Articles of incorporation can be thought of as the constitution of a corporation. They can be written out; many states provide form articles, so that a person can create a corporation just by filling in blanks. Although content varies by local law and the nature of the company, the articles must generally contain:
Some jurisdictions might also require:
- The purpose(s) of the corporation (in the US, the usual purpose is "any and all lawful purposes"; other places like Japan are pickier. See ultra vires.)
- The duration of the corporation (usually perpetual)
- The names and addresses of the initial board of directors
- The amount of property expected to be owned by the corporation
- The amount of revenue expected to be earned by the corporation
Beyond this, the articles of incorporation can contain all sorts of provisions.
To understand what else might go into the articles, it's best to go back to the constitutional comparison. Constitutions generally cannot be changed by a legislature or an executive; they can only be changed by a popular vote. Likewise, articles of incorporation can only be changed by a vote of the shareholders at a shareholder meeting. So any additional rules in the articles are likely to be those that the board of directors could be tempted to change, but that the shareholders want to keep intact. Such rules include:
- Preemptive rights to unissued stock, so that shareholders don't suffer the effects of dilution when the board offers stock to others.
- Rules governing the election of directors.
- Rules governing the personal liability of directors (usually, rules that indemnify them for some actions, but not for others).
- Rules governing shareholder voting: one common provision is for supermajority shareholder approval of fundamental transactions such as merger and dissolution.
Rules that don't directly affect the shareholders are more likely to end up in the corporation's bylaws, which can be changed by the board of directors without having to call a shareholder meeting.
Articles of incorporation are filed with a government official—the secretary of state in U.S. states—and become public record once filed. Some places allow them to be filed by fax or even over the internet. A filing fee is generally required to process the articles; the government office does a quick check to make sure that the corporate name is unique, and that the individuals referenced actually exist.
Assuming the articles are approved, the corporation becomes a legal person. While rules vary from place to place, the usual law is that the existence of the corporation begins at the time the articles are filed, even though they have not been reviewed or accepted by the government at that point. This means that a corporation can get itself underway while its application is still pending. If something goes wrong during this period and the articles are later rejected by the state, the corporation's limited liability generally protects the shareholders and directors, so long as they were acting in good faith. On the other hand, if they knew the corporation was bogus to begin with, they can be personally liable for anything the corporation does during its period of presumptive validity.
Sources
- Bauman, Corporations and Other Business Associations: Statutes and Forms (2005 ed., West)
- Hamilton, The Law of Corporations In A Nutshell (5th ed., West 2000)
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