Articles of Incorporation (AOI)

Articles of incorporation are an essential legal document for a business that is intended to be set up or restructured as a corporation. They are used to formally register and create corporate entities at a state level.

This article briefly explains what business owners and entrepreneurs need to provide when they fill in their own articles of incorporation. It also details the filing process for this legal instrument and what other documents might be necessary when setting up a new corporation.

Why Do Business Owners Form Corporations?

Corporations can be an advantageous business structure for a company for many reasons. Entrepreneurs will often start corporations to gain a number of benefits which include:

• Limited liability for the owners (They will only instead be liable for the capital they pay into the corporation)
• Tax deductions and tax savings
• Corporations are seen as credible organizations
• They can exist in perpetuity beyond the lives of their founders
• It’s easier to raise funds through the sale of stock
• It’s simpler to transfer ownership if the business needs to be sold

Whilst a corporation can offer business founders a number of benefits, it is not a suitable structure for every kind of company or owner. Some of the disadvantages of corporations include the following:

• They can be time consuming and expensive to administer properly.
• Founders can effectively be taxed twice as they must pay levies on the company and their own dividends from the business.
• Detailed records of the business must be provided to the government.
• Owners don’t have the same level of control as they do in other business structures.
• Some states charge annual franchise tax fees to corporations.

Choosing the right state for incorporation

When deciding to incorporate, selecting the right state can significantly impact your business's legal and financial standing. Some states, like Delaware, are particularly popular for incorporation due to their favorable business laws and lower tax rates.

Delaware offers a well-established legal framework and a specialized court system for business disputes, which provides predictability and efficiency in legal matters.

Additionally, Nevada and Wyoming are also attractive options because of their business-friendly environments and lack of state income tax.

Choosing a state with advantageous laws and tax benefits can optimize business operations and potentially reduce costs.

What Information is Usually Found in the Articles of Incorporation?

Whether your business is to become an LLC, partnership, or corporation, you will need to fill in the right forms and meet the right requirements in order to successfully register your concern. In the case of corporations, you will need to provide the following information when you complete the articles of incorporation:

• The name of the corporation, its registered address, and DBA name if neccesary.
• The purpose of the corporation.
• Whether the corporation is intended to be temporary or permanent. If it is to be a temporary entity you must then indicate the date that it will cease to operate and exist.
• The name and address of the person who is to be your registered agent. This appointed member of the business will be the authorized contact point for any legal or official documents related to the company.
• The number and type of shares that can be issued and sold by the business.
• The name, address, and signature of the incorporator. This is an appointed individual who is tasked with completing and filing the articles of incorporation. This can be a senior member of the business, an attorney, or another trusted professional or person. It is also possible to have multiple incorporators during this stage of the process.

When filling in the forms it is highly important to use the correct documents for the state that you will base the company in or your application could be rejected. The forms themselves will ask you for the key information listed above according to your state’s requirements, which you should fill in and answer as completely as you can.

When completing your Articles of Incorporation, it is crucial to recognize that each state has its own specific requirements and forms.

While the general information needed is similar across states, such as the corporation's name, purpose, and registered agent, you must ensure that you are using the correct documents tailored to your state’s regulations.

Failure to comply with these state-specific rules could result in your application being rejected.

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How Can Business Owners File the Articles of Incorporation?

To submit the articles of incorporation, you must file your completed forms with your local Secretary of State. The documents must be submitted along with your state’s filing fees.

These fees can be as little as $50 all the way up to $500. The final cost of the process will however depend on whether you mail or personally submit the papers at your state’s business filing agency.

Once the articles of incorporation are filed and approved within your local state, you will receive the company’s Certificate of Formation. This will officially show that your business is now a corporation and can trade and operate as one.

States may also require owners and incorporators to create Corporate Bylaws for their entity as well. These are much like an LLC Operating Agreement in that they outline the rules for running the business and issuing stock. Similarly to an Operating Agreement the Bylaws just need to be kept for company record-keeping and don’t need to be filed with the state.

Once the Articles of Incorporation are filed with and approved by the Secretary of State, your business officially becomes a legal entity.

This approval grants your corporation the ability to operate legally, allowing you to apply for necessary business licenses, open corporate bank accounts, and establish credit in the company's name.

This step marks the transition from planning to operating as a recognized business entity.

What Is the Difference Between Bylaws and Articles of Incorporation?

Bylaws describe the rules and guidelines by which the members of a company must operate. When a corporation is created, bylaws are filed by the board of directors in a written document detailing the organization’s internal rules.

Bylaws are similar to an LLC operating agreement, but they are used by corporations and nonprofits rather than limited liability companies.

What Is the Difference Between an LLC Operating Agreement and Articles of Incorporation?

Before delving into the differences between an LLC Operating Agreement and Articles of Incorporation, it's important to understand how Articles of Incorporation differ from Articles of Organization.

While Articles of Incorporation are used to establish a corporation, Articles of Organization are filed to create a Limited Liability Company (LLC).

The choice between these 2 documents depends on the business structure you wish to establish.

Corporations, formed through Articles of Incorporation, typically have a more formal structure with shareholders, directors, and officers, whereas LLCs, established via Articles of Organization, offer more flexibility in management and fewer formalities.

An LLC operating agreement describes the rules the members of a Limited Liability Company (LLC) must follow. An LLC is a business structure where the owners are not liable for the company’s debts. In that way, it is similar to a corporation.

Nevertheless, an LLC is unique due to being owned by one or more individuals, while a corporation is owned by its shareholders. This leads to changes in legal issues such as taxation and maintenance.

LLC’s form by filing articles of organization rather than articles of incorporation, but both of these documents are used for the same purpose.