For small businesses that decide to incorporate, one of the first steps they must take is filing the articles of incorporation (sometimes called certificates of incorporation, articles of association, or charters) at a Secretary of State's Office or with the Department of Commerce. A company can file in the state in which it does business or in any other state of its choosing. In the past, businesses were often advised to incorporate in Delaware because of its simple and advantageous corporate laws. More recently, though, there is less agreement on the subject. Many other states have reformed their tax codes in order to keep businesses at home, thus muting the advantages previously associated with incorporating in Delaware.
In most states, the Secretary of State can provide blank forms by mail and most also make these forms available online. These differ from state to state, but they are fairly straightforward and only require you to fill in the blanks. In a few states, no forms are available, and you will have to draw up the articles of incorporation from scratch. You may prepare the articles of incorporation on your own (there are many guides available, some of which are specifically created for a certain state and include sample forms), or you may hire a lawyer to do this for you. But even if you take on the task yourself, it is a good idea to ask an attorney to look over the form.
Generally, the articles of incorporation include the following sections:
- Corporate Name.
- Initial agent (sometimes called a registered agent or resident agent) and office—This is usually the corporate president or one of the directors. In any case, this is the contact person to whom all legal notices and official mailings will be sent.
- Purpose for which the Corporation is organized—In most states, this section does not need to be filled in. It will already contain a statement to the effect that the Corporation can do anything that's legal for a corporation to do in that state. If you have to fill it in yourself, it is best to leave the language as general as possible. That way, if you later change the nature of your business, you will not need to amend the articles of incorporation.
- The Duration of the Company—This is usually listed as perpetual.
- Authorized Shares, Issued Shares, and Classification of Stock—The amount of information about authorized or issued shares required in this section varies by state. You may be asked to list the total number of shares authorized to be issued, the number of shares actually issued, the class of stock (common, preferred or both), the value per share, or the consideration received for the shares.
- Directors of the Corporation and their Addresses
- Name(s) and Address(es) of Incorporator(s)—This section should list the names of those individuals who have performed the incorporation and prepared the articles of incorporation (attorneys, directors, or owners).
- Estimated Property and Gross Revenue—This section, which is optional in some states, may include an estimate of the business's property value and the estimated gross amount of business which will be transacted during the following year.
Once the form is complete, it should be mailed to the Secretary of State or Department of Commerce in the state in which the business will operate. Any fees that are due should be sent along at this time as well. Each state has a filing fee, and there are usually other fees such as a franchise tax (usually based on your capitalization), a fee for designating a registered agent, or an organization tax based on the number and value of stock. These fees vary dramatically from state to state.
When the articles of incorporation are returned to the business owner after being accepted by the Secretary of State, they will probably need to be filed with the Recorder of Deeds in the county where the corporation's home office is located. The articles of incorporation, now the company's charter, then become public record.
Diamond, Michael R., and Julie L. Williams. How to Incorporate: A Handbook for Entrepreneurs and Professionals. Fourth Edition. John Wiley & Sons, 2000.
"Don't Underestimate the Legal Clout of Your Bylaws and Corporate Charter." The Business Owner. May-June 1999.
Steingold, Fred S., and Ilona M. Bray. The Legal Guide for Starting and Running a Small Business. Seventh Edition. Nolo Press, 2003.