The Purpose of Articles of Incorporation

Typically designated with an "Inc." after the name, corporations are one of four business structures available to a business owner. Incorporating a business ensures that a similar business name is not used in the same state. Filing articles of incorporation is required when incorporating a business. The location in which the articles are filed will designate what laws and requirements the business entity must obey and what advantages it will enjoy.

Function

Articles of incorporation are the documents necessary to establish a business. These documents contain the identifying characteristics of the business. The articles of incorporation must be filed with a state agency, and once they are approved the business is legally established. A filing fee is charged, and the amount depending on the state and type of business ranges from $30-$500.

Requirements

Each state requires specific information to be included in the filing of the Articles of Incorporation. Most states require the following information: the business's name, address, the purpose of the business, principal of company's contact information and stock information if applicable. Also included in the filing is the structure of the business. The incorporating members must identify if the business will be identified as a general, close, sub-chapter S, professional or non-profit corporation. Differentiating a business structure in the articles of incorporation results in the entity's taxation requirements, filing fees and varying liability for the incorporators of the business.

Significance

Incorporating a business protects the founders from personal liability. Depending on the business structure, the owners can limit their liability should the business ever be sued. A corporation protects the business owners from becoming personally liable for the business's debts and obligations. A corporation is seen as a legal entity and can file lawsuits, buy and sell property, and even commit crimes.

Benefits

Establishing a business as a corporation has advantages that other forms of business structure do not. Corporations have unlimited life, meaning that the corporation does not dissolve after the death of the individuals who established the business. If the corporation issues stock, ownership can easily be transferred by selling the entity's stock and securities. In addition, corporations can raise capital and attract investors through the sale of securities, which other business structures can not offer.

Disadvantages

Corporations also have specific disadvantages that must be taken into consideration. The cost of incorporating a business is generally higher then other forms of business structure. An increased amount of paperwork is also evident. You might be able to save money by filing online, rather then using an attorney to files the articles of incorporation. Another disadvantage is double taxation. Close corporations are taxed when the company makes a profit and again when dividends are paid to shareholders.