Difference Between Certificate of Incorporation and AOI
A Certificate of Incorporation and an Articles of Incorporation refers to the charter filed with the state agency for creating a corporation.3 min read
There isn't any difference between Certificate of Incorporation and Articles of Incorporation. Both the documents refer to the charter filed with the state agency for creating a corporation. In some states, Articles of Incorporation are known as Certificate of Incorporation.
The Advantages of Incorporating
Incorporating your business offers a number of advantages:
- It absolves you from personal liability.
- Your business becomes a distinct legal entity capable of acting in its own name.
- The corporation continues to function irrespective of the financial position of individual members.
- No one else can conduct a business in the name of your company (at least not in your state).
- It becomes easier to transfer the ownership of your business.
What Are Articles of Incorporation?
Filing Articles of Incorporation with the state agency (usually the secretary of state) is the first step in forming a corporation. The Articles of Association, also known as Certificate of Incorporation in some states, are the charter to create a corporation. Previously, Illinois and some other states used to issue a Certificate of Incorporation to the incorporator as a proof of incorporation, but no such document is issued any more.
Irrespective of the name it is referred with, the information to be included in the Articles of Incorporation more or less remains the same. Most of the states require you to disclose particulars like:
- The name and address of the company
- Name and address of the statutory agent
- Names of the initial directors
- The purpose of incorporation
- Before applying for incorporation, you must decide a name for your company.
- The proposed name must be clearly distinguishable from the names of existing businesses registered in the state.
- The complete name of the company must include an identifier like Incorporated, Inc., Limited, or LLC.
- Many states like Oklahoma have online databases where you can search the existing names in the state in order to check the availability of your proposed name.
- In states like Massachusetts and Texas, you can also reserve an available name for your company for a certain period of time by paying the stipulated fee.
The Purpose of Incorporation
- The purpose section should describe what type of business you intend to engage in.
- Most of the states allow describing the purpose in the form of a general statement, such as engaging in any lawful business activity under the state laws.
- A general statement of purpose gives you more freedom to decide upon the type of business for your company if you happen to diversify or change the line of business down the road.
Additional Names and Addresses
- Some states may require you to provide the address of the main office of your company in the articles. This address need not be the same as your principal place of business.
- The Articles of Incorporation must state the name and address of your registered agent for receiving legal communication on behalf of the company.
- The articles must also contain the name and signature of the incorporator (the person who is filing the articles for incorporating the company). In some states (e.g., Delaware), you may also have to mention the address of the incorporator.
- The names and addresses of the initial directors of the company may also be required in some states.
Authorized Capital and Types of Shares
The Articles of Incorporation must specify the total amount of capital the company is authorized to raise. You will not be allowed to issue shares and stock beyond this amount unless you amend the articles and increase the amount of authorized capital. In some states, it's also mandatory to list out the different types and classes of shares along with the par value of each.
What Are Corporate Bylaws?
After incorporating a business, you should prepare and adopt the bylaws for your company. These are the internal rules that serve as an operating manual to carry out the day-to-day functioning of the company.
Corporate bylaws usually include the following provisions:
- Rules and procedures for holding meetings of shareholders for various purposes, including the election of directors
- The size of the board (how many directors) and its powers and responsibilities
- Rules and procedures for appointing officers for managing the company
- Procedure for tracking the stock ownership of the company and issuing of dividends
- An indemnity clause declaring that the corporation would cover the legal expenses of certain people acting on its behalf (directors, officers, etc.) if an action is brought against them
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