Articles of Incorporation: A Primer
The essential difference between Articles of Incorporation (“Articles”) and Bylaws is that the articles are filed with the Secretary of State and are the official starting documents for the corporation. Conversely, bylaws are kept internally with the corporation and are never filed with the State. These two principal documents govern corporations.
Think of the articles as your corporation’s “constitution,” and the bylaws are its “laws.” The Board of Directors can change the bylaws at any time, provided the action is done in compliance with the bylaws, articles, and California corporation law. However, articles can only be changed with a new filing with the Secretary of State and usually require higher voting thresholds than changes to the bylaws. A later article will discuss the basics of bylaws.
Articles of Incorporation: Requirements
In recent years, Articles have declined in importance as governing documents of corporations relative to bylaws. Articles answer five (5) basic questions about the corporation:
- Corporate name,
- The street and mailing addresses (if different),
- The name and address of the Agent for Service of Process,
- Number of shares the corporation is authorized to issue, and
- The corporation’s purpose.
The information is slightly different for non-profit corporations. For example, non-profit corporations do not issue shares and are required to attest to four obligations required by Internal Revenue Code section 501(c)(3).
Corporate name: there are very few limitations on the name. Corporations cannot describe themselves as banks, trusts, etc. unless they meet those specific definitions are authorized. Corporations must include some sort of moniker that identifies it as a corporation (e.g., Corp, Inc, Ltd, Co, etc.)
Address: the business address cannot be a P.O. box.
Agent for Service of Process: corporations are subject to California law, which includes being subject to lawsuits. However, corporations aren’t people; therefore, they must designate an “Agent” who can be served on behalf of the corporation. The Agent’s address cannot be a P.O. box.
Corporations can also retain Registered Agents. Registered Agents are professional companies who serve as agents for service of process to multiple companies. If your corporation uses a Registered Agent, it only needs to list the name of the company it hired.
Shares: corporations can issue (a) classes of stock and (b) shares. Classes of stock refer to different types of stock that have different voting and equity rights. The classic example is preferred vs. common stock. Corporations can issue any number of shares – limited by the number defined in the articles.
Purpose: purpose was historically important but isn’t anymore. Corporations can engage in any “lawful purpose.” Non-profit corporations can participate in any lawful purpose that also complies with California non-profit corporation law and the Internal Revenue Code.