document with the state. The incorporator doesn’t need to be affiliated with your company. In fact, if you are incorporating online, the incorporator will typically be an employee of the online legal filing service provider when you incorporate your business.
Number of Authorized Shares
No matter how small your business may be, you will need to have stock if you incorporate (this is a key difference between the corporation and an LLC). The number of authorized shares is the number of shares that directors are allowed to issue. Keep in mind that you don’t need to issue the total number of shares at first (you can keep unissued shares in order to add owners later on or increase someone’s ownership percentage).The number of shares to authorize is somewhat arbitrary: it could be 10,000,000 or 1,000,000, or 1,000. For example, if you authorize 1,000,000 shares and have three shareholders at the beginning, you can issue 200,000 shares to each shareholder and still have the flexibility to add more shareholders in the future without having to amend your articles of incorporation. Before picking the number of authorized shares, you should find out if your state bases the annual corporation fee on the number of shares.
Share Par Value
This is the share’s minimum price. Common par values are $0.01, $0.001, or $0.0001 per share. For example, if a founder purchases 5,000,000 shares of common stock, the minimum price they have to pay is $500 at $0.0001 per share. Some states, like California, allow no par value. Keep in mind that par value is the minimum and doesn’t actually correlate to your stock’s actual value.
While many small businesses authorize only shares of common stock, you may also issue preferred stock shares which can have greater rights when it comes to voting, receiving dividends or receiving corporate assets in case your corporation is liquidated.
Directors make the important policy and financial decisions for the corporation, such as issuing stock, approving loans, and appointing corporate officers. Before the business opens, the business owners can appoint the directors and with many small businesses, the directors are the owners themselves. The number of directors you need to appoint will vary based on your state and number of owners in your business.
While directors make the major corporate decisions, the business’ officers are responsible for the day-to-day activities. State requirements vary, but your business typically needs at least three officers:
- Treasurer (CFO)
Officers can be shareholders or directors, but they do not have to be. In many cases, the same person can hold all offices. After you incorporate your business, you should hold your first meeting (and record the minutes of this meeting) where you elect the officers, adopt bylaws, and issue the initial stock shares. In addition to these initial requirements, you will also be required to file an annual/biennial report with the state (although a few states don’t require this at all). This document typically includes the basic information laid out in your Articles of Incorporation to ensure the state has current information on your business. It’s a simple form, but is absolutely critical to making sure your business remains in good standing and you continue to have liability protection after you incorporate your business. Paperwork Photo via Shutterstock
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