Articles of Incorporation: What New Business Owners Should Know

• Filing articles of incorporation is legally required for any business owners planning to structure a new or established company as a professional corporation, nonprofit corporation or other classification.
• Each state has different required paperwork and rules for filing articles of incorporation. All filings are handled through the secretary of state.
• Applications for articles of incorporation are reviewed by state officials, and as long as all regulations are followed and appropriate fees are paid, the company is notified of its corporation status. 

Starting your own business is a big step, and the legal issues involved can be confusing. Thinking of a business idea is hard enough, but then comes countless legal documents to fill out and technicalities to deal with, especially if you're structuring your company as a corporation. Here's what you need to know about one of the first and most important steps of incorporating your business: filing your articles of incorporation.

What are articles of incorporation?

The articles of incorporation, sometimes called a certification of formation or a charter, are a set of documents filed with a government body to legally document the creation of a corporation. This type of legal document contains general information about the corporation, such as the business's name and location.

Articles of incorporation are easy to confuse with bylaws, which lay out the rules and regulations that govern a corporation and help to establish the roles and duties of the company's directors and officers. Bylaws work in conjunction with the articles of incorporation to form the legal backbone of the business. [Read related article: What Is a C Corporation?]

Why are articles of incorporation important?

Articles of incorporation are important because they establish a company within its home state, informing the state of the key aspects of the business. When filing, the business owner lets the state know the corporation's purpose, the name and address of the registered agent, the number of authorized shares and amounts of common stock, and the names of any incorporators.

Some states also request a copy of the company bylaws. The bylaws help to keep a corporation running smoothly by outlining the rights and responsibilities of the shareholders and board of directors.

A business owner benefits from articles of incorporation in several ways. By making your business a legal corporation, you protect yourself from the company's debts. After incorporation, you can raise capital quickly through the sale of stock. [Are you interested in business plan software to help you get your company off the ground? Check out our reviews and best picks.]

What is in the articles of incorporation?

Articles of incorporation include the following information, with some variations by state: 

• The name of your business or corporation.
• The name and address of your corporation's registered agent (the person or company to whom the state government will direct all vital legal and state documents and communications).
• The type of corporate structure (which may include a designation of your business as a nonprofit corporation, non-stock corporation or other category).
• The names and addresses of all members of your company's board of directors.
• The type and amount of authorized shares available to your company. "Authorized shares" means the maximum number of shares that your corporation may issue. Authorized shares may include common stock and preferred stock.
• The duration of the business (if it is not permanent).
• Your name, signature and address. If you are not the incorporator of the business, you will provide this information for the incorporator instead. 

Some companies may wish to amend their articles of incorporation after their business status is established. You can do this with a restatement, also known as restated articles of incorporation. 

How do articles of incorporation differ for a foreign corporation?

Articles of incorporation are intended for American corporations. A foreign corporation operating in the U.S. must instead file a certificate of registration. This legal document also varies in content and application process by state.

Are articles of incorporation the same as articles of organization?

Articles of incorporation and articles of organization are similar filings, with one main difference: Articles of incorporation are for companies looking to form a corporation, while articles of organization are for limited liability companies (LLCs) – an entirely different business classification under the Internal Revenue Code. Establishing a business as an LLC provides legal and financial protections to the business owner. LLCs are usually preferred to corporations for companies that plan to have real estate holdings or other assets that change in value.

Like corporations, LLCs provide tax and liability benefits according to the stipulations of the Internal Revenue Code. Unlike corporations, LLCs cannot easily transfer holdings and aren't a good choice for those looking to have outside investors. Before filing either legal document, you should review your state's rules and regulations. In some states, articles of incorporation and articles of organization are used interchangeably. 

When can I use articles of incorporation?

The articles of incorporation separate the business owner from the business. Articles of incorporation create a separate legal entity for the business. Incorporating reduces a business owner's personal risk, because the business becomes financially responsible for its debts and legally responsible in the case of lawsuits.

Any type of business can file articles of incorporation. A new business may launch as a corporation, or a business structured as a sole proprietorship can later become a corporation. Smaller businesses typically become S corporations and pay taxes only on dividends, while large businesses often become C corporations, which pay corporate taxes and must have a board of directors to operate.

How do I fill out the forms?

The first step is to structure the business as a corporation. The specific documents vary by state, but each includes several questions about the business and its owners. The forms are easily found online, but don't be alarmed if they are called something other than articles of incorporation.

Despite variations by state, the forms all ask similar questions and use a fill-in-the-blank format. The crucial information includes the business or corporation name, the recipient of all legal notices and official mailings, the purpose and duration of the business, the incorporator, the directors, how many authorized shares of stock can be issued, and how many classes of stock the corporation will be allowed to issue.

Where do I submit the forms, and how much is the filing fee?

Once you've filled out the proper documents, you can submit them by mail, in person at the secretary or department of state's office, or electronically on the secretary or department of state's website, depending on your state. The filing fee also varies by state, but it generally runs from $50 to $300. Other charges may apply at the time of the filing, again depending on the state.

After you've filled out all of the forms and paid all fees, the secretary of state's office will review the forms to make sure the name isn't already in use and that all other information meets the state's requirements. If everything is correct, the state files the forms, making the business a legal corporation. According to Investopedia, some states offer more favorable regulatory and tax environments, attracting more companies that want to incorporate.

Where do I find the forms?

Every state has a different form, so here are links to each state's form, which can be filled in online or printed out, completed and sent to the secretary of state's office. 

Chad Brooks contributed to the reporting and writing in this article.