While every state has different requirements for what must be contained within the Articles of Incorporation, the Articles of Incorporation generally contain the following information:
Name
The corporation’s name must be different from other corporations authorized to do business within that state. A search must be conducted to see if there are any confusingly similar names. If there are confusingly similar names, you should not use that business name. You should do a thorough search for confusingly similar names before you ever file the Articles of Incorporation. The secretary of state in your state of incorporation (or similar government body) will also conduct a brief search within its own database, but it is not sufficient to assure that you haven’t violated some other business’s rights.
The corporation’s name must generally end in the following words or their abbreviations:
- Incorporated or Inc.;
- Corporation or Corp.;
- Company or Co.; or
- Some other similar word or abbreviation that puts people on notice that they are dealing with a corporation
Address
The corporation must generally list the address of its "principal place of business" (PPB). The PPB is where the corporation’s headquarters or main facility is located.
Purpose
The person who incorporates the business, i.e. the incorporator, generally will not limit the purpose of the business and allow the corporation to engage in "all lawful activities."
In the past, incorporators would actually list what the corporation did. For example, a car body repair shop might have listed its purpose to "engage in auto body repair." This seems logical, right? However, if the business then decided to do something besides auto body repair (like car sales), a shareholder of the corporation might be able to successfully sue the business for acting outside of its authority. A business that acts outside of its authority is known as an ultra-vires act. So, to get around this dilemma, most incorporators list the purpose of the corporation as something such as:
- To engage in any purpose or purposes for which individuals may lawfully associate themselves
That way, the corporation can engage in different types of business activities without worrying about committing an ultra-vires act. If a business fails to list its purpose, most state laws will assume that the business can engage in any lawful activity.
Duration
Incorporators usually list the corporation to "continue in perpetuity," i.e. forever. If an incorporator fails to state anything about the duration of the corporation, most state laws will presume that the corporation can continue in perpetuity.
If an incorporator puts a limit on the duration (e.g. 20 years), then that corporation will only last as long as it is set up to last.
Capital Structure
"Capital structure" is just a fancy word for "stock." The incorporator will generally list the following:
- Authorized stock;
- Number of shares per class of stock (and any preferences):
- Stocks can have different classes. For example, one class of stock might be preferred, i.e. that class of stock gets paid first, while another class of stock gets paid second.
- One class of stock may allow those shareholders to vote on corporate issues, while another class of stock may not grant shareholders voting rights.
- Voting rights; and
- Information on par value, if any.
Par value is the minimum value that each share must sell for. Think of it like the basement floor – you cannot go any lower. For example, if par value was set at $.05, no shares could be sold for less than $.05. Many states don’t have par values, and for the states that do have par values they tend to be very low like 1/10 of a cent. Still, the incorporator has the freedom to set a par value for the corporation’s stock, if he or she wants to.
Authorized stock is the number of shares that a corporation is allowed to issue to shareholders. Authorized stock is different than issued stock. Issued stock is the actual stock that has been given to shareholders. For example, a corporation may be authorized to issue 5,000 shares, but only issue 3,000 shares. So, why would a corporation do this? Well, there are many different reasons. One main reason is to have the ability to issue more shares when the corporation is worth more money in the future, i.e. the corporation increases in value, and can ask for a higher price/share. That way, the corporation can raise additional capital, i.e. money, without have to take a loan from a bank.
Another thing to keep in mind is that corporations have to buy their shares from the state. So, that means the more shares that a corporation authorizes, the more money it has to pay to the state where it incorporates. Each state has different rates for shares, which can cost around $.10/share or so.
There may be other requirements, but these are the basic requirements that most states require. So, again, the main information within the Articles of Incorporation includes the corporation’s:
- Name
- Address
- Purpose
- Duration; and
- Capital structure
Finally, let’s wrap up this article with some ideas to keep in mind.