A Brief Introduction About the Certificate of Incorporation
What Is a Certificate of Incorporation? It is a legal document that serves as proof that your limited company has been formed and registered in accordance with the companies act.
What Is Information Required in a Certificate of Incorporation?
The information that you will find in this certificate would be the name of the corporation being formed, the purpose of forming the company, the names of the directors and officers when the company was incorporated, the distribution of shares, and the salaries of the officers and directors.
You can enter into agreements with this certificate and take important decisions before your company is formed.
A Certificate of Incorporation is prepared before the Articles of incorporation are submitted in the state where you plan to carry out your business.
The promoters of the corporation or the directors will be personally liable if there is a breach of contract before the formation of the company.
Who Takes the Certificate of Incorporation? – People Involved
The key people involved in the certificate of incorporation are the directors or promoters who are also the principal parties of the company. They are the people responsible for the formation of the company, and so this document is also known as a certificate of formation.
The parties to the agreement must ensure that there is an acknowledgment to the effect saying that the company has not yet been formed. This will protect the directors from being held personally liable due to a breach of contract.
Purpose of the Certificate of Incorporation – Why Do You Need It?
A certificate of incorporation gives the definition of the roles and responsibilities of the key parties in an entity so that there is no ambiguity regarding them.
It has details relating to the name of the corporation, a statement which explains why the company is being formed, the business address, names and contact details of the directors of the company, defining the roles of the directors when it comes to financial transactions such as opening bank accounts or signing checks, the capital contribution of each promoter and the authority who has been assigned the task of conducting business.
Important shareholder and confidentiality agreements are created during the incorporation phase.
There isn’t a difference between the two when it comes to Certificate of Incorporation vs. Articles of Incorporation because both of them refer to the charter filed with the state agency for creating an incorporation.
Contents of the Certificate of Incorporation – Inclusions
A certificate of incorporation contains the following information:
- The name of the corporation which must not violate any copyright or trademark issues
- The agreement must have a statement giving reasons explaining the formation of the business. It could be a general statement like conducting business lawfully or a specific statement.
- The address from which the business will be conducted
- The names and contact information of the directors need to be stated
- The capital contribution made by the promoters or initial shareholders of the corporation
- The agreement will define the roles of the directors
- The authority assigned to the promoter for conducting business including signing contracts or conducting negotiations
- The laws of the state applicable in the event of any dispute
- The liability of each director shall not extend to their personal assets in the event of any claim by a third party
How to Draft the Certificate of Incorporation?
While drafting a certificate of incorporation, the following points need to be kept in mind:
- The names of the parties to the agreement, the corporation and the directors of the organization
- The business could state a general-purpose like conducting business lawfully or a specific purpose
- The address from where the business will be officially conducted
- The company registration number or CRN should be included
- The official date of incorporation of the company
- The agreement must state whether the company will be limited by shares or limited by guarantee
- The capital contribution made by the directors or promoters of the company
- The roles of the directors will be clearly mentioned
- The directors’ liability will not include their personal assets if there is a third party claim
- The laws of the state under whose jurisdiction the agreement is being drafted.
A certificate of incorporation is a legal document which the promoters need to file with the Registrar of Companies to get the company registered. Since the promoters of the companies are the principal parties, they can negotiate between themselves the responsibilities to be shared as well the capital contribution.
Benefits & Drawbacks of the Certificate of Incorporation
- Entering business agreements: This certificate helps you enter into business agreements and is considered a valid legal document
- Tax advantages: The promoters or shareholders of the company can avail of tax advantages as there are certain deductible expenses for corporations and losses can be carried forward, medical insurance for employees are tax-deductible
- Transfer of shares: Change of ownership through the transfer of shares can be done seamlessly
- Raising capital: It is more convenient to raise capital as a limited company as compared to other forms
- Difficulty in getting bank loans: Banks and financial institutions will extend loans to the company only if the promoters provide a personal financial guarantee
- Criminal act: If a criminal act is committed by the corporation, the board members will be held liable.
What Happens in Case of Violation?
The definition of a certificate of incorporation is a legal document denoting the formation of a company.
When a group of individuals decides to float a company, the first document they need to register with the Registrar of Companies is the certificate of incorporation.
Apart from the name of the corporation, the certificate mentions the names of the different promoters of the company and their qualifications. The agreement will also include the contribution of the individual promoters towards the capital of the company.
If there is a clause in the agreement violated by the company, then the agreement will be null and void, and the personal assets of the directors will be included to pay for any damages.
Which of the following is a certificate of ownership in a corporation?
The answer is a stock
The different types of certificate of incorporation are C corporation, S corporation, and LLC.
A certificate of incorporation is a valuable document that can be used by the owners to get into an agreement.
It contains vital information regarding the promoters of the business, their capital contribution, and individual responsibilities.
Sample for Certificate of Incorporation
You can download the certificate of incorporation sample and make changes according to your needs.
Download this USA Attorney made original Agreement for only $9.99