Articles of Incorporation act as a charter to establish the existence of a corporation in the United States, and are filed with the Secretary of State where the business entity is doing business. They are sometimes referred to as the certificate of incorporation or the corporate charter, or if the business is Limited Liability Companies (LLCs) they are called Articles of Organization.
All corporations have paperwork that must be completed and kept on file to prove the business and its owners are acting as a corporation or LLC rather than an individual. C Corporations, S Corporations, LLCs and Limited Partnerships (LPs) all must have paperwork substantiating their existence as limited liability entities. Articles of Incorporation establish the existence of your corporation in your state, and set forth certain basic information about the new business.
The articles of incorporation set out:
- the company’s name,
- the initial board of directors,
- the authorized number of shares,
- the corporate purpose (usually stated in broad language such as “to engage in any lawful activity,” in order to avoid limiting the corporation’s business prospects),
- the corporation’s name and address (principal place of business),
- the name and address of your corporation’s registered agent, who will be authorized to physically accept delivery of certain legal documents (including lawsuits) on behalf of your corporation.
Because it is a matter of public record, specific, detailed, or confidential information about the corporation should not be included in the articles of incorporation. Articles of incorporation are one of many corporate formalities, or steps that must be taken for an entity such as a corporation or LLC to be considered a separate legal entity with the protections that limit the owner’s liability.
Why are Corporate Formalities Important?
The problem is that by not following the corporate formalities you open yourself up to unlimited personal liability if your corporation or LLC gets sued. If you haven’t met all the corporate formalities, you can be held personally responsible for the corporation’s claim. That defeats the whole purpose of setting up your entity! An entity exists largely to protect you from losing your personal possessions if the business is sued. If you set up and maintain the corporate formalities, there is a corporate veil, that protects you.
The crazy thing is that is an increasing common problem with business owner failing to follow corporate formalities and losing lawsuits as a result. In fact, 50% of business and real estate ventures are losing to this extremely common legal attack because they fail to protect against court decisions that pierce the veil. This means business and real estate venture owners are being held personally liable for lawsuits against their corporation, LP or LLC, and are vulnerable to losing their possessions.
What are Some of the Other Corporate Formalities Required?
To be protected you need:
- A registered agent,
- An operating agreement,
- Minutes of the organizational meeting or the issuance of ownership certificates,
- A Federal Identification Number
- Regular meeting minutes kept in a corporate minute book,
- And initial organization filings such as the Articles of Incorporation.
The corporation is governed by rules found in its bylaws. Its decisions are recorded in meeting minutes, which are kept in the corporate minute book.
Without these protections, you as a business owner will be vulnerable to unlimited liability. If someone sues your business you could personally be responsible for the costs of what the judge decides should be paid out to the other party. So for these reasons it is essential to take the steps to set up and maintain the full protection that a LLC, C Corp or S Corp offer the business owner and shareholders.
Articles of Incorporation: Filing and Fees
In order to receive Articles of Incorporation or Organization, you need to file the proper application with your state’s Secretary of State office (or similar state agency that handles business registration).
In all states, a fee is required to file the articles of incorporation — ranging anywhere from $35 to $300, depending upon the state of incorporation. In some states, the filing fee varies if the new corporation is a non-profit rather than a traditional (for-profit) corporation. For example, in California the fee for filing articles of incorporation for a traditional “general stock” corporation is around $100, while the filing fee for a non-profit’s articles of incorporation is around $30.
Timing of receiving the articles is dependent upon the state as well. Some states provide them immediately online, and others send them through the mail. If you are using Corporate Direct to form your company, your Incorporating Specialist will be able to give you all the details according to your state in a free 15-minute consultation.