The importance of Certificate of Incorporation relates to the formation of a company or corporation. Filing this document protects you from business liabilities.

Why Incorporation Is Necessary

Any type of business needs to go through the process of incorporation. This process involves preparing specific documents, including the Articles of Incorporation, and filing documents with the secretary of state. For limited liability companies (LLCs), the main documents used to incorporate are the Articles of Organization.

There are many reasons why every business must incorporate. Incorporating:

  • Shields you from liability. If you operate an unincorporated business, creditors might reach your personal assets. Your personal residence and personal bank account might pay down debts or satisfy lawsuits against your business. When you incorporate, the business and all of its owners remain separate entities.
  • Establishes perpetual existence and transfer of ownership. Perpetual existence means the business remains unaffected by the withdrawal or death of one of the owners. Similarly, an unincorporated business is difficult to transfer ownership. If the business is incorporated, shareholders can transfer their interest by gift or sale.
  • Gains tax advantages. Incorporated business gain tax deductions for operating costs, which lower your company's tax liability. These deductions may include employee wages, insurance costs, retirement plan costs, and material/production costs.
  • Enhances the company's image. Incorporating your business adds credibility, particularly if your company has Incorporated, Company, or Limited (or any of its abbreviations) after its name. Customers are more likely to trust a business that has a positive image. It also makes the company more attractive to banks and investors if it needs outside financing.
  • Improves ability to manage. An incorporated business has shareholders involved with the board of directors. The board delegates the authority to the company's officers. An unincorporated business could have a co-owner or employee who holds all the power and decision-making authority. This lack of structure can adversely affect the company.

Certificates of Incorporation

A Certificate of Incorporation includes important information such as the registered company's name, address, and date of incorporation. It's important to have this document when you decide to open a business bank account or apply for any type of loan. You also need it if you want to sell your shares to investors.

Important Documents Necessary for Forming Your Company

When it comes to forming your company, you must take note of important documents you need:

  • Certificate of Incorporation. This legal document is necessary when forming a company or corporation. The state government or non-governmental entity issues the license to form the corporation. It essentially serves as the birth certificate of your company.
  • Certificate of Commencement. The date of incorporation cannot be the same date of commencement of business (COB). Pertaining to the point of commencement, a public or private limited company that doesn't have shared capital does not need to comply with any other legal formalities. Companies commence business activities immediately after securing the Certificate of Incorporation. Public and private limited companies that share capital must obtain Certificate of Commencement of business before they can commence the business or borrow money.

Certificate of Incorporation and a Business Bank Account

When opening a business bank account, the Certificate of Incorporation is one of the most important documents you need to bring with you. This document shows that you have set up your business correctly. In addition, it shows that the business is a legal entity and is on the public register of companies.

Banks must comply with strict regulations and rules, particularly when it comes to money laundering. That's why you must bring identification with you as well as documents pertaining to your company's formation. Other important documents you must bring, including the Certificate of Incorporation, include the memorandum, Articles of Incorporation, and any issued share certificates.

Why Bylaws are Important for Your New Company

If you don't record your company bylaws, the secretary of state can fail your new business. Failing to have these bylaws shows that the Articles of Incorporation are more important than company bylaws. Every business is different, so you must address its needs in the bylaws. You can use a generic bylaws template to create them.

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