Show
What is Articles of Incorporation and a Certificate of Formation?A Certificate of Formation, formerly referred to as “Articles of Incorporation,” is the organizational document filed with the Texas Secretary of State that is required when a new corporation or limited liability company is formed. A Certificate of Formation provides the basic information needed to register your new organization with the Texas Secretary of State. Who should file a Certificate of Formation? Limited liability companies, for-profit corporations, non-profit corporations, professional corporations, and close corporations. The main purpose of a Certificate of Formation is to give the state a written document to keep on file. This document can be as short and simple or as long and complicated as you want it to be. There are certain pieces of information required in order to get approval from the state (more, if you are filing a series LLC). Is it Similar to Articles of Incorporation?Like its predecessor, Articles of Incorporation, the minimum requirements for a Certificate of Formation are:
For-profit and professional corporations may also choose to issue more than one class of shares (e.g., Class A, Class B). In this case, the Certificate must list the specific classes and their par value or a statement that each class is without par value; and the preferences, limitations, and relative rights of the shares. Further, if classes of shares consist of more than one series, the Certificate must detail for each series: its designation; the aggregate number of shares authorized; any preferences, limitations, and relative rights of the shares to the extent provided in the Certificate of Formation; and any authority vested in the board of directors to establish the series and set and determine the preferences, limitations, and relative rights of the series.
What other documents might be needed in a Certificate of Formation?Bylaws/Operating AgreementIf your corporation has more than one shareholder or director, you should also consider having Bylaws and if your LLC will have more than one member, you should consider an Operating Agreement. Commonly, a lender or banker may require Bylaws or an Operating Agreement so they know what powers are granted to whom, such as the authority to bind the company or open a bank account. Unlike the Certificate of Formation or Articles of Incorporation, the Bylaws or Operating Agreement is an internal company document not filed with the state that governs the affairs and many aspects of the life of the company (such as membership terms etc.). Recommended for inclusion in the Bylaws/Operating Agreement are: when and how a shareholder/member may be added or removed; sales of shares or interests (and first right of refusal); what happens if a shareholder/member finds his or herself in bankruptcy; tax treatment; and the sale or dissolution terms for the corporation. Both documents – the Certificate of Formation and Bylaws/Operating Agreement – are necessary for each business structure to function optimally in the business community. Due to their complexity and importance for your business, we recommend the Certificate of Formation and Bylaws/Operating Agreement be prepared by an attorney following consultation regarding the goals of the shareholders. Incorporating MinutesIncorporating minutes will be the first minutes your company takes. These will set up the officers of the company (President, Secretary, Treasurer, etc.), if any, ratify the Organizer’s actions (the organizer is the person who filed the Certificate of Formation formally known as Articles of Incorporation), adopt the Bylaws/Operating Agreement, and any other preliminary matters. Depending on the nature and location of your business, you may have to obtain state or local business licenses. Contact the Texas Department of Licensing and Regulation to find out more. If you are planning to sell goods and collect sales tax, you must register with the state’s Comptroller of Public Accounts. You will also need to apply for an Employer Identification Number (EIN) from the IRS. Remember too that all entities registered to do business in the State of Texas must file yearly Public Information Reports (PIRs) with the Texas Secretary of State and a Franchise Tax Report with the Texas Comptroller. Failure to do so will result in forfeiture of the entity’s right to do business in Texas and renders the shareholders personally liable for the debts of business. If you’d like additional information about what is Articles of Incorporation or what a Certificate of Formation is, please reach out to us! We’re happy to help and have the expertise you need. © Karen Ensley and Brian Benitez, Ensley Benitez Law, PC, 2021. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. Ensley Benitez Law, PC, will represent you only after being retained and that agreement is made in writing. Is certificate of formation the same as articles?Also known as the articles of organization in certain states. A limited liability company (LLC) is formed by filing a certificate of formation in the jurisdiction where it desires to be domiciled.
What is the difference between Articles of Incorporation and certificate of incorporation?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.
What is a certificate of formation in Texas?A Certificate of Formation is a legal document that is filed in Texas with the secretary of state to create a corporation, limited liability company, and similar entities. Certificates of formation will contain the entity's basic information (name, registered agent, office address, share structure, etc.).
Does Texas require Articles of Incorporation?In the state of Texas, articles of incorporation are required when forming a corporation. Both S corporations and C corporations must file the articles of organization with the Secretary of State's office.
|