Business Formation Documents: Types, Impact, and Guidelines

Understanding the various types of business formation documents is just as crucial for established businesses as it is for any entrepreneur starting a new venture.

At some point, every business undergoes restructuring, and yours will be no exception (if it hasn’t already). However, if this process isn’t properly executed within the required legal frameworks, your business could face serious consequences, including financial penalties, legal disputes, or even dissolution. 

In this article, we cover the essential business formation documents, their legal implications, and how to manage them effectively.

Main Takeaways From This Article:

• Understanding various business formation documents is essential for legally and effectively establishing or restructuring a company.
• Formation documents include Articles of Incorporation, Articles of Organization, Operating Agreements, Corporate Bylaws, Shareholder Agreements, and Partnership Agreements.
• Proper filing and management of these documents ensures compliance with applicable laws set by state and federal agencies, influencing the company’s overall stability and governance.
• Filejet offers a centralized platform for managing and tracking business formation documents, helping businesses adhere to legal requirements.

What Are Business Formation Documents?

Business formation documents are the official legal records that establish your company’s existence and define its operating framework. These documents specify your business structure, ownership, governance principles, and fundamental operating rules. 

Understanding these documents is crucial for businesses undergoing restructuring or setting up subsidiary entities as part of their expansion strategies.

Types of Business Formation Documents

The specific documents required for business formation vary depending on a business’s chosen legal structure. Here’s a quick overview of some of the most common ones:

Articles of Incorporation

This document outlines your company’s basic information, including its name, registered office address, purpose, and duration of existence. For Limited Liability Companies (LLCs), Articles of Organization serve the same purpose.

Articles of Organization

Similar to Articles of Incorporation, Articles of Organization define your LLC’s basic structure, including its name, purpose, and registered agent. However, they typically provide more flexibility in internal management compared to Corporations.

Operating Agreement

This internal document outlines the ownership structure, profit-sharing arrangements, management responsibilities, and voting rights of members or partners within an LLC or partnership. A well-drafted operating agreement can serve as a critical tool for preventing future disputes among business owners.

Corporate Bylaws

Bylaws act as a supplementary document to Articles of Incorporation, detailing specific procedures for board meetings, shareholder voting, and the responsibilities of officers. They establish the framework for the internal governance of your corporation.

Shareholder Agreement

While not a mandatory document, a shareholder agreement can be a valuable tool in corporations with multiple shareholders. It establishes binding agreements regarding voting rights, share transfer restrictions, and dispute resolution mechanisms.

Partnership Agreement

This agreement outlines the rights, responsibilities, and profit-sharing arrangements among partners within a general partnership or limited partnership. It helps define how partnership decisions will be made, how profits and losses will be shared, and how disputes will be resolved.

The Impact of Business Formation Documents

Beyond the legal formalities, business formation documents have a significant impact on a company’s ability to operate effectively. Here are some key areas where these documents influence your business:

• Liability Protection: These documents define the legal separation between the company and its owners. This provides crucial liability protection for owners, shielding their personal assets from business debts and lawsuits. 
• Ownership and Management Structure: Formation documents establish the ownership structure, outlining who owns the company and the percentage of ownership held by each member or shareholder. These documents also define the management structure, specifying who has the authority to make decisions and manage the company’s day-to-day operations. 
• Raising Additional Capital: For corporations seeking to raise funds through investors, formation documents like Articles of Incorporation and shareholder agreements play a vital role in establishing credibility and providing a clear picture of the ownership structure and governance framework. 
• Tax Purposes: The chosen business structure, as reflected in the formation documents, determines the tax implications for the company and its owners. For instance, LLCs are considered pass-through entities, meaning their profits and losses pass through to the members and are reported on their personal tax returns. 

How To Effectively Manage Your Business Formation Documents

Managing a growing number of business formation documents across multiple entities can be challenging. Here’s a comprehensive strategy to ensure the effective management of these documents.

1. Choose the Optimal Business Structure

When you choose a business structure, you are making a fundamental decision that will have lasting impacts on your company. It will affect your company’s growth, liability, and tax obligations.

Weighing your options to align with your business objectives and operational complexity is of crucial importance. The four primary structures to consider are:

1. Sole Proprietorship: This is simple to set up and offers full control, but it also comes with unlimited personal liability.
2. Partnership: Ideal for businesses with multiple owners, this structure divides responsibilities and liabilities between partners.
3. Limited Liability Company (LLC): This type of company combines the benefits of a corporation and partnership, offering limited liability protection with flexible tax options.
4. Corporation: Suitable for larger businesses, this structure offers limited liability and easy ownership transfer, but it has more complex regulations and double taxation on profits.

To choose the best fit:

• Evaluate Your Business Goals and Needs: When selecting the most suitable business structure, consider liability protection, tax implications, and ease of fundraising.
• Consult With Legal Counsel: Seek professional advice to understand the advantages and disadvantages of different structures and ensure you comply with all legal requirements.

2. Conduct a Thorough Business Name Search and Trademark Review

Your business name sets a unique identity for your entity, so it’s crucial to conduct a thorough search to make sure your selection doesn’t infringe on existing trademarks. Sometimes, small businesses need to register with the federal government to protect their brand name or to get tax-exempt status. 

To avoid legal complications and potential disputes, leverage:

• State and Federal Searches: Search databases maintained by your state’s secretary of state and the U.S. Patent and Trademark Office (USPTO) to check for existing business names and trademarks. You can also enlist the aid of a business formation service here to complete your search. 
• Online Tools: Use online search tools specifically designed for business name and trademark searches. These tools can provide comprehensive results and save you time.
• Trademark Availability Checks: If you plan to use your business name as a trademark, conduct a more in-depth trademark search to identify any potential conflicts.

3. Appoint a Reliable Registered Agent

A registered agent is a designated individual or entity that receives legal notices and official documents on behalf of your business. Bringing a registered agent on board helps your business remain compliant even when you introduce the slightest change in the organization. 

The best selection is guided by these basic principles:

• Understanding the Role: The registered agent acts as a liaison between your business and government agencies. They receive documents like tax notices, summons, and official correspondence.
• Choosing a Reputable Agent: Select a registered agent who is reliable, experienced, and knowledgeable about business formation and compliance matters.
• Hiring Through Professional Registered Agent Services: For convenience and peace of mind, consider using a professional registered agent service that can handle all your legal correspondence.

4. Prepare and Submit Articles of Incorporation/Organization

The Articles of Incorporation or Organization are the foundational documents that establish your business entity. These documents outline the basic structure, purpose, and rules governing your company.

Here’s how to get these documents in order:

• Gather Necessary Information: Compile the required information, such as your business name, purpose, registered agent, and organizational structure.
• Prepare the Documents: Draft the Articles of Incorporation or Organization using a template or seek assistance from a legal professional. Ensure that the documents accurately reflect your chosen business structure and governance arrangements.
• Consider Future Growth and Changes: When designing your entity structure, anticipate potential future growth and changes in your business. A well-structured entity can provide flexibility and adaptability.
• File With the Appropriate Authority: Submit the completed documents to the secretary of state or equivalent agency in your state and pay any fees.

5. Develop Comprehensive Operating Agreements or Corporate Bylaws

An LLC operating agreement or corporate bylaws (for corporations) outline the rules governing your business’s operations, so they must clearly define the rights, responsibilities, and decision-making processes in your company. 

To channel your efforts in the right direction, do the following:

• Address Key Issues: Cover topics such as ownership interests, profit-sharing, management roles, voting rights, dispute resolution, and dissolution procedures.
• Get Legal Advice: Consult with a legal professional to ensure that your operating agreement or bylaws are comprehensive and align with your business goals.
• Review Regularly: Periodically review and update these documents to reflect changes in your business or legal requirements.

6. Obtain and Maintain an Employer Identification Number (EIN)

The IRS assigns businesses an Employer Identification Number (EIN) for tax purposes. This unique nine-digit number is essential for various business activities, including hiring employees, opening a business bank account, and filing taxes.

If you don’t already have an EIN, here’s a simple process to acquire one:

• Apply Online: The IRS offers an online application process for obtaining an EIN. You can complete the application quickly and easily.
• Provide Business Information: Be prepared to provide information about your business, such as its name, address, and type of business.
• Keep Your EIN Record: Once you receive your EIN, make sure you record it somewhere for future reference.

7. Register for State and Local Taxes in Multiple Jurisdictions

Depending on your business operations, you may be required to register for and pay various state and local taxes. This includes sales tax, income tax, property tax, and other applicable taxes. 

The specific taxes you need to pay will depend on your location and the nature of your business. Here’s what you need to do:

• Identify Tax Obligations: Determine the specific taxes you are required to pay based on your business activities and location.
• Register With Tax Authorities: Register with your state’s tax department and any relevant local tax authorities.
• Collect and Remit Taxes: Collect taxes from customers as required and remit them to the appropriate tax authorities within the specified deadlines.

8. Secure Business Licenses and Industry-Specific Permits

In addition to general business licenses, you may need to obtain industry-specific permits or licenses depending on the nature of your business. These permits can vary based on factors like location, industry, and the specific activities you’ll be involved in.

To acquire these additional licenses:

• Research Required Permits: Identify the permits and licenses necessary for your business operations. This may involve consulting with local government agencies, industry associations, or legal professionals.
• Gather Necessary Documentation: Prepare the required documents, such as business plans, financial statements, and proof of insurance.
• Submit Applications: Submit your applications to the relevant government agencies and pay any associated fees.

9. File for Foreign Qualification in Every State or Country of Operation

If your business operates in multiple jurisdictions, you may need to file for foreign qualification to obtain the necessary authorization to conduct business in those areas. This typically involves registering your business with the relevant government agencies in each jurisdiction.

To complete this process, do the following:

• Determine the Need for Foreign Qualification: Assess whether your business activities require foreign qualification in other states or countries. This may depend on factors like the nature of your operations, the extent of your presence, and the specific laws in each jurisdiction.
• File the Required Documents: Submit the necessary forms, fees, and documentation to the relevant government agencies in each jurisdiction where you operate.
• Comply With Local Laws: Ensure that your business complies with all applicable laws and regulations in each jurisdiction where you have a presence.

10. Implement a Robust Compliance Tracking System

Managing a growing number of business entities across multiple jurisdictions presents a serious challenge: maintaining compliance with all associated legal requirements. 

Missing deadlines for filings, reports, or renewals can lead to hefty fines and penalties and even jeopardize the legal standing of your businesses. This is where a solid compliance tracking system becomes crucial.

Consider creating:

• A Centralized Calendar: Create a comprehensive calendar that tracks all filing deadlines, reporting requirements, and permit renewals for each of your entities.
• Alerts and Reminders: Set up automated alerts and reminders to ensure you don’t miss any critical deadlines.
• Detailed Records: Maintain detailed records for each entity, including copies of formation documents, licenses, permits, and tax filings.

11. Make It Simple With Filejet

An entity management platform like Filejet can simplify compliance management in the following ways:

• Automated Filings and Renewals: You can automate the process of filing annual reports, business license renewals, and other required documents for timely submissions and avoiding penalties.
• Centralized Reporting: Generate comprehensive reports on each entity’s compliance status, providing a clear overview of upcoming deadlines and requirements.
• Compliance Calendar Management: Filejet’s calendar tool tracks deadlines and sends reminders, helping you stay organized and compliant across all entities.
• Secure Document Storage: The platform offers centralized, SOC 2-compliant document storage, where your business can securely store business formation documents, licenses, permits, and other important records.

Simplify Business Formation With Filejet

Effectively managing business formation documents goes beyond ensuring their proper filing. It’s about establishing a robust framework that guarantees ongoing compliance with legal and regulatory requirements. 

By following the comprehensive steps outlined in this article and leveraging tools like Filejet, businesses can navigate expansion and growth while maintaining their long-term success.

Filejet helps businesses:

• Streamline Business Operations: An automated system reduces the time and resources needed for compliance management, allowing you to focus on core business activities.
• Maintain Liability Protection: By keeping your entities compliant with filing requirements, you strengthen the legal separation between your business and personal assets, safeguarding your liability protection.

Book a demo today and discover how our platform can help you overcome the complexities of multi-entity management.