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Understanding Articles of Incorporation
Owning a company is a desire of many people all over the world, yet far less than half achieve this goal. There are many reasons for this but the one that stands out from all others is that many companies are created but seldom stick to their initial purpose and then flounder in the business world. The one true way to prevent this is to have your company created with legalArticles of Incorporation agreementsapproved by state law or federal law.
To create an LLC company or any large corporation in the US or Canada, your company needs an Article of Incorporation. These documents are vitally important if you want to have your company to be able to trade in the business world without limitation. The articles give your company the stature in the eyes of the law that you will need to make a great success of your company, and you will gain the approval to take your company further than if you did not have an incorporation agreement template.
Your articles of incorporation template will detail the corporate governance of your organization as well as any bylaws that you have put in place that will become the foundation of your organization. It will also make your company a legal entity in the eyes of the state or country legislation where you intend to conduct your business. This is the company document that will give your directors and company employees the authority to operate your business in the marketplace.
Contents of Articles of Incorporation
The contents of the document form the basis for your company and will most definitely need to include the following information:
Name of CorporationThis will be the registered name of your company. This name will have to be approved by the local authorities so that there will be no conflict with companies already in the market, especially if you intend to trade across state lines or internationally. This is also vital for corporate image building and market perception. To have your company stand out from its competitors has never been bad for business so choose a name that projects the purpose and focus of your business model.
Registered Address of Corporation- You will also have to list your registered address where you will have your base of operations or the head office of your business, this will be the legal office address for your company as well.
Registered Agent- The registered agent for your business and is also known as the statutory agent for your business. They will accept all the tax and legal documents and correspondence for your company. These agents can either be an outsourced service or could be yourself as a director or an employee.
An outsourced registered agent offers your company several benefits when it comes to staying compliant with the local statutes and regulations. Your business will also have significant advantages when using an outsourced agent as they are contracted to keep your business legal and up to date with any changes in the marketplace as well as legal regulations.
Type of Company- By defining what type of company your organization will be, you are creating the core structure that would later become part of your mission and company values. The type of company could be a service-related company or a product-related company or a combination of the two.
Board of Directors- Your board of directors will be listed in your articles of incorporation and will be updated as and when directors change or are voted into service. Within thearticlesof incorporation template, the full names and registered addresses of your directors will become public knowledge for legal purposes.
Share Allocation- The allocation of share is a very important aspect of your company. For most companies, it would be a simple split between the directors or founders of the company as you will not be traded publicly. However, if you intend to trade your company on a stock exchange you would need to allocate various types of shares in order to satisfy the specific exchange and shareholders of your company. The shareholding of the company will also determine the voting rights of shareholders.
Ordinary Shares - the simplest share option. Ordinary shares have full voting rights according to the total share allocation. Example - 100 shares with each share having 1 vote. In most cases, these shares have no special rights or restrictions and will accrue a dividend payment from the profits earned by the company annually.
Deferred Ordinary Shares - These shares are the same as ordinary shares except for one aspect, they will only get dividend payouts once all other shares have received their payouts.
Non-Voting Ordinary Shares - These shares carry restrictions on their voting rights based on certain predetermined conditions that have been set out.
Redeemable Shares - These shares give the company the ability to issue shares that might be bought back under certain conditions or after a certain period. Companies issue these shares when they want to raise funding from the public for expansion but would like the option of reacquiring the shares at a later stage. Redeemable share can only make a portion of the share capital and not the entire share allocation.
Preference Shares - Preference shares will receive a fixed number of dividends before the ordinary shareholder receives their payouts. These shares are also non-voting shares so they cannot vote at the AGM of the company.
Cumulative Preference Shares - This share structure is used when there is a shortfall of funding to pay out the share dividend, this allocation will be done before ordinary shareholders receive their dividend allocation.
Redeemable Preference Shares - Combining the benefits of preference shares and redeemable shares, this share structure gives the shareholder the benefits of preferential dividend payout but gives the company the right to buy back the shares at a predetermined time in the future.
Duration of Organization- This section of your articles of incorporation template will determine the length of time your company will be in business.
Limited - If your company will only operate for a limited time, used when companies are created for a specific market need or business function. After which the company will be dissolved.
Perpetual - The option that most companies use, you intend to operate and generate a profit for as long as the market conditions allow your business to flourish.
Signatories- The signatories to your articles of incorporation are most likely the founders or directors of the company. The details required for the document are the full names and registered addresses of all the signatories of your company.
General Inclusions for Articles of Incorporation
Asincorporation agreementsform the legal foundation of the business, you need to include all the details that will allow your company to conduct its business in the legal framework. This namely includes the state or the jurisdiction where you register your business.
These details will include the following corporate governance statements:
Directors/Board Meetings- Generally the board of directors will meet twice a year to discuss the business performance and to make decisions on the future of the business. However, if there are critical decisions to be made then the board will convene a special board meeting to deal with the issue at hand.
Annual General Meetings- These are meetings where all the shareholders of the company can vote on plans that the board has proposed. These meetings are held once a year most often at the registered address of the business as stated in the articles of incorporation template or at a more suitable venue for larger shareholding groups.
Confidentiality- Your incorporation agreement template will determine the penalties and nature of confidentiality that the directors will be exposed to as members of the board. This will include statements as to when the directors may divulge information that is deemed as crucial to the business success - for example, proprietary company information i.e. patents and product development.
Voting Rights- The articles will also determine the specific voting right of each share type and could give certain shareholder special rights based on the position that they hold within the structure of the company - i.e. Chairman of the board having veto rights on board decisions.
Winding Up- The winding-up policy is often overlooked when creating a company, but it is vital to have a specific closure policy in place in the event of liquidation of premature closure of the company for whatever reason.
Exit Policy- Exit policies for high-ranking directors or founders of the company will often include trade restrictions or shareholding sale conditions for their shares. This policy will also determine the transfer of vital company information such as market knowledge or product details. Having a comprehensive exit policy will make the longevity of the business more assured in uncertain market conditions.
Resolution Policy- This is often a generic policy on how your business will vote and implement any resolutions that the board of directors decides on. Generally, a resolution requires a 60%, 70% or an 80% vote for implementation. Various types of resolutions will be used if your business is a publicly traded company.
Although the above information might seem like a massive amount of data to include in a formation document of any company, the Articles of Incorporation for your business will become your company bible and will often be used when you are faced with legal or regulatory challenges. Therefore, you need a document that has been written by legal experts and company.Sign upand get access to over 2,000 documents that will help you set a firm foundation and compete in the current market.
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