Choosing the right form for your business is a very important decision that you'll make as an entrepreneur. Now, while it may seem like this process is distracting and taking you away from your job of developing and growing your business. Getting it done right and early on in the process can actually save you a lot of time and headache later on. One of the most popular forms of business is the corporation. And we're going to talk now about a very important document that must be filed in order to get a corporation started, and that's the articles of incorporation. So, in this lesson, we'll talk about the decision on where to incorporate and how to make that decision. And then we'll talk about key elements of the articles of incorporation. And then, we'll get into into some next steps that you will have to consider after the filing of your articles of incorporation. First, where to incorporate. This is a big decision, and it's one that has many pitfalls if you don't get it right. But there are few things that you can kind of keep in mind as you're thinking about the decision of where to incorporate. First is the principal place of business. This is essentially your headquarters, where the nucleus of all of your operations are taking place. That's usually one choice in terms of where you want to incorporate. It allows you to have both your incorporation and your principal operations all in the same state. That's one factor. The other is the favorable corporate law. So if you look at big companies like Google Inc and Apple Inc, although these companies are ran out of Silicon Valley in California, they're headquartered and they're incorporated in Delaware. And that's because Delaware is famous for its very favorable corporate law. And so the favorability of the laws in a certain state is another factor that you want to take into consideration. Fees and costs. As an early business owner, your business is in its early phases, you don't have a lot of money and capital. And so you want to make sure you're thinking about where to incorporate in a way that's going to minimize the amount of fees and costs associated with running your business. So, for example, if you incorporate in Delaware because of the favorable law there, but your principal operations are in California, for example. You may have the additional cost of having to register your business in California while being incorporated in Delaware. And paying fees and costs associated with having two operations. You want to take those types of considerations into mind. And then finally, foreign incorporation registration. So even if you decide to incorporate in a given state, you may be doing business in one or more other states, and those states may have requirements that you register as a foreign corporation in order to do business in those states. That's another factor to keep in mind when you're deciding where to incorporate. The decision on incorporation and where to do it, it's a difficult one. And so you should certainly as you're going through the process of figuring out how to incorporate your business in the corporate form, as well as where to file your initial incorporation papers. You want to seek the advice of an experienced counsel to help you think through that process. Now, let's get into the articles of incorporation. From a straight logistical viewpoint, the articles of incorporation are filed with the state that you intend to incorporate in. The articles are filed either with the Secretary of State or with the appropriate government agency in that state that handles registrations of corporations. You typically pay a filing fee. Almost every state has a filing fee that's associated with registering a corporation. And it's actually required, the articles of incorporation is legally required to form a corporation. It's not an optional choice. You actually have to file the articles of incorporation if you're going to operate your business in the corporate form. All right, let's talk about some key elements to that must be included in your articles of incorporation. The first is the name of the corporation. Sounds simple enough, but the name must include signifiers that you've chosen the corporate form, for example, the word corporation or the word incorporated, or inc or corp. These are signifiers that this business is operating under the corporate form, as opposed to other forms of business, like an LLC, or partnership or limited liability partnership. Also, the name of the corporation. While the Secretary of State may approve the name in a given state, keep in mind that that is not determinative of your ability to use the name of that corporation. So before choosing a name for your corporation, make sure that you take into consideration potential trademark issues with other companies who may be using that name in connection with similar products or services. After the name of the corporation, you also have to talk about your principal place of business. And as we've said, that's essentially your headquarters, the nucleus of your operations. You should include the principal place of business, even if it's in a different state than the state where you're applying to be incorporated. The next important element of the articles of incorporation is the business purpose. Some states require you to be very specific in your business purpose, but you want to be careful here. The business purpose should be defined as broadly as is allowed under the law in that state. And here's why, because as your business grows and expands, you don't want to have to always go back to your articles of incorporation and amend your initial charter documents in order to accommodate your future business operations. And so most states will allow you to say something as broad as the purpose of this business is to engage in any activity that's lawful in this state. That's a broad purpose, but it gives you maximum flexibility in terms of what operations you are able to do today and your corporation maybe wanting to do tomorrow. In those situations where you're incorporating in the state that requires specificity in the business purpose. You want to work with a lawyer to ensure that while being specific, you're also getting the broadest possible business purpose statement in your articles of incorporation, so that you can have that flexibility later. Capitalization is another key element of the articles of incorporation. You want to talk about the number and the type of shares that yyou'll have in terms of stock. Registered agent, this is a person or corporation who is essentially agreeing to be in a position to accept legal process on behalf of the corporation. So if the corporation is sued or otherwise needs to be served with legal papers, the registered agent is the person who is authorized to accept that service of process on behalf of the corporation. Now, it's very tempting when you're trying to get the articles of incorporation done to get this process completed. It's very tempting to use an individual who's associated with the company and lives in that state as a registered agent. You got to be careful with this because if that individual leaves the state, or is no longer in a position where they're authorized to accept service on behalf of the corporation. Then you have to go all the way back and amend your charter documents, amend your articles of incorporation in order to list a new registered agent. A registered agent is a requirement, and so that person falls out, the corporation could fail as an entity. A better route to do for a registered agent is to hire the services of, there are many companies that offer registered agent services in almost every state for a fee. And they essentially accept service of process on behalf of your corporation for a fee, that fee is worth paying. And that's the route that you should consider doing for registered agent. And then finally, incorporators. This could be anyone that sign in as an incorporator. It can be one person or can be multiple people. The incorporators must sign in order to give some effectiveness to the articles of incorporation. And the incorporators will be the initial incorporators of the corporation. A couple other provisions that you may or may not want to include in the articles of incorporation. Indemnification, this is how will the corporation indemnify its individual owners or shareholders. Voting requirements, what's required in terms of getting a resolution passed or getting any action done on behalf of the corporation. And then preemptive rights. What rights do different shareholders have depending on the type of stock they may own, and action is by the corporation. These provisions aren't necessarily required for the articles of incorporation, but oftentimes they are important to include. If you're deciding on what additional elements you want to include in your articles of incorporation, you should seek the advice of an experienced counsel to help you think through other provisions that may be important to include. Now, just to summarize, the articles of incorporation are legally required in order to get your corporation started in a state. They should address key elements, and to the extent it's advisable you should also include other provisions beyond those key elements of the articles. And then, finally, you should consult with counsel on the best state in which to incorporate, because there are several factors that go into that decision. And an experienced lawyer lawyer can help you think through issues around capitalization, favorable corporate law, as well as the implications on fees and costs associated with registering in a given state.
