Drafting Articles of Incorporation for Your Corporation

The Articles of Incorporation is the doc you’ll file with the state to officially become a corp. This topic is probably more complicated than people think, so if you’ve tried to wing it on your own in the past, good for you. It's even better to read up on this process to make sure you do it right in the future.

And if you need other help with your corporation after you finish, check out Legal GPS for Business.

For your company to be legally recognized as a corporation, you must file Articles of Incorporation in the state where your business will be incorporated. Some states refer to this document as a “Certificate of Formation” or “Articles of Association.” For the sake of simplicity, we’ll only use the term “Articles of Incorporation” or just “Articles.” Filing this document is necessary to ensure compliance with your state’s legal requirements for registering a business entity. This document will state basic information about your company as well as how you intend to structure and run it.

For the document to be approved, it must be signed by the incorporator. An incorporator is the individual or entity that handled the incorporation process and filed the articles. Your company cannot be incorporated without the incorporator’s signature. 

Generally, the incorporator will be one of the business owners. You can, however, hire a business attorney to prepare the articles—that attorney then assumes the role of the incorporator. You can also draft the articles on your own, although you’ll be responsible for ensuring that they contain the minimum information required by law.

Most states provide blank forms that can be used to draft articles, and these are also readily available online in many states. In some states, like Missouri, the articles are filed with the Secretary of State’s office once they’re completed and signed. This is most commonly done online. In other states, the forms are submitted to whichever agency handles business registration. Upon submission and approval of the articles, the corporation is officially formed and the document becomes public record.

The Articles are designed to provide basic info about your corp and how you intend to run it. In general, the required provisions include your registered agent and registered address, your company’s stock structure, your incorporator’s info, and your organization’s purpose. Apart from these, you may also choose to include optional information. Below is a list of required and optional provisions for your Articles. Again, the rules vary from state to state, but this will give you some indication of which provisions are generally included in the Articles.

Required provisions:

• Corporation’s name

• Registered address & registered agent

• Stock information

• Incorporator

• Corporation’s duration

• Corporation’s purpose

Optional provisions:

• Number of directors
• Limitation of director liability
• Indemnification of officers and directors
• Limitation of stockholder rights

Now let’s go through these provisions one by one. It’s my goal to help you decide whether you need each of these provisions, and if you do, how to draft them.

The Corporation’s Name

This provision involves simply listing the name of your Corp. While that seems obvious, there are several things to think consider. For example, make sure you include the word “limited” or “incorporated” or its an abbreviation of either of those words at the end of your name. For instance, if your corporate name is “Mayflower,” the legal name of the company could be “Mayflower, Inc.” or “Mayflower, Incorporated.” To avoid getting your articles rejected, you must ensure the name you will be using isn’t already registered in your state either by a domestic or foreign business entity. Also, make sure you’re not using same name as another company registered in your state.

To figure that out, do business entity on your state’s Secretary of State website to make sure you have an original name. Or you can usually call the state agency’s office and they’ll do it for you. If you happen to live on a state border, like St. Louis, you may also want to consider whether you imagine your company will be doing business across the state line. In that case, you may also want to do a business search in surrounding states—even if you don’t end up doing business elsewhere, this can help avoid confusion in case there’s a company with a similar name right across state lines.

Finally, you may also consider doing a trademark search through the USPTO website. The last thing you want is to spend a ton of money on letterhead only to get a cease and desist letter from a company that has your name trademarked. 

In some states, you may reserve a name for a fee if you want exclusive rights to a specific corporate name but have yet to finalize the articles for filing. Almost no one uses the “name reservation” feature, however, because you can file the articles almost as easily and quickly as completing the reservation form.

Registered Address & Registered Agent

This provision requires you to list your registered agent and their address. The registered agent is essentially the person who’s going to accept the papers if you get sued. You want to choose someone who is reliable for this task because they must will quickly follow up on all official mailings received on the corporation’s behalf. Another option is to hire an attorney or a registered-agent company authorized to conduct business in the state you are incorporating in to act as your registered agent. If your agent gets served and just throws the lawsuit papers in the trash, you could get what’s called a default judgment against you.

That basically means you automatically lose the lawsuit. Often you can get a default judgment overturned, but there’s no guarantee. Also, list your agent’s physical address. Make sure the address is in the state where you’re filing the Articles. This address may or may not be the same as your corporation’s business address. A complete physical address, not a P.O. Box number, must be provided. This is necessary for service of process purposes. Process serving is a formal notice provided to a party involved in legal proceedings. This is done by “serving,” or giving the party a copy of the paperwork filed in court in person, thus the need for a complete physical address.

Stock information

This provision states how many shares your company can issue. You are required to specify a number, but keep in mind that you’re not required to issue them all at once. You can issue only some of them in the beginning. So why authorize more than you’ll initially issue? It will make your life easier and save time if you anticipate expanding. Later, you can use the unissued shares to add new shareholders or to increase current shareholders’ ownership percentages. Doing so would save you the trouble of amending your articles and re-filing should you need to authorize more shares in the future. The monetary value of each share should also be specified in this provision.

So how many shares should you issue? If you’re a startup, a good number is something like 10,000,000 shares of common stock. This is recommended because it gives you plenty of flexibility for immediate and future issuances. If you’re not looking to expand and it’s just going to be you in the corp, sometimes it makes sense to just have 100 or 1,000 shares. 

The template also includes a price figure. The price is the minimum price the stock can be purchased for. You’re probably thinking there’s no way you have $10,000,000, and that’s true for most business owners. So set the value extraordinarily low. You can do something like 1/10,000^th of a cent. You want to set it low because when you issue the shares, even when it’s right after formation, you still have to purchase the shares from your own corp. So, for example, if you only want the corp to start off with $100, then set the par value accordingly.

You should also use this article to state whether you want common and preferred stock. What do we mean by “common” and “preferred”?  Common shares are ownership interests in the corp that come with standard equity and voting rights. Preferred shares, on the other hand, come with different rights, depending on what preferences you give them. This class of shares is often nonvoting but has preferences on getting dividends and liquidation. Don’t focus too much on the voting aspect, though, because preferred stock can come with supervoting rights—which means holders of preferred stock have more voting rights than holders of common shares. The preferences can be as broad as you want them to be. But the catch is that you have to specify everything on the Articles of Incorporation.

Sometimes it’s good to set up a preferred stock class even if you don’t plan to issue preferred stock right away. You can always issue them later when you get investors. One final point on this issue that’s often overlooked—sometimes if you authorize more than a certain number of shares, you have to pay more.

For example, in Missouri you can authorize up to 30,000 shares for one fixed price. But your fee increases by $5 for every additional 10,000 shares you authorize. Or you could get hit the other way. In Delaware, for example, you won’t get charged extra fees up front but you’ll pay more each year.  This whole process gets tricky, so spend some time thinking this through before you file. And check your state’s fees.

Incorporator

The next provision is where you list your incorporators. The incorporator prepares and files your Articles. Incorporators are sometimes referred to as “promoters.” In general, the incorporator’s role also includes appointing the initial board of directors, calling the initial board meeting, and adopting the corporate bylaws. In some states, the bylaws are adopted by the directors at their first organization meeting.

This provision is included in the articles so the state will know who to contact and how for matters regarding your corporation’s formation.

States have different rules on incorporator qualifications, including a minimum age requirement or a residency requirement. There can be more than one incorporator and in that case, every incorporator listed on the articles would need to sign the document prior to filing. The articles cannot be approved without their signatures. Their addresses would have to be provided as well. 

The incorporator doesn’t necessarily have to be the business owner since any individual who prepares and files the articles is considered the incorporator. So your incorporator can be one of the owners, a shareholder, or even a director, if directors have already been appointed. In many cases, an attorney acts as a corporation’s incorporator. There also business entities that offer professional incorporator services. If you decide to go that route, make sure the incorporator service is authorized in your state before you hire them.

The main thing you need to know is that an incorporator can be held liable for any fraudulent info listed on the Articles. And they can be liable for pre-incorporation contracts—meaning if you’re the incorporator and you signed a contract expecting the corp to take it over, you’re liable until the corp takes it over. To protect incorporators, these contracts may include provisions relieving the incorporator of any obligation should the company fail to meet the terms in the contract. One easy tip—it’s probably best to just have the primary shareholder be the incorporator.

Corporation’s duration

This provision states your company’s duration. Unless you want the corp to dissolve in a certain number of years, state “perpetual” for the duration. 

What’s the significance of a perpetual existence? This establishes company stability, which is what investors generally look for. This gives them assurance that they’re putting their money into a company that has plans for long-term operation. 

You can also specify an end date. This means your business will only operate for a fixed period. Companies may choose this option if they want automatic dissolution after a specific number of years or upon meeting terms or conditions that have been set or agreed on.  This is not very common, though. You may want to specify an end date if, for example, your corporation is only formed for a short-term project. So unless that’s the case, just say your corp is perpetual. 

Corporation’s purpose

The “business purpose” provision is self-explanatory—you write your corp’s purpose. Most people keep it general like the example provision in the template. The only reason to get specific is if you absolutely want to keep your corp confined to one narrow purpose. Keep in mind that if you’re specific, you can’t do anything that falls outside of that purpose. For example, if your purpose is to build an app about sports, and you started building a finance app, you could get in trouble with other shareholders in your corp. Some states require a specific purpose, however, so make sure to check your state’s statute. Let’s look at a specific purpose provision so you get the idea. Below is Samsung’s business purpose:

It says what it will specifically manufacture and sell, among other things. Some states require this level of specificity, so make sure you check that out for your state. One quick point—if you go specific and want to expand your purpose later, you can always amend your purpose by filing an amendment with your state. 

Let’s take a look at an example of a general purpose provision. Below is Apple Inc.’s listed business purpose.

Some states require at least one specific purpose clause. You may be required to indicate the specific type of business your company will engage in or how you intend to make profit.

Optional Provisions

Now that we’ve reviewed the most commonly required provisions, let’s take a look at some provisions that might be optional, depending on your state:

Number of Directors

If you include this info, the director or directors would be required to sign the document before it’s filed. 

Directors may be appointed by your incorporator or elected by shareholders at their first meeting. Aside from appointing officers, directors are also in charge of managing the business and making major corporate decisions. They also handle approval of annual budgets, contracts, and bylaws amendments. 

Some states allow an officer to hold a director position at the same time. 

This provision would simply list the number of directors your corp will have. Generally there’s no limit. But the number you choose will likely depend on how big your corp is—you might have only have one director if you’re the only shareholder. Or if you have a huge corp, you could have ten or more directors. It’s typically best to have at least two if you have multiple shareholders. 

Limitation of Liability

What does it mean to limit your liability? For background, directors owe fiduciary duties to the corp. In particular, they owe a duty of care and a duty of loyalty. Those duties mean that the director has to act in good faith and in the shareholders’ and corp’s best interests. You can choose to include a limitation of liability clauses if you want to waive or impose certain exceptions should directors breach any of their duties. These are disclaimers that describe the conditions in which the directors may be held personally accountable for monetary losses or damages incurred by the corporation as a result of their decisions or actions. Corporations generally use negligence as the basis for determining whether these exceptions apply (i.e., whether the director was careless or was grossly negligent). You may also choose to stipulate some duties as non-waivable.

Indemnification

You may also choose to indemnify directors in certain situations. This means that if the director gets sued, the corp will cover any legal fees used to defend the director and any judgment imposed against the director. You can also indicate when directors won’t be covered—for example, if they commit a fraudulent act. These are basically business decisions to make. You don’t have to do any of this, but directors like these provisions, for obvious reasons. You may find that some people won’t agree to be directors unless you have an indemnity provision in place. 

Share transfer restrictions and limitation of shareholder rights

Another white paper and video are dedicated to a discussion of this topic, but let’s look at this provision generally. Most corporations have shareholders’ agreements, which are internal agreements among the shareholders that specify shareholder rights and the terms of how shares will be managed. If you’ve already finalized these issues, you have the option to include them in your articles. This section generally states when and how shares may be transferred as well as any restrictions on the rights shareholders are allowed to exercise. 

Once you’ve drafted the actual substantive provisions in your articles, you also need to worry about complying with the filing requirements of your state of incorporation and making a few other decisions about your corporation’s beginning. Let’s start with the effective date.

In general, unless you specify a future date, the articles’ effective date would be the date of filing. In this case, this section may be omitted altogether or it may be included as:

You can also choose to indicate a delayed effective date by specifying when in the future you want your incorporation to take effect. Under most state laws, it should be no later than 90 days from the filing date.

You may be wondering why a delayed effective date may be desired. This is common among owners of sole proprietorships and general partnerships who have decided to convert their entities into corporations. Usually, when they file their articles in the last quarter of the calendar year, they choose a future effective date, usually January 1 of the following year. Usually this is done to avoid multiple income reports for the current year. Otherwise, they would have to submit reports for both sole a proprietorship/general partnership and the corporation. This is how a delayed effective date provision would look:

Each state requires a corresponding filing fee, and these rates vary. Most states have fee information and filing instructions on their websites. Corporations normally use the online filing method. 

Once approved, you’ll be issued a certificate of incorporation which will make your company a state-recognized corporation.

It’s important to note that while you may act as your company’s incorporator, you can also get an attorney to help you draft your articles. Each state has different requirements, so make sure you know which provisions are required and which are optional.

Do you need a lawyer for this?

The biggest question now is, "Do you need to hire a lawyer for help?" Sometimes, yes (especially if you have multiple owners). But often for single-owner businesses, you don't need a lawyer to start your business.

Many business owners instead use tools like Legal GPS for Business, which includes a step-by-step, interactive platform and 100+ contract templates to help you start and grow your company.