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The Articles of Incorporation: Overview

All corporations operate according to their governing documents, primarily the articles of incorporation and the bylaws.  To create a corporation, all states require the filing of the articles of incorporation and a filing fee with the state government — usually, the Corporations Division of the Secretary of State’s office.  A corporation’s existence ordinarily begins when the articles of incorporation are accepted by state officials.

The articles of incorporation, in some states termed the “articles of organization” or “certificate of incorporation,” are often referred to informally as the articles. The form for articles will vary depending upon your state laws and your choice of incorporation statute, however, the following provisions are standard for most states and for most LLC registrations. Download a pdf version of this article or a sample Articles of Incorporation here.

  • Name

    When choosing a name for the corporation, be sure to check the applicable state incorporation statute for requirements or restrictions.  You may be required or prohibited to use the word “cooperative” for instance. The corporate name must not duplicate that of any other existing corporation in the state.  In order to avoid delay in state approval of your Articles, you can first call or visit the Corporations Division of the Secretary of State’s office (or other appropriate official) to check for the availability of a particular name.

  • Purpose

    This provision of the Articles should communicate the basic purposes of the corporation, but should also be broad enough to allow for flexibility.  At a minimum, the purpose provision should include a general statement. For worker co-ops (especially those incorpoarting under the general corporations law), including a statement of democratic structure can be helpful.

  • Authorized Stock

    A corporation can issue shares of stock to shareholders only if the number and type of shares is authorized in the Articles. In a worker cooperative, the core “common” stock, which have a residual claim on corporate earnings and assets, are the membership shares, and this section of the Articles is used to authorize membership shares to be issued to the members.  This section is also used to authorize Class B shares or other classes of stock if the worker cooperative intends to issue non-member shares.  Again, if you intend to issue non-member shares, be sure that it is permitted under your selected incorporation statute.

    You can issue several different “classes” of stock with different rights attached to each class.  We suggest the authorization of “no par” stock or “penny par” stock.  Although the meaning of par value may be more historical than practical, a minimal par value may be preferable to no par value under some state laws.  Consult with a local attorney with respect to the par value issue in your state.

  • Relative Rights of Different Classes of Stock

    If you intend to issue non-member shares, this section defines the relative voting, dividend, redemption, and dissolution rights of the different classes of shares.  This provision must be drafted with care, in consultation with legal counsel, since it establishes basic governance and financial rights among shareholders.  This provision should be consistent with any disclosure document distributed to prospective members and shareholders and with any investment contracts or shareholder agreements.

  • Restriction on the Transfer of Stock

    In a worker cooperative, the transfer of stock shares is severely restricted so that only the members can hold membership shares and so that any non-member shareholders can sell their shares only back to the corporation. Check your applicable state law to determine if such restrictions, if any, are required to appear in the Articles.

  • Other Lawful Provisions

    This is an open-ended section for any additional provisions.  While nothing may be necessary, the election of the worker cooperative statute can appear in this section rather than in the “purposes” section.  In many states, certain authority of the Board of Directors or certain corporate powers are available only if authorized in the Articles. In any state, you may use this section to reinforce basic cooperative attributes by including such provisions as:

    “Each member shall be entitled to one and only one vote on any subject that requires voting by members.”  And, “The net earnings and losses of the corporation shall be apportioned and distributed in accordance with the Bylaws.”

  • Other Details

    The remainder of the Articles ordinarily is limited to basic information not treated as a permanent part of the Articles.  Changes in these initial facts usually appear in annual reports or other filings, but do not require amending the Articles.  Such information may include: the initial address of the principal office of the corporation, duration, registered agent, names and addresses of initial directors and officers, fiscal year, and date of the annual meeting of shareholders.