Information Frequently Required on Incorporation Documents
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If you are considering forming your business as a corporation, one question you may have is, “what information is required on the incorporation documents?” Knowing this ahead of time helps you save time as you begin the incorporation process.
The formation document for a corporation is called the articles of incorporation or certificate of incorporation. Each state has its own version of this document creating a number of variances in the amount and type of information required. This article outlines the most common information requested by the states.
The desired name of the corporation must be included. That name must typically contain a corporate identifier, such as “Corporation,” “Incorporated,” “Company,” or an abbreviation of those terms, such as “Inc.” Undertaking a preliminary name availability search prior to submitting the articles of incorporation will help to see if your desired name is available. Keep in mind that the state holds final approval rights on the desired name to ensure it is not already in use by another company in that state or is not “deceptively similar” to a name already in use.
The business purpose is an explanation of what the company is formed to do or provide. There are two types of business purpose clauses: general and specific.
General business purpose – some states will accept a general-purpose clause, which basically states that the company is formed to engage in “all lawful business.”
Specific business purpose – some states require a more complete explanation of the types of products and/or services the company will provide.
Virtually all states require corporations to have a registered agent in the state of formation. The registered agent is the party responsible for the receipt of important legal and tax documents for the corporation. The registered agent must have a physical address (no P.O. boxes) in the state of formation and must be available during normal business hours.
Examples of documents sent to the registered agent include Service of Process (or notice of litigation), which is the document that initiates a lawsuit; mail from the state; and often taxation documentation from the state’s department of taxation.
One thing to note is the registered agent address is a matter of public record. In states that do not require the legal address of the business to be included in the formation documents, the registered agent address is the only address on file for the company. Many business owners, particularly home-based businesses, choose to use a registered agent provider both to ensure these important documents are professionally handled and to keep their addresses out of the hands of marketers.
The incorporator is the person or company preparing and filing the formation documents with the state. Most states require the name and signature of the incorporator to be included in the formation documents and some also require the incorporator’s address be included.
Number of Authorized Shares of Stock
Corporations must outline the number of shares of stock they wish to authorize. While many people think only public companies have shares of stock, the reality is that all corporations, no matter how small, have stock. Stock represents the ownership in a corporation. As you consider how many shares of stock to authorize, keep in mind that a corporation does not need to issue the total number of authorized shares. Some corporations opt to hold a certain number of un-issued shares in order to add additional owners at a later date or to increase the ownership percentage for a current shareholder.
Share Par Value
The par value of a share is its minimum stated value. Par value typically doesn’t correlate to the actual value of a share. Common par values are $0.01, $1.00 or no par. The actual value of a share is its fair market value, or what someone is willing to pay for a share of stock. For public companies, actual value is determined by the price investors are willing to pay for each share on a national exchange. For private companies, the actual value of a share is typically determined by the overall value of the corporation or the book value.
If a corporation plans to authorize both common and preferred shares, this information along with any information on voting rights must be included in the articles of incorporation. Preferred shares typically provide those shareholders with preferential payments of dividends or distribution of assets should the company cease operations. Many small business owners choose to only authorize shares of common stock. For additional information on preferred shares and voting rights it is best to seek the advice of an attorney.
Many states require the names and addresses of the initial directors of the corporation to be included on the formation documents. The directors are the individuals responsible for overseeing and directing the affairs of the corporation, including making major corporate decisions. They are not responsible for the day-to-day activities of the business, which are the responsibility of a corporation’s officers. Directors are elected by the shareholders and are also responsible for appointing the officers.
While inclusion of the officer information is optional in many states, a few states do require it. The officers are responsible for the day-to-day activities of the corporation. Common officer titles include president, vice president, secretary and treasurer.
Legal Address of the Company
Supplying the legal address, or the principal address, of the business is optional in many states but a few states do require it.
While this is not a complete list of everything a state might require on its articles of incorporation, it outlines the typical items and will help you assemble this information prior to starting the incorporation process.