Articles of incorporation: Overview, definition, and example
What are articles of incorporation?
Articles of incorporation (also known as a certificate of incorporation or a corporate charter) are a legal document that establishes the existence of a corporation. It is filed with the appropriate governmental agency (usually the state or national government) to legally create a corporation. The articles of incorporation typically include fundamental information about the corporation, such as its name, purpose, address, and structure, including details about its shareholders, directors, and the amount of authorized capital. This document serves as the foundational framework for the corporation and is required for a company to be legally recognized as a corporate entity.
For example, when starting a new company, an entrepreneur must file articles of incorporation to officially form the corporation and gain legal protection and structure for the business.
Why are articles of incorporation important?
Articles of incorporation are important because they provide the legal foundation for a corporation, granting it the right to operate as a separate legal entity. Once the articles are filed and approved, the corporation can enter into contracts, open bank accounts, hire employees, and conduct business activities in its own name, distinct from its owners. The articles also serve to define the corporation's structure and governance, providing clarity on how decisions will be made and how responsibilities will be assigned. Moreover, filing articles of incorporation is a requirement to benefit from legal protections, such as limited liability for the shareholders.
Understanding articles of incorporation through an example
Let’s say an entrepreneur wants to start a tech company called "Tech Solutions, Inc." They will need to file the articles of incorporation with the state government. The articles might include the company's name, its purpose (such as providing software development services), the name of the registered agent (a person or company responsible for receiving legal documents), the number of authorized shares of stock, and the names of the initial directors. Once filed, the state will approve the articles, and the business will officially be recognized as a corporation.
In another example, a nonprofit organization seeking to provide community health services must also file articles of incorporation. The articles would specify that the corporation's purpose is to offer health services, outline its governance structure, and provide information about its directors. Upon approval, the nonprofit will be able to operate as a legal entity and apply for grants or tax-exempt status.
An example of an articles of incorporation clause
Here’s how a basic articles of incorporation clause might appear in a business document:
“Article I: Name. The name of the corporation is [insert company name]. Article II: Purpose. The purpose of the corporation is to engage in [insert type of business activity]. Article III: Registered Agent. The name and address of the corporation’s registered agent are [insert name and address]. Article IV: Authorized Shares. The corporation is authorized to issue [insert number] shares of common stock.”
Conclusion
Articles of incorporation are essential for the creation and legal recognition of a corporation. They provide the structure, purpose, and essential details necessary for a business to operate as a legal entity. Filing articles of incorporation is a critical step in the formation of a corporation, whether for a for-profit business, a nonprofit organization, or other corporate entities. By defining the corporation’s governance and operational framework, the articles ensure the business can function within the boundaries of the law and with the benefits of limited liability and other corporate advantages.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.