You must file articles of incorporation (sometimes called a
"certificate of incorporation" or "charter") with your state (usually
with the Secretary of State) and pay a filing fee in order to form a
corporation. The filing fee generally ranges between $70 and $200
depending on the state, but certain states have higher fees -- for
example, Massachusetts ($275) and Texas ($300). See the state pages on forming a corporation for details on state filing fees.
The articles function like the constitution for the corporation.
Ordinarily, the document is short and simple, and you can prepare your
own in a few minutes by filling in the form provided by your state's
filing office, or by drafting your own based on a sample. Generally,
all those people who will be initial shareholders may prepare and sign
the articles, or they can appoint one person to do so. Each state has
its own required version of this document, so the precise requirements
may vary. Below is a list of information commonly required by the
states:
- Company Name: You must include the name of the
corporation, which typically must include "Corporation,"
"Incorporated," "Company," "Limited," or an abbreviation of one of
these words, such as “Inc.” or "Corp." Most states will not allow two
companies to have the same name, nor will they allow your corporation
to adopt a name that is deceptively similar to another company's name.
For more on naming requirements, see the state pages on forming a corporation.
- Name and Address of Registered Agent: Most
states require the name and address (not a P.O. Box) of the
corporation's registered agent in the state of incorporation. The
purpose of the registered agent is to provide a legal address for
service of process in the event of a lawsuit. The registered agent is
also where the state government sends official documents required each
year for tax and legal purposes, such as franchise tax notices and
annual reports. If your corporation incorporates in the same state
where you do business, an officer of the corporation can usually serve
as the registered agent. If your corporation incorporates in a state
other than where it does business, then you will have to hire a
registered agent in the state of incorporation. You can find and hire
registered agent service companies online, and frequently they can
answer questions and provide other assistance with the formation
process.
- Legal Address of the Company: Some states
require that you include the address of the corporation's principal
office (whether or not that address is inside or outside the state of
incorporation). This is distinct from the address of the registered
agent discussed above, although in some circumstances this address
could be the same (i.e., when a corporate officer is serving as the
registered agent).
- Incorporator(s): An incorporator is the person
preparing and filing the formation documents with the state. Most
states require the name and signature of the incorporator or
incorporators to be included in the articles of incorporation. Some
states also require that you include the incorporator’s address.
- Director(s): Some states require that you list
the names and addresses of the initial directors of the corporation in
the articles. If the corporation will have only one shareholder, that
shareholder may also serve as the sole director. When there will be
more than one shareholder, the number of required directors differs
from state to state, and some require more than one director. See the state pages for details on the number of directors required by the fifteen most populous states and the District of Columbia.
In other states, you are not required to identify the
initial directors in the articles of incorporation (although you may do
so if you want). When the initial directors are not named in the
articles, the incorporator or incorporators have the authority to
manage the affairs of the corporation until directors are elected. In
this capacity, they may do whatever is necessary to complete the
organization of the corporation, including calling an organizational
meeting for adopting bylaws and electing directors.
- Business Purpose: Virtually all states require a
statement about the corporation's "business purpose." Most states allow
a general clause stating that the company is formed to engage in "all
lawful business." It is a good idea where permitted to use this general language to
avoid constraining your business activities in the future should the
business move in unanticipated directions.
- Number of Authorized Shares of Stock: You
generally must state in the articles how many shares of stock the
corporation is authorized to issue. Stock is a representation of
ownership of the corporation, and this ownership is divisible based on
the number of shares that the corporation issues. For instance, say the
corporation issues 100 shares -- if you own all 100 shares, then you
own the entire company. If you own 50 shares, then you own half of the
company, and the remaining 50 shares (and 50% ownership interest) can
be divided up among other people (in return for capital contributions,
services, as a gift). Unless shares of stock are designated as
non-voting stock, shares give their owner the ability to vote for the
election of directors in proportion with their ownership interest. (So,
if you own 100% of the stock, you get to elect the directors yourself;
if you own 75% of the stock, you get 75% of the say in who is elected;
and so on).
It is important to keep in mind that, in the articles of incorporation, you designate the number of shares the corporation is authorized to issue -- the corporation is not required to issue
all of those shares right away (or ever). It is common practice for
corporations to hold on to authorized but non-issued shares in order to
add additional owners later or to increase the ownership interest of a
current shareholder. In the articles, it is generally a good idea to
authorize a large number of shares (several thousand), keeping in mind
that the number of authorized shares may be tied to the corporation's
state franchise tax liability. For instance, in Delaware, it is a good
idea for new corporations to authorize 3000 shares, because this is the
maximum number of shares that a corporation can authorize and still
qualify for the minimum $35.00 annual franchise tax.
- Par Value: Some states require that the articles
state the "par value" of the authorized shares. The par value is the
share's minimum stated value -- meaning that a share cannot be sold for
less than its par value. Par value of a share is not the same thing as
its actual value, and the board of directors has discretion to set the
price to be received for stock issued by the corporation without regard
to par value (so long as that value is larger than par value, which it
always is). Most companies set par value at $0.01 or $1 or no par (some
states requiring a designation of par value will accept "no par").
- Preferred Shares: If you plan to authorize
preferred shares of stock in addition to common stock, you must include
information about the preferred shares, along with information about
the voting rights of the respective classes of stock. Preferred shares
typically provide for preferential payments of dividends or
distribution of assets upon termination of the business. Small business
owners often avoid this legal complexity by choosing to authorize only
common stock. This approach is simpler and meets the capitalization
needs of most small businesses. If you plan on creating preferred
shares, you should consult with an attorney before drafting your
articles of incorporation.
You can find the required forms and sample articles of incorporation
for the fifteen most populous U.S. states and the District of Columbia
in the state pages on forming a corporation.
If you want to amend the articles, you can do so by filing
articles of amendment with the same official to whom you submitted the
original articles. There is usually a prepared form for doing this.