Articles of Incorporation: The Rules That Shape the Company
The articles of incorporation are the document that sets forth the fundamental rules governing the operation of a corporation.
While the articles of incorporation establish the company, the bylaws govern its day-to-day operations: what it can do, how it is managed, how the shareholders make decisions, and what rules they must follow.
What Is Included in the Bylaws?
The articles of incorporation may govern many aspects of the company, including:
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- corporate purpose;
- share capital;
- administration;
- shareholders’ rights;
- decision-making process;
- transfer of shares;
- internal operating rules.
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It is, therefore, a very practical document, even though it is often perceived as merely a formality.
An example
Three partners start a limited liability company (SRL) together.
At first, I agree with everything: activities, investments, roles, and goals.
After some time, however, one of the partners wants to leave the company, while the others would prefer to avoid bringing in a new outside partner.
At that point, it becomes important to check what the bylaws stipulate:
Are there any rules regarding the transfer of shares?
Do the other partners have a right of first refusal?
Are special majorities required for certain decisions?
If the articles of incorporation are too broadly worded, the company may face conflicts or decision-making deadlocks that are difficult to manage.
A clear set of bylaws isn’t just useful on the day the organization is founded.
It is especially useful when a company is changing, growing, or facing difficult decisions.
Articles of Incorporation and Corporate Purpose
One of the most important parts of the articles of incorporation is the corporate purpose, that is, the provision that specifies the activities the company may engage in.
For this reason, the articles of incorporation must be consistent with the business plan and with the activities that will actually be carried out.
Why It’s Important
Clear bylaws help prevent doubts, conflicts, and operational difficulties.
It’s not just useful at the time of incorporation; it supports the company over time.
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