Articles of incorporation legally establish a corporation. Once incorporated, a company may receive tax benefits, raise capital by issuing stock, and limit owners’ liability. The articles contain basic information like company address and number of shares. They are filed with the state to form a business structure recognized as a corporation.
Benefits of Incorporating
Incorporating provides benefits:
- Owners’ personal assets are protected from company debts.
- The chosen name is protected from use by others.
- Access to investors and the ability to sell stock facilitates business growth.
Each state has its own rules on the content and filing location for articles of incorporation, which owners must be aware of.
Incorporation vs. Bylaws
Confusion exists between articles of incorporation and bylaws, the latter containing rules for running a corporation. Both documents are crucial but serve different purposes. Filing articles is the first step in incorporation, and they must include details such as the corporation’s purpose, capital structure, and records management. Terminology varies as some states use terms like the certificate of incorporation or other phrases.
Legal and Financial Aspects
An incorporated company becomes a legal entity separate from its shareholders. It can own property, conduct business, incur liabilities, and sue or be sued without risking the shareholders’ personal assets.
However, a corporation can face double taxation, with taxes being levied on both company earnings and shareholder dividend payments, as well as capital gains from selling stock.
Importance of Articles of Incorporation
Those considering incorporating a business should understand the role of the articles of incorporation. They not only establish the corporation but also protect the business name, facilitate access to capital and investors, and outline clear boundaries for asset protection. As requirements vary, it’s essential for owners to familiarize themselves with their state’s regulations.