Definition
The Articles of Incorporation, also known as the certificate of incorporation or corporate charter, is a document containing all the fundamental information required to form a corporation. It is officially filed with the state government to legally document the company’s existence. The document typically includes details such as the company’s name, type of corporate structure, number of shares it is authorized to issue, and other relevant details.
Key Takeaways
- Articles of Incorporation effectively serve as a charter and lay out the necessary basic information about a corporation. This generally includes the corporation’s name, type of corporate structure, amount and types of stock it’s authorized to issue, and the initial board of directors.
- By establishing a corporation through filing the Articles of Incorporation, the owners are able to limit their personal liabilities. It means the corporation’s shareholders, directors, and officers are typically not liable for the company’s debts and obligations.
- Articles of Incorporation need to be filed with the appropriate government agency in the state where the corporation is being formed. They provide a legal existence and recognition to the corporation under the law, and states charge a filing fee for handling and processing the Articles of Incorporation.
Importance
The term Articles of Incorporation is significant in finance as it represents the primary legal document used to form a corporation.
It outlines vital details about the corporation, including its name, address, purpose, and information about its shares of stock and shareholders.
This document essentially serves as the charter of the corporation, establishing its existence and governing its operation.
Furthermore, it provides protection to the owners by limiting personal liability for corporate debts and obligations.
Therefore, it is a fundamental component of creating a corporation and provides the base on which it operates, playing a vital role in corporate governance and finance.
Explanation
The Articles of Incorporation, also known as the certificate of incorporation or corporate charter, serve an essential purpose in defining a corporation’s existence and operation. Its primary function is to establish a corporation under the laws of the state in which the business operates. Through this document, a company is formally recognized as a separate legal entity, thus safeguarding personal assets of the owners from the company’s liabilities.
Further, it serves as a reference layout detailing the foundation of the company, including its purpose, structure, regulations and overall operations. Beyond these basic functions, the Articles of Incorporation carry significance for a wide range of business activities. It is crucial for financial matters, particularly when the company seeks to raise capital through the selling of shares.
Potential investors often review the Articles to understand the company’s structure and the distribution of power among its executives and shareholders. In addition, it’s pertinent when the company is up for sale, as it provides critical information to the potential buyers. Lastly, it is crucial in resolving disputes relating to the corporation’s operations and management as it clearly outlines the rules of the company.
Examples of Articles of Incorporation
Google Inc.: One of the most prominent examples is Google Inc. The company’s Articles of Incorporation were filed in 1998 in the state of California. These articles listed key details such as the name of the corporation, the number of authorized shares, and the names and addresses of the initial board of directors.
Microsoft Corporation: Microsoft Corporation filed its Articles of Incorporation in 1981 in the state of Washington. This document outlined various details such as the purpose of the corporation, the rights and limitations of shareholders, and the initial board of directors.
Coca-Cola Company: The Coca-Cola Company, which was incorporated in 1892, also provides a real-world example of Articles of Incorporation. The document clarified the legal name, the principal office’s location, the purpose for which the corporation was formed, and the number and types of shares of stock the corporation was authorized to issue.
FAQs about Articles of Incorporation
What are the Articles of Incorporation?
The Articles of Incorporation, also called corporate charter or company constitution, is a legal document that establishes a corporation with a government entity. It sets out crucial information about the company such as its name, address, purpose, initial directors, and share structure.
How are Articles of Incorporation prepared?
The articles are typically prepared by an individual, law firm, or online service that specializes in incorporation and filed with the state government. The specifics may vary between jurisdictions, but generally, they include the name of the corporation, the purpose of the corporation, the corporate structure, and the number and types of authorized shares.
What is the importance of Articles of Incorporation?
Articles of Incorporation provide a public record of the corporation’s existence and important details. They’re the foundation of a corporation’s structure and governance. Any changes made to the corporation that affect information in the articles must be filed with the state, usually through amended articles of incorporation.
Can the Articles of Incorporation be amended?
Yes, the Articles of Incorporation can be amended in the event of changes in the corporation. Amending the articles generally requires board approval, a vote of the shareholders, and a filing to be made with the state.
Do all businesses need to have Articles of Incorporation?
No, the need for Articles of Incorporation is specific to corporations. Other business structures, including sole proprietorships and partnerships for example, do not require Articles of Incorporation. However, Limited Liability Companies (LLCs) need to file similar document called “Articles of Organization”.
Related Entrepreneurship Terms
- Bylaws
- Incorporators
- Stock
- Corporate Structure
- Business Purpose Clauses
Sources for More Information
- Investopedia: An extensive source for finance and investment terms and explanations, including Articles of Incorporation.
- Entrepreneur: A source that provides advice, insight, profiles and guides for established and aspiring entrepreneurs worldwide. It often discusses business formation documents like Articles of Incorporation.
- U.S. Small Business Administration (SBA): An official website of the U.S. government that provides comprehensive information and guides for small businesses, including legal and regulatory aspects such as Articles of Incorporation.
- Nolo: A publisher of do-it-yourself legal books and software, providing legal advice and helpful articles, including information on Articles of Incorporation.
