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Introduction to the Articles of Incorporation in U.S. Company II

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Introduction to the Articles of Incorporation in U.S. Company II

In the U.S., a company receives a government-issued registration document upon incorporation. Each state may have a different name for the incorporation document of company, such as “Article of Incorporation”; “Article of Organization”; “Certificate of Incorporation”, and so on. Meanwhile, every state distinguishes between information that must be included in the articles and that which may be included. The following article will provide a brief overview of the information contained in the U.S. corporation registration documents.

  1. Mandatory Provisions

    (1)
    The MBCA (Model Business Corporation Act) contains the minimal mandatory provisions, specifying just four items:

    (a) The articles must include the corporate name, which must comply with the MBCA requirements. This statute stipulates that the name should not misrepresent the nature of the business the corporation will conduct (for example, it should not include the term "bank" if the corporation is not involved in banking). The MBCA permits only four specific terms: company, corporation, incorporated, or limited, along with their abbreviations "co.," "corp.," "inc.," or "ltd." The corporate name must contain one of these designated words or abbreviations to indicate that it is a corporation, thereby signifying that the owners have limited liability.

    (b) The articles must state the number of shares of stock the corporation will be authorized to issue.

    (c) The articles must include the street address of the registered office and the name of the initial registered agent. This stipulation guarantees that there is a designated individual present at a specific location (during business hours) to receive legal notifications (such as service of process and tax documents) on behalf of the corporation. The registered office can be a physical business location, but it is not required to be. The corporation is obligated to notify the secretary of state about any changes to the registered agent or the address of the registered office.

    (d) The articles must set forth the name and address of the incorporator(s).

    (2)
    Other mandatory provisions

    (a)    Company name

    With respect to corporate name, numerous states stipulate that a proposed name must not be "deceptively similar" to that of any other business entity authorized to operate within the state. The Secretary of State oversees a registry of corporate names, which is accessible online. Given that the allocation of corporate names operates on a first-come, first-served principle, many states allow for the reservation of a desired corporate name for a specified duration, typically for a nominal fee.

    A corporation is permitted to conduct business under an assumed name, provided that it does not partake in unfair competition by adopting a name that is likely to cause confusion with that of another entity. Numerous states have enacted "assumed name statutes," which allow a business to operate under a name that differs from its registered or "official" name. Typically, these statutes mandate that the business submit a statement revealing the true identity of the individuals or entities responsible for the operation of the business. Consequently, ABC Corp. may operate as XYZ Corp. if it adheres to the requirements set forth in the relevant assumed name statute.

    (b)    Stock

    In relation to stock, numerous states mandate that, in addition to the declaration of authorized stock, details concerning various classes of stock must be provided, including the characteristic of each class and the number of shares of each.

    (c)    Corporate duration

    Certain states mandate the inclusion of a statement regarding the duration of a corporation. In these jurisdictions, this typically indicates that the corporation is intended to have perpetual existence. A notable benefit of the corporate structure is its continuity; a corporation remains in existence until it is formally dissolved or merged with another entity. The Model Business Corporation Act (MBCA) assumes perpetual existence and, consequently, does not necessitate a statement of duration. However, the articles of incorporation may specify a defined term of years or an alternative, shorter duration.

    (d)    Statement of purpose

    Currently, in most states, corporate articles may include a broad statement of purpose, such as "this corporation may engage in all lawful business." The Model Business Corporation Act (MBCA) does not mandate a statement of purpose, as it operates under the assumption that corporations are permitted to engage in all lawful business activities. However, if the parties involved wish to restrict the corporation's activities to specific endeavors, they have the option to articulate such limitations within the articles. Conversely, a few states do not permit a general statement of purpose. For instance, in Arizona, the articles must contain "a brief statement of the character of the business that the corporation initially intends to actually conduct in this state.”

  2. Permissive Provisions

    Counsel should discuss with the client what additional clauses need to be included in the registration documents. One consideration may involve the decision to explicitly name the initial directors within the articles, as opposed to allowing the incorporators to elect them subsequent to the establishment of the company. Another is the implementation of cumulative voting, which serves to enhance the representation of minority shareholders on the board of directors.

    (1)
    Pre-emptive rights

    Pre-emptive rights grant current shareholders the opportunity to preserve their proportional ownership by purchasing additional shares when a corporation issues new stock. In certain states, these rights are typically applicable solely to closely held corporations unless explicitly waived in the corporate articles. Conversely, in other states, as indicated by the Model Business Corporation Act (MBCA), pre-emptive rights are only conferred if explicitly stated in the corporate articles.

    (2)
    Exculpation statutes

    The vast majority of states allow incorporation documents to exempt directors from liability for damages to the company or its shareholders in certain circumstances. Essentially, these exculpation statutes are applicable solely to violations of the "duty of care."

    (3)
    The board of directors and of the shareholders

    Articles of Incorporation permits modifications to the quorum and voting stipulations for meetings of both the board of directors and the shareholders. Additionally, these documents may establish staggered terms for directors. In the context of a close corporation, it is advisable for legal counsel and the client to engage in discussions regarding the management structure to be implemented. This type of business may opt to allocate management authority to a board of directors, adhering to the conventional model, or may choose to specify in the governing documents that management will be conducted by shareholders or other designated individuals.

Reference:
[1] Richard D. Freer. The law of corporations in a nutshell. West Pub. Co, 2020.

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