Articles of Incorporation Information

What are the articles of incorporation?

​The articles of incorporation, sometimes called the certificate of incorporation, or charter, declares the desire of an individual or group of individuals to become a corporation. It spells out the minimum information about the corporation that is required by the laws of the state. It may also contain information about the corporation that needs to be made public record, items like restriction on the transfer of corporate stock.​​

What is an assumed name?

​An assumed name, sometimes called a fictitious name, is a feature of some state corporation laws that allows a corporation to operate under more than one name. This option serves the small business person who sells different products but doesn't wish to have several corporations. Many people initially name the corporation their last name like Jones, Inc. They might then add company names that are more descriptive of separate product lines, like Quantum Computers, Inc., and Standard Computer Software Corporation. All of these names are simply aliases for the same corporation with a single set of books and the same shareholders.

To learn more about how assumed names work, feel free to contact us​. ​

What are authorized shares?

​State law specifies that shares of stock in the corporation will be issued under the direction of the board of directors. However, because the corporation is set up to benefit the shareholders, the shareholders set, or limit, the number of shares the directors are allowed to issue. In other words, the directors are not allowed to issue shares without authorization from the shareholders, so the number of authorized shares is equal to the number of total shares.​

What is the difference between issued and authorized shares?

​The board of directors control the issuance of stock. Authorized shares refers to the total number of shares of stock that the board of directors is authorized to issue to shareholders. The board may issue all the shares now, or issue some now and some later. Authorized shares become issued shares when issued, or distributed, to a stockholder. Shares that are not issued are usually called authorized but unissued shares. Unissued shares belong to the corporation and are not considered for shareholders' ownership percentages.​

What is the board of directors?

The board of directors is the body of people specified by state law to direct and oversee the business affairs of the corporation, and is usually headed by a chairperson. The board usually meets infrequently and hires officers to manage the day-to-day business operations. However, because directors of the corporation have certain immunities from lawsuits against the corporation, all important business decisions like entering long-term contracts should be approved by the corporation's board of directors. It is important to remember to have a corporation's directors approve all major corporate actions.

In the case of a small corporation, you need only to put on your director's hat and put the word director after your signature when approving corporate actions. Including your title is essential to preserving the protections incorporating provides. For example, if someone sues you personally instead of your corporation, it is easier for the person bringing suit to prove the corporation is a sham when an individual has signed corporate paperwork.

This is called "piercing the corporate veil." This expression refers to the action of penetrating the invisible wall of protection between you and your corporation. For example, when people realize that suing your corporation will get them nothing, they may sue you instead. That is, they will try to avoid the personal liability protection the corporation provides by going straight to you. To lower the success rate of these attempts, you as a shareholder should not run your corporation. If you are your own officers and directors, you must wear your officer's or director's hat when performing official corporate functions. It sounds silly, but the reality is that most corporation laws were drawn up for big corporations and then adapted to small ones.​​

What are bylaws?

​Just as a city or state government has laws for citizens, the corporation has rules for its shareholders, officers and directors. These rules are called bylaws. They specify things like the number of votes required to pass a matter put before the corporation, and the requirements to be met before a shareholder can sell stock.​​

What is a C corporation?

​The IRS, not the state, classifies corporations according to how they want to be taxed. There are two types of corporations according to the IRS, either "C" corporations, named after Subchapter C of the tax code, or "S" corporations, named after Subchapter S of the tax code. C corporations have their own tax identification number and pay their own taxes. 

By contrast, S corporations, sometimes called small business corporations, are taxed as if they were not a corporation. Taxed like a partnership, an S corporation passes through its income or losses to the shareholder's personal tax return and is not liable for Federal income taxes itself. The shareholders of an S corporation pay personal income taxes based on the income of the S corporation, whether or not the shareholder received any of the income. S corporation shareholders can take any losses the corporation may have.

For information about how to handle taxation, see your CPA.​​​

What does capitalization mean?

​Capitalization has a specialized meaning in corporate accounting. With a new corporation, the term generally refers to the amount of money a corporation has in its "kitty" when operations begin. Some states have minimum capitalization requirements to insure corporations have a bare minimum of assets before starting operations. Because shareholders are somewhat insulated from lawsuits against a corporation, these assets provide a means to pay any potential lawsuit winners. Minimum capitalization requirements also make it more difficult to start a corporation, and were likely originally drafted to help to keep out the "riff raff." Today, only a few states have minimum capitalization requirements.​​

What is a certificate of incorporation?

Some states issue the certificate of incorporation to confirm that yours is a valid corporation, one which has met state incorporation requirements. In some states certificate of incorporation means articles of incorporation, the document filed to incorporate your business.​

What is a charter?

​The terms charter, certificate of incorporation and articles of incorporation are used interchangeably.​

What are directors?

​Directors are people who oversee the affairs of the corporation according to what they think is best. Directors are like politicians, hand-picked by the shareholders and subject to removal by them. In a small corporation, the directors are usually the shareholders who put on their director's hat when the need arises.​​​

What is a dividend?

​A dividend is a special payment, usually paid at the end of each quarter, based on the profits made by the corporation during that quarter. Dividends are usually paid in cash or additional stock to the shareholders. This is a shareholder's reward for investing in the corporation. It is much the same as interest on a loan, except the dividend is based on the income of the corporation and may not be a regular payment. In addition, the corporation can't deduct dividends like it would loan interest. Some owners pay themselves only a small salary to minimize FICA withholding and pay themselves a quarterly dividend instead.​​

What is an incorporator?

​The incorporator is simply the person who files the articles of incorporation. The incorporator's duties and title end after incorporating. The incorporator must be old enough to legally enter into contracts. When lawyers incorporate a business on the client's behalf, they usually act as the incorporator, allowing them to sign the required paperwork.​

What are issued shares?

​Issued shares are easily confused with authorized shares. Authorized shares is the term for the maximum number of shares that the board of directors is allowed to issue. Issued shares, however, refers the number of shares actually given out to shareholders. Only issued shares are counted for ownership purposes.​

How many shares of stock are required?

​A corporation cannot be a corporation without at least one share of stock. In other words, you must have at least one shareholder and one share of stock. You can have (authorize) as many shares of stock as you want. However, doing so may increase your filing fees.​

What is par value?

​Par value is an accounting unit of measure used to keep track of the amounts given to the corporation when stock is issued. Par value means much the same as purchase price. If the stock has a $1000 par value, then the person wishing to purchase the stock must give something with at least a $1000 value for the stock. Amounts given for the stock in excess of par value are called "paid in capital in excess of par value" - also an accounting term. Par value is only meaningful when the stock is bought directly from the corporation. It is not considered when stock is bought on the open market. When you buy stock on the market, you pay what the stock is actually worth, the market price.​​​

What is no par value stock?

Par value refers to the price set for shares when purchased from the corporation, and no par value stock refers to stock for which no fixed price is set. This is usually the case in small corporations where the owners issue themselves a number of shares and simply infuse money in the corporation when needed. Corporations issue no par stock for flexibility. If the corporation's stock has no par value, then there is no set price for the stock. In this case, the directors can raise the price of the stock when the corporation becomes more valuable. In other words, with no par value stock, the directors decide how much must be paid for the stock each time it is issued to a shareholder.​

Must stock have a par value?

​No, stock need not have a fixed value. Generally, in a small business corporation the stock is called "no par value stock" which means there is no set amount of payment required to purchase the stock of the corporation. Each time stock is issued, the directors decide the value of the shares.​​​​

What are officers?

​Officers are usually employees of the corporation who manage the business on a daily basis. They are responsible for duties outlined by the corporate bylaws. In a small corporation, officers are usually also the directors and shareholders, who merely wear different hats at different times. Owners of small corporations do a lot of role playing, because small corporations don't fit the corporate mold envisioned by the laws of many states. The president is usually the chairperson of the board as well.​

What is a registered agent?

​Although a corporation is a separate legal entity, it cannot physically receive documents and therefore needs a real person to receive them on its behalf. A registered agent fills that need. The registered agent and address are registered with the state in which the corporation is doing business. This person is authorized to send and receive legal documents for corporation and to forward these documents to the corporation at its principal office address. Corporations that operate in different states, but don't maintain offices in these states, use agent service companies to act as registered agent for them. The terms registered agent, resident agent and statutory agent all have the same meaning.​

What is an annual meeting?

The annual meeting is a meeting held once a year to review the results of corporate operations with the shareholders. In larger corporations, shareholders generally do not participate in daily business operations. Most states require corporations to hold annual meetings to keep shareholders informed about their investment.

Annual meetings are also held to re-appoint the officers and directors of the corporation. Corporate officers and directors are usually appointed for a one-year term.

Although holding an annual meeting may sound complicated, the requirement of holding an annual meeting is usually satisfied by using a standard pre-written form called Minutes of Annual Shareholders Meeting or Annual Shareholder Meeting Minutes. You can find free templates online.​

What are stockholders or shareholders?

​The terms stockholders and shareholders are usually used interchangeably, and refer to the people for whom the corporation was organized. In large corporations, shareholders are investors who put money into the business in return for future dividends. In a small corporation, they are the people who start and run the corporation, providing jobs for themselves.​​​​​


More Information

Our thanks go to W. Dean Brown who gave us permission to reprint this portion of his book, Incorporating Without a Lawyer.

Incorporating Without a Lawyer, W. Dean Brown, Consumer Publishing, 1995-96, 33-38.​