Overview of Articles of Incorporation

 

What is this document?

Articles of Incorporation are the basic ‘constitution’ of a (business) corporation.

 

When would I use this document?

Articles of Incorporation are required when a corporation is incorporated.

 

Who signs this document?

Articles of Incorporation are filed with the corporate registrar in the relevant jurisdiction upon the incorporation of a corporation. Once they have been accepted they are ‘signed’ by the ‘Director’ of the jurisdiction in which the articles were filed.  The items contained within the articles of incorporation are a matter of public record, once filed.   

 

More details about this document

In Canada, a business corporation can be incorporated either federally or provincially. Articles of Incorporation can range greatly in length and complexity. They can be very simple (providing for only one share class) with few other clauses, or can be extremely detailed and contain clauses which might otherwise be found in by-laws or a shareholders’ agreement. Since amending the articles requires registration and payment of a fee, many incorporators keep the Articles of Incorporation as simple as possible, and leave other matters to the by-laws and shareholders’ agreement.

Articles of Incorporation must contain the classes of shares and the rights and privileges attached to those shares. For business corporations, each of the following rights: the right to vote, the right to dividends, and the right to participate on dissolution or wind-up of the corporation, must attach to at least one class of shares but all of these rights do not need to attach to the same class of shares. Some incorporating jurisdictions will reject an application to file the Articles of Incorporation if this requirement has not been met.

 

What are the core elements of this document?

The core elements of  Articles of Incorporation include: Corporate Name; Jurisdiction; Head Office; Share Classes;  Restrictions on Share Transfers; Restrictions on the Business; and Minimum and Maximum Number of Directors.

Additional clauses may include: Redemption Rights; Power of Attorney; Restrictions on Securities Transfer, Conversion Rights.

 

Related Documents

Shareholders Resolutions – the shareholders will pass resolutions electing the directors, approving/waiving an auditor etc.

Directors’ Resolutions – the director(s) will need to pass organizing resolutions to adopt bylaws, appoint officers, establish the financial year end, issue initial shares etc.

By-Laws – (also called bylaws) deal with matters such as meetings, voting, borrowing, officers etc.

Minute Book – this is where the director and shareholder resolutions, corporate records, and copies of major contracts are kept. It should be kept up to date.

Buy Sell Agreement/Shotgun Agreement – an agreement that provides for the forced buyout of a shareholder once it is triggered. These terms could be included in a shareholders agreement or used separately.

Share Buyback Agreement – an agreement that allows the corporation to buy back shares in certain situations eg. death, incapacity, or termination of employment/consulting contract of a shareholder.

Term Sheet – a document that sets out the terms of an investment in shares or other securities. The rights attached to the shares can be set out in the term sheet, and are often included in the articles of incorporation.

Shareholders’ Agreement – an agreement between the shareholders that governs the relationship of the shareholders, voting rights, management decision making authority, shareholders exits from the company etc. A Unanimous Shareholders Agreement may have precedence over the Articles of Incorporation.

Subscription Agreement – an agreement between the issuer (the corporation that is issuing shares) and the subscriber (the person who is buying the shares) for the purchase of the corporation’s shares or other securities

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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