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Going through the process of incorporation can be confusing. A lot of new terms and paperwork are being thrown around. Today, we’ll help you understand what the post incorporation documents are.
What Does Incorporation Mean?
Incorporation refers to the official process of creating a corporate entity or a company. This is a common practice, all across the globe.
Incorporating serves the purpose of defining the business’ structure, the way it’ll be taxed, the way it can behave and its rights. Most of all, incorporation separates the business from its’ owners.
It’s important for the owners to separate from their businesses, to protect their personal assets. When a business is incorporated, the owners are protected from being liable, should their business owe a bunch of money through a lawsuit or loans.
This separation is a safety net for the business owner.
Incorporation Options; Different Business Structures
When you decide to incorporate your business, you’ll be making a choice between different legal structures. One of the most common structures is the Limited Liability Company (LLC). An LLC is great for most businesses. This could be your best option as long as you’re not planning on raising capital through stocks. Also, the shares of an LLC can’t be sold or transferred.
If you want to attract investors and deal with stocks, then you’ll want to form a corporation. The downside of a corporation is that it’s much more expensive and complicated to run. A corporation can also be taxed either as a C corporation, or an S corporation. Click here to find out what the difference is.
What Are Post Incorporation Documents?
When you incorporate your business, information is filed with the state. The state then issues incorporation documents. These documents will serve as your proof of incorporation and the setup of the entity.
Tip: Certain states offer better tax rates and privacy options for businesses. Read the full guide here to find out which state is the best for company formation.
What Information Is Required for Incorporation?
This can vary from state to state, but in general, you’ll need to provide the details of the shareholders, directors, and officers. You’ll also need to provide details of a registered agent.
On top of that, a business address, company name, and the nature of your business.
If you’re looking to incorporate a remote business like an e-commerce company, then you can do this without having a physical address.
What Do the Post Incorporation Documents Mean?
Once your business is incorporated, you’ll receive a bunch of documents. We’ll walk you through some of them and their significance. Bear in mind, most of these documents apply to a corporation, an LLC doesn’t have as much paperwork.
Action by Written Consent of the Sole Incorporator
When a corporation is in the process of ‘becoming’, there’s a period during which the ‘Incorporator’ is in charge. His job is to incorporate with the state and appoint board members so that the board members can elect officers, issue stock, etc. The Incorporator resigns after completing the above.
Action by Written Consent of the Sole Incorporator is the document that’s the ‘sign off’ from the Incorporator.
Bylaws are also only relevant to corporations. Bylaws can be seen as the internal laws of the corporation. Things like what the managers and officers can do, how the shareholder meetings will be held, and how decisions will be made. These are all written out in the Bylaws.
Corporations have to hold regular meetings and complete paperwork to uphold their corporation status. That’s why they have these additional documents that lay it all out.
Certificate of Incorporation
Also referred to as ‘articles of incorporation.’ This is the formal record and confirmation that your limited company was officially formed with the state. It’s the acknowledgement of the business’ incorporation.
Each shareholder will receive a certificate that states how much of the company they own. The certificates should also state any restrictions and provisions set out by the company with respect to stock transfers.
Companies usually restrict the initial investors from selling their shares within the first few months/ years of the company going public. This is because the initial investors/ founders hold large amounts of shares and they could impact the company’s stock price if they flooded the market with their shares. Also, selling out just as the company goes public isn’t a good look on the business and would deter investors.
Stock Purchase Agreement
Another document that’s given to the shareholders. It outlines the details of the stock ownership, transferring, sales, etc.
When Do I Need My Post Incorporation Documents?
Keep your incorporation documents safe.
When you’re opening a business bank account, buying or leasing a property as your business, applying for a business loan, or sometimes even when dealing with large scale contracts/ suppliers; you’ll have to show your articles of incorporation.
The Stock Certificates are used during the sale/ transfer of stocks.
The rest of the documents are not used regularly, only during audits and official proceedings.
How to Incorporate a Business
If you’re ready to incorporate, hire a professional service. This is the easiest and safest option. You can get advice on the right business structure, the best state for incorporation, and much more.
Get started today. Click here!