What are articles of incorporation?
– Definition: Articles of incorporation (also called a corporate charter, articles of association, or certificate of incorporation) are the formal, publicly filed documents that create a corporation under state law. Filing them with the designated government office establishes the corporation as a legal entity.
Why they matter
– Purpose: They register the company with the state and record the basic legal structure and powers of the corporation.
– Public record: Once filed, the articles are usually a matter of public record and supply essential facts about the company to regulators, creditors, and the public.
– Legal effect: A corporation generally does not exist in the eyes of the state until its articles of incorporation are accepted.
Key items typically included (definitions)
– Corporate name: The legal name the company will use.
– Principal street address: The physical address of the corporation’s main place of business.
– Registered agent (agent for service of process): A person or organization designated to receive legal notices and official correspondence on behalf of the corporation.
– Capital structure (amount and type of stock): How many shares the corporation may issue and the classes or types of stock.
– Purpose: A statement of the company’s permitted activities; many states accept a broad, catch‑all purpose such as “to engage in any lawful activity.”
– Optional/additional provisions: States allow optional clauses such as limits on director liability, procedures for shareholder actions without a meeting, or special meeting authority.
Where to file
– In the U.S., articles of incorporation are filed with the Secretary of State (or equivalent office) in the state where you choose to incorporate. Some states accept filings online, others by mail.
State selection and fees
– States differ in regulatory rules and filing costs. Some states attract many incorporations because of favorable corporate law (for example, Delaware and Nevada).
– Filing fees vary. As of 2020, examples included about $50 in Iowa, Arkansas, and Michigan and about $275 in Massachusetts. Fees can depend on filing method (online vs. mail) and sometimes on provisions such as authorized shares.
How articles relate to other corporate documents (brief comparisons)
– Articles of incorporation vs. bylaws: Articles are the filed, public formation document. Bylaws are internal rules that govern day‑to‑day management and procedures. Some states require bylaws to be adopted and kept on file internally, but bylaws are not generally filed with the state.
– Articles of incorporation vs. LLC operating agreement: Articles form corporations; LLC operating agreements govern the internal affairs of limited liability companies (LLCs). They serve similar internal functions but for different entity types.
– Articles of incorporation vs. business license: A business license authorizes operating in a particular industry or jurisdiction; articles create the legal corporate entity. Both may require overlapping information but serve different legal purposes.
– Articles of incorporation vs. business plan: A business plan is an internal strategic document for management and investors. Articles are a non‑strategic, legal filing.
Domestic vs. foreign filings
– Domestic corporations file articles of incorporation in the state of incorporation.
– A corporation incorporated in one state that does business in another typically must register in the other state as a foreign corporation (often by filing a certificate of registration) and comply with that state’s taxes and fees.
Practical checklist: What to prepare before filing
1. Choose state of incorporation and confirm state filing office (Secretary of State).
2. Decide corporate name and confirm availability.
3. Determine principal business address and registered agent.
4. Decide authorized share structure (number of shares; classes; par value if any).
5. Draft a concise purpose statement (many companies use a broad, lawful-purpose clause).
6. Consider optional provisions to include (director liability limits, shareholder action rules).
7. Prepare the filer’s information (incorporator(s) name and address
8. Prepare any optional governance provisions you want included in the articles or reserved for the bylaws
– Preemptive rights: right for existing shareholders to buy new shares proportionally to avoid dilution. Define “preemptive right” so readers know it’s a shareholder protection.
– Transfer restrictions: limits on selling/transferring shares (common in closely held companies).
– Cumulative voting: lets minority shareholders concentrate votes to elect a director.
– Staggered board: only a fraction of directors are elected each year to provide continuity.
– Director liability limits and indemnification: statutory caps on director liability and promises to cover legal costs.
Action: decide which (if any) belong in the articles (public record) vs. in private bylaws or shareholder agreements.
9. Draft the incorporator’s signature block and filing instructions
– Include who will sign and submit the articles (an incorporator or an attorney).
– Confirm the filing method (online, mail, in-person) and payment method for the filing fee.
Action: designate a filer and a backup, with clear deadlines.
10. Numeric example: choosing authorized shares and par value
– Example: authorize 1,000,000 shares with par value $0.001.
– Calculation: stated par capital = 1,000,000 × $0.001 = $1,000.
– Why it matters: some states compute franchise tax or minimum fees using authorized shares and par value; lower par value often lowers nominal stated capital.
Action: pick an authorized number and par value that balance fundraising flexibility and state tax considerations. Ask a state filing clerk or attorney if uncertain.
11. File the articles of incorporation
– Submit completed form, pay the fee, and request any expedited processing if needed.
– Save the filed document and the state-issued certificate of incorporation.
Action: note the filing date — it’s the corporation’s legal birthday and affects tax/filing deadlines.
12. Post‑filing immediate actions (first 1–14 days)
– Obtain an Employer Identification Number (EIN) from the IRS (needed for taxes, payroll, bank accounts).
– Hold the organizational meeting of the board of directors: adopt bylaws, appoint officers, authorize initial stock issuances, approve banking resolution.
– Issue stock certificates (or electronic record) and update the stock ledger.
– Open a corporate bank account using the filed certificate, EIN, and bylaws or board resolution.
Action: create a corporate minute book (see checklist below) and store originals securely.
13. Corporate minute book checklist (documents to keep)
– Filed articles of incorporation and state certificate.
– Corporate bylaws and any amendments.
– Minutes of board and shareholder meetings and written consents.
– Stock ledger and subscription agreements.
– Stock certificates (or electronic records) and transfer records.
– Copies of federal/state tax filings and licenses.
Action: keep both physical and digital backups; maintain access control.
14. Ongoing compliance checklist (annual and periodic)
– Annual report filings and state franchise tax payments (deadline varies by state).
– Maintain a registered agent and update if it changes.
– Hold annual shareholder and director meetings; document minutes or written consents.
– File payroll taxes, state withholding registrations, and sales tax permits as applicable.
– Renew business licenses and permits.
Action: set calendar reminders for each jurisdiction’s deadlines; consider bookkeeping software or a compliance service.
15. Foreign qualification (if you expand into other states)
– Determine if the company’s activities in another state require registration as a foreign corporation (substantial business, offices, employees).
– Typical steps: obtain a certificate of good standing from the home state, complete the foreign qualification form, appoint a registered agent in the foreign state, pay filing fees.
Action: register before doing business in the new state to avoid penalties.
16. Securities and equity considerations when issuing shares
– Private share issuances typically must comply with federal and state securities laws (exemptions exist for small private offerings).
– Consider drafting subscription agreements, vesting schedules, and shareholder agreements when issuing equity.
Action: consult counsel for offerings beyond friends-and-family or simple employee grants.
17. Amendments, mergers, and dissolution
– Articles can be amended (usually by board resolution plus shareholder approval); follow state statutory thresholds.
– For mergers or dissolutions, follow state statutes and file required notices and certificates.
Action: confirm voting thresholds in your articles and state law before attempting major changes.
18. Practical timeline example (illustrative)
– Day 0: choose name, prepare articles.
– Day 1–7: file articles; obtain certificate of incorporation.
– Day 7–14: obtain EIN, hold organizational meeting, adopt bylaws, open bank account.
– Ongoing:
– Ongoing: regular compliance and governance tasks (checklist and calendar)
19. Annual and periodic filings
– Annual report: many states require an annual report with a filing fee; deadline and content vary. Action: calendar the state deadline and set a recurring reminder 60 days in advance.
– Franchise tax (or equivalent): some states impose a franchise tax or business privilege tax based on capital, shares authorized, revenues, or a flat fee. Action: determine your state’s calculation method and due date; estimate liability quarterly if tax is material to cash flow. Example (illustrative only): assume your state charges $0.002 per authorized share with a $100 minimum. If you have 1,000,000 authorized shares, tax = 1,000,000 × $0.002 = $2,000 (greater than $100 minimum). Note: replace numbers with your state’s rules and rates.
20. Federal and state tax filings
– Obtain and use your EIN (Employer Identification Number) for federal tax filings and payroll. EIN is issued by the IRS.
– Corporate income tax returns (Form 1120 for C corps at the federal level) and any state income tax returns must be filed on schedule. Action: engage an accountant to set up bookkeeping and quarterly estimated tax payments if required.
– Payroll taxes: if you have employees, withhold federal and state payroll taxes and remit on required schedules.
21. Corporate records and books
– Maintain:
– Minute book (written minutes of board and shareholder meetings).
– Stock ledger (who owns what shares; dates of transfers).
– Originals or certified copies of articles and bylaws, and all amendments.
– Copies of material contracts, equity subscription agreements, and investor communications.
– Action: store physical originals in one secure place and maintain digital copies with backups.
22. Meetings and minutes
– Hold annual shareholder meetings as required by your articles or state law; hold regular board meetings as needed.
– Minutes should record: date/time, attendees, issues considered, resolutions passed, and voting outcomes. Action: use a short template to ensure consistency. Example template items:
– Call to order; attendance
– Approval of prior minutes
– Officer reports
– Resolutions (describe and record vote)
– Adjournment
23. Registered agent and statutory notices
– Registered agent (a person or business) receives legal process and official state notices. Maintain a current agent and address with the state. Action: update the registered agent immediately if it changes.
24. Issuing and transferring equity
– Before issuing shares, ensure authorization in articles and compliance with securities laws (federal and state). For private issuances, use appropriate exemptions and documented subscription agreements.
– Maintain documentation for every issuance: board resolution approving issuance, subscription agreement, and stock certificate or ledger entry.
25. Corporate governance best practices
– Adopt written bylaws (if not already) or operating rules; include procedures for meetings, officer roles, and conflict-of-interest policies.
– Institute basic financial controls: dual-signature for disbursements above a threshold; periodic reconciliation by an independent person; a budget and variance review at least quarterly.
– Consider issuing stock subject to vesting for founders or employees (consult counsel for form and securities compliance).
26. Intellectual property, licenses, and permits
– If your business has IP (trade names, trademarks, patents), record ownership and consider early protection steps (trademark filing, patent filings).
– Maintain any required local or state business licenses and renew on schedule.
27. Audit trail and document retention
– Keep corporate records for legally relevant periods (varies by document type; many recommend retaining tax records for at least 7 years, corporate minutes and charters permanently).
– Have a consistent destruction policy for nonessential documents (document the policy).
28. Enforcement and dispute readiness
– If disputes arise (shareholder disagreement, creditor claims), having contemporaneous minutes, accurate cap table, and properly authorized issuances materially improves your legal position.
– Action: consult corporate counsel promptly if you receive a demand letter, subpoena, or notice of a claim.
29. Common pitfalls to avoid
– Treating the corporation as your personal bank (failure to respect corporate formalities can risk “piercing the corporate veil”).
– Missing state deadlines for annual reports or franchise taxes (late fees, penalties, or administrative dissolution).
– Issuing shares without required approvals or without complying with securities law rules.
30. Practical readiness checklist (first 12 months)
– Within 1 week of incorporation: obtain EIN; confirm registered agent; open corporate bank account.
– Within 1 month: adopt bylaws; hold organizational meeting; issue initial stock and record in ledger; obtain necessary IP protections and business licenses.
– Ongoing (quarterly): bookkeeping and tax estimates; review cash runway; payroll and payroll tax filings if applicable.
– Annually: hold shareholder and board meetings; file state annual report and franchise tax; prepare federal and state income tax returns.
31. Example calendar (company fiscal year = calendar year)
– Jan–Mar: prepare prior-year financials; prepare and file federal and state tax returns due by March/April (or file extensions).
– Apr–Jun: prepare annual report and franchise tax (if due mid-year in your state).
– Jul–Sep: mid-year corporate governance review; update cap table; consider mid-year budget revision.
– Oct–Dec: finalize year-end accounting; schedule annual meeting and prepare minutes.
Resources (for rules, forms, and official guidance)
– U.S. Small Business Administration — “Choose a business structure” and guidance on forming corporations: https://www.sba.gov
– Internal Revenue Service (IRS) — EIN and business tax forms
– State business offices (Secretary of State website for your state) — business-formation forms, filing fees, online annual-report filing: https://www.usa.gov/state-business
– Securities and Exchange Commission (SEC) — rules and filings for public companies; EDGAR database for corporate reports: https://www.sec.gov
– Investopedia — articles of incorporation (explanatory article and examples): https://www.investopedia.com/terms/a/articlesofincorporation.asp
– IRS Publication 542 — federal guidance on corporations (tax rules and filing links): https://www.irs.gov/publications/p542
Quick first-year compliance checklist (for a newly formed corporation)
1. File initial formation documents and pay state
fees (varies by state). Make sure the filing is accepted and save proof (file-stamped articles or electronic confirmation).
2. Obtain an Employer Identification Number (EIN)
– Why: The EIN is the corporation’s federal tax ID used for tax filings, payroll, bank accounts, and certain licenses.
– How: Apply online at the IRS EIN application (instant for most applicants with a Social Security Number or ITIN). If you can’t apply online, file Form SS-4 by mail or fax; international applicants can call the IRS. Keep the IRS EIN confirmation letter in the corporate records.
– Resource: IRS — Apply for an Employer Identification Number (EIN): https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
3. Adopt bylaws and corporate governance rules
– What to do: Draft and formally adopt bylaws (rules for managing the corporation). Bylaws typically cover director/officer roles, meeting procedures, quorum requirements, and how to issue shares.
– Practical step: Prepare a short “bylaws” document, have the incorporator or initial board approve it at the organizational meeting, and file a signed copy in the minute book.
– Tip: Bylaws are internal (not filed with the state) but are required to show corporate formalities.
4. Hold the organizational meeting and record minutes
– Actions at the meeting: Elect or confirm the board of directors (if not named in the articles), appoint officers, adopt bylaws, approve initial stock issuance, authorize opening bank accounts, and approve any initial contracts.
– Recordkeeping: Prepare and sign meeting minutes; store them in the corporate minute book.
5. Issue stock and maintain a stock ledger
– Steps: Determine authorized vs. issued shares, set par value (if any), prepare share certificates (if used), and record each issuance in a stock ledger showing recipient, date, number of shares, and consideration received.
– Worked example: If articles authorize 1,000,000 shares and the board issues 10,000 shares at $0.10 par value for $1 per share, record: 10,000 shares issued to Founder A for $10,000; paid-in capital = $10,000; par value = $1,000; additional paid-in capital = $9,000.
– Why it matters: Proper stock records support ownership claims and are needed for future financing and transfers.
6. Open a corporate bank account and separate finances
– Required documents: State file-stamped articles, EIN confirmation letter, board resolution authorizing account signers, and copies of officers’ IDs.
– Rule of thumb: Never mix personal and corporate funds—maintain a separate ledger and bank account to preserve limited liability.
7. Register for state and local taxes, licenses, and permits
– Typical registrations: State employer withholding account, sales tax permit (if selling taxable goods/services), unemployment insurance, and any local business licenses.
– Action checklist: Locate your Secretary of State and state revenue department pages; register within the required timeframe to avoid fines.
– Resource: USA.gov State Business — links to state business offices and licensing: https://www.usa.gov/state-business
8. Set up accounting, bookkeeping, and payroll systems
– Essentials: Choose accounting software, establish a chart of accounts, set an accounting method (cash vs. accrual), and record opening capitalization entries.
– Payroll: Register for payroll tax accounts, collect employee W-4s, and choose a pay schedule. Determine federal payroll deposit schedule (monthly or semiweekly) based on expected tax liability and IRS lookback rules.
– Example: If you hire employees in month 3, set up payroll before the first payday so taxes are withheld and reported correctly.
9. Obtain business insurance
–
9. Obtain business insurance
– Purpose: Protect assets and limit liability for common business risks.
– Common coverages:
– General liability (bodily injury, property damage).
– Professional liability / errors & omissions (negligence in professional services).
– Property insurance (buildings, contents, inventory).
– Workers’ compensation (injury benefits for employees) — often mandatory if you have employees.
– Commercial auto (if vehicles are used for business).
– Cyber or data-breach insurance (if you store or process customer data).
– Business interruption (loss of income after a covered event).
– Steps:
1. Inventory exposures (employees, premises, customer interactions, data, vehicles).
2. Identify mandatory coverages (state workers’ comp rules, lease requirements).
3. Request quotes from multiple insurers or an independent broker; compare limits, exclusions, deductibles, and premiums.
4. Consider a Business Owners Policy (BOP) to bundle property + general liability for cost savings.
5. Review annually and after material changes (adding employees, new product lines, higher revenue).
– Example (hypothetical): A sole-proprietor consultant with no employees, working remotely, might buy professional liability ($1M limit) and cyber insurance for a combined premium of approximately $400–$1,200/year depending on exposures and prior claims. A small retail shop with two employees will add workers’ comp and property insurance; total premiums could range higher because of payroll and inventory exposure. (These figures are illustrative; get local quotes.)
– Checklist:
– [ ] Identify required coverages by state and landlord.
– [ ] Get at least three quotes.
– [ ] Verify insurer’s financial strength and claims handling.
– [ ] Keep certificates of insurance for contracts and leases.
10. Obtain business licenses and permits
– Purpose: Legal authorization to operate; avoids fines and forced closure.
– Types: Local (city/town business license, zoning, health permits), state (sales tax permit, professional licenses), federal (FDA, FCC, environmental permits for specific industries).
– Steps:
1. Use your city/county and state business portal to list required permits.
2. For retail or food businesses, contact your local health department and state alcohol/liquor board if applicable.
3. For sellers of goods, register for a sales/use tax permit with the state revenue department.
4. For regulated professions, verify state board licensing (e.g., contractors, accountants).
5. Record renewal dates and fees; set calendar reminders.
– Example: A restaurant must obtain a city business license, a health department permit, and a state food handler or manager certification; it may also need a liquor license (often a lengthy, costly application).
11. Set up banking and merchant services
– Business bank account:
– Open a business checking account in the legal entity’s name; most banks require EIN, formation documents, and authorized signers.
– Establish online banking, multi-user access, and reconcile accounts monthly.
– Merchant/payment processing:
– Compare fees: interchange + processor markup, monthly fees, chargeback policies.
– Consider a payment gateway for online sales and PCI compliance requirements for card data security.
– Keep separate accounts for payroll and operating funds.
– Example fee calculation (illustrative): If you process $10,000/month and your processor charges 2.9% + $0.30 per transaction, and you have 50 transactions:
– Card fees: $10,000 * 2.9% = $290
– Transaction fees: 50 * $0.30 = $15
– Total monthly card cost = $305
12. Build an online presence and basic IT hygiene
– Essentials: domain name, SSL certificate (HTTPS), simple website with contact information, and clear policies (privacy, returns).
– Security basics:
– Use unique, strong passwords and 2-factor authentication for accounts.
– Keep software and plugins updated.
– Back up data regularly and test restores.
– E-commerce: integrate payment gateway, ensure PCI awareness, display sales tax if required.
– Checklist:
– [ ] Register domain and SSL.
– [ ] Publish privacy and terms pages.
– [ ] Implement backups and 2FA.
13. Marketing plan and early customer acquisition
– Components: target customer profile, value proposition, channels (organic search, paid ads, social, email), budget, and KPIs (cost per acquisition, customer lifetime value).
– 90-day starter plan (example budget $2,000):
– $800 — Google Ads (branded + local search).
– $600 — Facebook/Instagram ads targeted to local demographics.
– $300 — Basic SEO and content setup (one or two pages, Google My Business).