If you’re a new entrepreneur with a game-changing concept, you’re probably eager to get your company started. However, launching your company requires more than just a great idea for a business. If you’re looking to start a corporation (or convert an existing business into one), you’ll have to file articles of incorporation.
What does it mean to file articles of incorporation?
When you file articles of incorporation for your small business, your company becomes a corporation. Without filing your articles of incorporation, you can’t open a corporation from scratch or start a corporation from an existing LLC, partnership, or sole proprietorship.
What must you do before you file articles of incorporation?
You should ask yourself three questions before filing your incorporation forms:
- Do I want to make a corporation or another business type? Articles of incorporation are for S corporations and C corporations, not LLCs, partnerships, sole proprietorships, or other business types. Read the following SmartBiz Loans blogs to learn the advantages and disadvantages of these five business types:
- Type of Entity: The Complete Guide
- Six Types Of Business Operations
- Partnership Vs. S Corp: Differences You Should Know About
- S Corp vs. C Corp: Advantages And Disadvantages
- What will I name my company? Make sure your company’s name is unique and doesn’t resemble any existing companies’ names. You’ll also need to add “Inc.” or “Corp.” at the end of your corporation’s name. Once you decide on a name, search your state’s business name database to ensure no similar names exist, then contact the appropriate agency to reserve your name until you file your articles of incorporation.
- Who will be my company’s registered agent? When filing articles of incorporation, you must choose a registered agent to whom your state can forward official information such as lawsuits and tax notices. This agent can be you, one of your employees, a company that offers registered agent services, or a person who (with variations by state):
- Has a physical street address in your state;
- Is reachable at this address during standard business hours, and;
- Is at least 18 years of age.
Nine steps to file articles of incorporation
To file your articles of incorporation, follow these nine steps:
1. Determine how to file
You can file articles of incorporation directly with your state secretary’s office, through a legal help site, or with a lawyer’s assistance. Direct filing usually costs less money than the other methods, but if you attempt filing yourself and have questions, you may find legal help sites or personal lawyer assistance worth the spend. Once you decide, begin drafting your articles.
2. Provide the name of your corporation
Your first article of incorporation is simply your corporation’s name. Write the full company name you’ve decided upon before filing.
3. List the address of the corporation
Your second article is your primary business location, which will likely be a storefront or office. If you operate many locations, you should list your main location.
4. Appoint a registered agent
In your third article, you’ll write your registered agent’s name and address. If your registered agent is not one of your employees or owners, don’t list your company’s address – list your agent’s.
5. Write a general statement of purpose
Your fourth article is a general statement of purpose. The word “general” is important – it’s best not to be specific about your purpose. Instead of detailing your products and services, use words that allow your company to change its suite of products and services. An example might be, “The purpose of this corporation is to conduct any lawful activities permitted to corporations in this state.”
If your state does require more specific language, you can still write the statement of purpose without getting into the nitty-gritty. If you’re opening a dog walking business, for example, you can write “to walk dogs and conduct any other lawful activities permitted to corporations in this state” as your general statement of purpose.
6. Decide your number of authorized stock shares
All corporations have shareholders, so in your fifth article of incorporation, declare how many authorized shares you will sell. The amount you choose can be more than the amount you ultimately issue, but your filing costs may increase with your number of authorized shares. If your state requires you to list the stock classes your company will issue, you may want to speak with an accountant about the best options for your business.
7. List your incorporators’ and directors’ names and addresses
In your sixth and seventh articles, you’ll list your directors’ and incorporators’ names and addresses. You can attach extra sheets of paper to your articles of incorporation to include all your directors and incorporators.
8. Establish your corporation’s duration
If you intend your corporation to be permanent, then for your eighth article, write “The duration of this corporation is perpetual.” If not, write the duration and end date of your corporation.
9. Collect signatures of all incorporators
Complete your articles of incorporation by collecting all your incorporators’ signatures and dating your articles’ final section. Now, you’re ready to file your articles.
How to decide where to incorporate your business
You can incorporate your company in a state other than your own. Consider these four factors when choosing where to incorporate your business:
- Legal system. If your company faces a lawsuit, you’ll want to be incorporated in a state known for swiftly, justly handling legal matters.
- Formation fee. Filing articles of incorporation always costs money. To save money, incorporate in a state with lower fees.
- Corporate taxes. Some states assess few or no taxes on corporations, so companies often incorporate in these states. That said, you must register your business – a different process than incorporating it – in your state of operation, where you may pay state taxes anyway.
- Investor needs. Often, companies incorporate in Delaware since the state has especially corporate-friendly laws. As such, some investors are less likely to invest in companies not incorporated in Delaware. That said, if you’d rather incorporate in another state, you still have plenty of funding options.
To discover how your business financials stack up for funding, use our easy-to-use online tool. SmartBiz Advisor™ helps you track the financial health of your business and learn how banks typically evaluate your business.* SmartBiz Advisor also suggests ways to help you improve your credit and strengthen the financial health of your business as needed. Read feedback from real SmartBiz Advisor users and sign up here.
*The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.