Posts Tagged ‘State’

Article 50

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Article 50

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What Is Article 50?

Article 50 is a clause in the European Union’s (EU) Lisbon Treaty that outlines the steps to be taken by a country seeking to leave the bloc voluntarily. Invoking Article 50 kick-starts the formal exit process and allows countries to officially declare their intention to leave the EU. The United Kingdom was the first country to invoke Article 50 after a majority of British voters elected to leave the union in 2016.

Key Takeaways

  • Article 50 is a clause in the European Union’s Lisbon Treaty that outlines how a country can leave the bloc voluntarily.
  • The article states: “Any member state may decide to withdraw from the union in accordance with its own constitutional requirements.”
  • The article became a subject of serious discussion during the European sovereign debt crisis of 2010 to 2014 when Greece’s economy appeared to be in trouble.
  • The United Kingdom became the first country to invoke Article 50 after a majority of voters elected to leave the bloc.

How Article 50 Works

Article 50 is part of the Lisbon Treaty, which was signed and ratified by all 27 member states of the European Union in 2007 and came into effect in 2009. The article outlines how a member nation may leave the EU voluntarily. As noted above, the article states: “Any member state may decide to withdraw from the union in accordance with its own constitutional requirements.”

According to the article’s text:

  1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
  2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
  3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
  4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it.
    A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
  5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

Algeria left the European Economic Community after gaining independence from France in 1962, while Greenland left through a special treaty in 1985.

Special Considerations

Article 50 became a subject of serious discussion during the European sovereign debt crisis of 2010 to 2014 when Greece’s economy appeared to be spiraling out of control. In an attempt to save the euro and perhaps the EU from collapsing, leaders considered expelling Greece from the eurozone.

The problem they encountered with Article 50 was that there was no clear guidance for pushing a member state out against its will. Nor was it necessary to remove Greece from the EU—just from the eurozone. Greece was eventually able to reach agreements with its EU creditors.

Origins of Article 50

The European Union began in 1957 as the European Economic Community, which was created to foster economic interdependence among its members in the aftermath of World War II. The original bloc comprised six European countries: the Netherlands, France, Belgium, West Germany, Luxembourg, and Italy. They were joined by the U.K., Denmark, and Ireland in 1973. The EU was formally created by the Maastricht Treaty in 1992, and by 1995 the bloc expanded to 15 members covering the whole of Western Europe. From 2004 to 2007, the EU experienced its largest-ever expansion, taking on 12 new members that included former Communist states.

The Lisbon Treaty was drafted with a view to enhancing the efficiency and democratic legitimacy of the Union and to improving the coherence of its action. The treaty was signed and ratified by all 27 member states in 2007 and came into effect in 2009. The treaty is divided into two parts—the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). It has 358 articles in total including Article 50.

The author of the provision did not originally see it as being necessary. “If you stopped paying the bills and you stopped turning up at the meetings, in due course your friends would notice that you seemed to have left,” the Scottish peer Lord Kerr of Kinlochard told the BBC in November 2016. He saw Article 50 as being potentially useful in the event of a coup, which would lead the EU to suspend the affected country’s membership: “I thought that at that point the dictator in question might be so cross that he’d say ‘right, I’m off’ and it would be good to have a procedure under which he could leave.”

Example of Article 50

The first country to invoke Article 50 was the United Kingdom, which left the EU on Jan. 31, 2020. It came after a majority of British citizens voted to leave the union and pursue Brexit in a referendum on June 23, 2016, leading British Prime Minister Theresa May to invoke the article on March 29, 2017.

The process was mired by missed deadlines, extensions, negotiations, and stumbling blocks put forth by both British and EU leaders. May’s attempts for an agreement were rejected by parliament. Negotiations were renewed by Boris Johnson, who became prime minister after May resigned.

The country began an 11-month transition period immediately after its departure from the bloc. After leaving the Union, there were no British officials in the European Parliament, and the U.K. lost its veto right within the EU. But the two parties still had to work out a new trade agreement. There were still many issues to resolve during the transition period, including:

  • Issues related to pensions
  • How both parties would handle law enforcement and security cooperation
  • Access to shared fisheries
  • Customs and border controls between Northern Ireland and the Republic of Ireland
  • Tariffs and other trade barriers

One big cause for concern was the issue of EU nationals migrating to the U.K. or vice versa. Prior to Brexit, an estimated three million EU nationals lived, worked, or studied in the U.K., while one million U.K. nationals did the same in the rest of the EU. Nationals were allowed to cross borders during the transition period but were afterward subject to visa requirements.

Negotiations continued during the transition period, despite many halts and roadblocks. On Dec. 24, 2020, the two sides finally announced a trade deal that would replace the EU’s single market and its customs union with respect to the United Kingdom. The EU-UK Trade and Cooperation Agreement was signed on Dec. 30 and provisionally entered force on Jan. 1. However, it was not fully ratified until the following April. The new trade agreement fully entered force on May 1, 2021.

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Arab League

Written by admin. Posted in A, Financial Terms Dictionary

Arab League

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Member Nations of the Arab League
Algeria (1962)  Jordan* Oman (1971) Syria*
Bahrain (1971) Kuwait (1961) Palestine (1976) Tunisia (1958)
Comoros (1993) Lebanon*  Qatar (1971) United Arab Emirates (1971)
Djibouti (1977) Libya (1953) Saudi Arabia*  Yemen*
Egypt*  Mauritania (1973) Somalia (1974)
Iraq* Morocco (1958) Sudan (1956)
Source: Council on Foreign Relations

*denotes a founding member state

There are four nations that were conferred observer status by the League: Brazil, Eritrea, India, and Venezuela.

The Arab League countries have widely varying levels of population, wealth, gross domestic product (GDP), and literacy. They are all predominantly Muslim, Arabic-speaking countries, but Egypt and Saudi Arabia are considered the dominant players in the League. Through agreements for joint defense, economic cooperation, and free trade, among others, the league helps its member countries to coordinate government and cultural programs to facilitate cooperation and limit conflict.

When Jordan joined the Arab League, its official name was Transjordan.

History of the Arab League

The League was formed in 1945 after the seven founding members signed the Alexandria Protocol in Cairo the previous year. The prominent issue at the time was freeing the Arab countries that were still under colonial rule.

Cairo was the original headquarters for the League in 1945. That changed in 1979 when it was moved to Tunis, Tunisia. The organization revoked Egypt’s membership after it signed a peace treaty with Israel. The League reestablished ties with Egypt in 1987 and moved its headquarters back to Cairo when it was admitted back as a member state in 1989.

The Arab League acted decisively and unanimously during the Arab Spring uprisings in early 2011 by revoking the country’s membership that same year. It supported United Nations (UN) action against then-leader Muammar Gaddafi’s forces. Libya’s membership was reinstated later that year after a representative of the National Transitional Council was installed following Gaddafi’s removal from office to act as the interim government.

The Arab League condemned the Islamic State in 2014 and several of its members launched airstrikes against the militant organization. But it did little as a whole to assist the Shiite-led Iraqi government. Syria’s membership was also under threat because of government violence against civilian protestors as the League passed a resolution to revoke it in 2011. In 2018 and 2019, the organization called on Turkey to withdraw from Syria.

In April 2021, the League called on Somalia to hold postponed presidential and parliamentary elections.

Views on Israel

One of the original goals of the Arab League was to prevent the breakup of Palestine via the creation of the Jewish state of Israel, as the organization recognizes Palestine as a separate nation.

The League’s position on Israel has been inconsistent. In 2019, it denounced Israel’s plans to annex the Jordan Valley. In February 2020, the League denounced the Middle East peace plan put forth by President Donald Trump’s administration, saying it “does not meet the minimum rights and aspirations of Palestinian people.”

Several members seemed to approve of the plan. And in September 2020, the League didn’t condemn the decision by the United Arab Emirates to normalize ties with the Jewish state.

One of the Arab League’s longest-lasting and unanimous actions: Its members’ economic boycott of Israel between 1948 and 1993.

The Arab League Charter

The charter of the Arab League was established on March 22, 1945, and is referred to as the Pact of the League of Arab States. It was signed by the leaders of the seven founding member states: Egypt, Iraq, Jordan, Lebanon, Saudi Arabia, Syria, and Yemen. As per the agreement, the member states aim to strengthen their ties and reinforce their sovereignty.

The pact is composed of 20 articles that outline the goals, governance, headquarters, and the creation of the Arab League Council. It also features what actions must be taken to resolve disputes among members.

There are also annexes on the following issues:

  • Palestine
  • The cooperation with other non-member Arab countries
  • The appointment of the League’s Secretary-General

The Arab League Council

The League Council is the highest body of the Arab League and is composed of representatives of member states, typically foreign ministers, their representatives, or permanent delegates. Each member state has one vote.

The Council meets twice a year, in March and September. Two or more members may request a special session if they desire.

The general secretariat manages the daily operations of the league and is headed by the secretary-general. The general secretariat is the administrative body of the league, the executive body of the council, and the specialized ministerial councils.

Arab League Member Conflicts

(The Arab League’s effectiveness and influence have been hampered by divisions among member states. During the Cold War, some members were supportive of the Soviet Union while others aligned with Western nations. There has also been rivalry over League leadership—especially between Egypt and Iraq.

Hostilities between monarchies such as Saudi Arabia, Jordan, and Morocco have been disruptive, as have the conduct of states that have undergone political change such as Egypt under Gamal Abdel Nasser, and Libya under Muammar Gaddafi. The attack on Saddam Hussein’s Iraq by the United States also created significant rifts between members of the Arab League.

Resolutions by the Council don’t have to be unanimously approved by members. However, because they are binding only on the nations that voted for them (no country has to abide by them against its will) their effectiveness is somewhat limited, often amounting to little more than declarations rather than implemented policies.

What Is the Purpose of the Arab League?

The Arab League’s state purpose is to seek close cooperation among its members on matters of common interest—specifically, economics, communication, culture, nationality, social welfare, and health; to strengthen ties, improve communication, and promote common interest among Arabic-speaking nations.

The Pact of the League of Arab States, the organization’s founding document, identifies the mission of the League as follows:

“The purpose of the League is to draw closer the relations between member States and coordinate their political activities with the aim of realizing a close collaboration between them, to safeguard their independence and sovereignty, and to consider in a general way the affairs and interests of the Arab countries.”

Who Is the Leader of the Arab League?

The Arab League is headed by the Secretary-General. As of June 4, 2022, Ahmed Aboul Gheit holds that post. He assumed it in 2016.

Does the Arab League Still Exist?

Yes, the Arab League still exists. But members are skipping League summits and declining positions, possibly a sign of waning enthusiasm for the organization.

Some scholars and statesmen feel that the League is unable to overcome a fundamental paralysis, due to internal divisions among its member nations, leading to “resolutions [that] are prefabricated, out of date, out of touch, and reflexively anti-Israeli,” as states a 2020 article posted by the Begin-Sadat Center for Strategic Studies. The conclusion of the Begin-Sadat Center for Strategic Studies is that “the time has come to close it down.”

“The League’s paralysis reflects its irrelevance since the 2000s,” Sean Yom, associate professor at Temple University, Philadelphia, and author of From Resilience to Revolution: How Foreign Interventions Destabilize the Middle East, said in a 2018 interview. “If we are going to see the League simply dissolve away, it will probably take another decade or two.”

Why Is Turkey Not in the Arab League?

Turkey has expressed interest in having an observer status in the League but has been refused for several reasons, most noticeably opposition from Iraq (whose Kurdish citizens Turkey has frequently battled with) and Syria (the latter still claims Turkey’s Hatay Province). The League also condemned Turkey’s military interventions in Libya and other countries.

Is the Arab League a Military Alliance?

The Arab League is not a military alliance per se. But its founding members agreed to cooperate in military affairs and coordinate military defense. At the 2007 summit, the leaders of its member states decided to reactivate their joint defense and establish a peacekeeping force to deploy in South Lebanon, Darfur, Iraq, and other hot spots.

At a 2015 summit in Egypt, member states agreed to form a joint voluntary military force in principle.

The Bottom Line

There are many different intergovernmental organizations found around the world. Some of these are global, such as the United Nations, while others are focused more on certain regions like the Arab League. This group is composed of 22 member nations that span the Middle East and Northern Africa. Like other, similar groups, the Arab League’s goals are to strengthen the relationships between member states while promoting their political and economic development.

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183-Day Rule: Definition, How It’s Used for Residency, and Example

Written by admin. Posted in #, Financial Terms Dictionary

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What Is the 183-Day Rule?

The 183-day rule is used by most countries to determine if someone should be considered a resident for tax purposes. In the U.S., the Internal Revenue Service (IRS) uses 183 days as a threshold in the “substantial presence test,” which determines whether people who are neither U.S. citizens nor permanent residents should still be considered residents for taxation.

Key Takeaways

  • The 183-day rule refers to criteria used by many countries to determine if they should tax someone as a resident.
  • The 183rd day marks the majority of the year.
  • The U.S. Internal Revenue Service uses a more complicated formula, including a portion of days from the previous two years as well as the current year.
  • The U.S. has treaties with other countries concerning what taxes are required and to whom, as well as what exemptions apply, if any.
  • U.S. citizens and residents may exclude up to $108,700 of their foreign-earned income in 2021 if they meet the physical presence test and paid taxes in the foreign country.

Understanding the 183-Day Rule

The 183rd day of the year marks a majority of the days in a year, and for this reason countries around the world use the 183-day threshold to broadly determine whether to tax someone as a resident. These include Canada, Australia, and the United Kingdom, for example. Generally, this means that if you spent 183 days or more in the country during a given year, you are considered a tax resident for that year.

Each nation subject to the 183-day rule has its own criteria for considering someone a tax resident. For example, some use the calendar year for its accounting period, whereas some use a fiscal year. Some include the day the person arrives in their country in their count, while some do not.

Some countries have even lower thresholds for residency. For example, Switzerland considers you a tax resident if you have spent more than 90 days there.

The IRS and the 183-Day Rule

The IRS uses a more complicated formula to reach 183 days and determine whether someone passes the substantial presence test. To pass the test, and thus be subject to U.S. taxes, the person in question must:

  • Have been physically present at least 31 days during the current year and;
  • Present 183 days during the three-year period that includes the current year and the two years immediately preceding it.

Those days are counted as:

  • All of the days they were present during the current year
  • One-third of the days they were present during the previous year
  • One-sixth of the days present two years previously

Other IRS Terms and Conditions

The IRS generally considers someone to have been present in the U.S. on a given day if they spent any part of a day there. But there are some exceptions.

Days that do not count as days of presence include:

  • Days that you commute to work in the U.S. from a residence in Canada or Mexico if you do so regularly
  • Days you are in the U.S. for less than 24 hours while in transit between two other countries
  • Days you are in the U.S. as a crew member of a foreign vessel
  • Days you are unable to leave the U.S. because of a medical condition that develops while you are there
  • Days in which you qualify as exempt, which includes foreign-government-related persons under an A or G visa, teachers and trainees under a J or Q visa; a student under an F, J, M, or Q visa; and a professional athlete competing for charity

U.S. Citizens and Resident Aliens

Strictly speaking, the 183-day rule does not apply to U.S. citizens and permanent residents. U.S. citizens are required to file tax returns regardless of their country of residence or the source of their income.

However, they may exclude at least part of their overseas earned income (up to $108,700 in 2021) from taxation provided they meet a physical presence test in the foreign country and paid taxes there. To meet the physical presence test, the person needs to be present in the country for 330 complete days in 12 consecutive months.

Individuals residing in another country and in violation of U.S. law will not be allowed to have their incomes qualify as foreign-earned.

U.S. Tax Treaties and Double Taxation

The U.S. has tax treaties with other countries to determine jurisdiction for income tax purposes and to avoid double taxation of their citizens. These agreements contain provisions for the resolution of conflicting claims of residence.

Residents of these partner nations are taxed at a lower rate and may be exempt from U.S. taxes for certain types of income earned in the U.S. Residents and citizens of the U.S. are also taxed at a reduced rate and may be exempt from foreign taxes for certain income earned in other countries. It is important to note that some states do not honor these tax treaties.

183 Day Rule FAQs 

How Many Days Can You Be in the U.S. Without Paying Taxes?

The IRS considers you a U.S. resident if you were physically present in the U.S. on at least 31 days of the current year and 183 days during a three-year period. The three-year period consists of the current year and the prior two years. The 183-day rule includes all the days present in the current year, 1/3 of the days you were present in year 2, and 1/6 of the days you were present in year 1.

How Long Do You Have to Live in a State Before You’re Considered a Resident?

Many states use the 183-day rule to determine residency for tax purposes, and what constitutes a day varies among states. For instance, any time spent in New York, except for travel to destinations outside of New York (e.g., airport travel), is considered a day. So, if you work in Manhattan but live in New Jersey, you may still be considered a New York resident for tax purposes even if you never spend one night there.

It is important to consult the laws of each state that you frequent to determine if you are required to pay their income taxes. Also, some states have special agreements whereby a resident who works in another state is only required to pay taxes in the state of their permanent residence—where they are domiciled.

How Do I Calculate the 183-Day Rule?

For most countries that apply this rule, you are a tax resident of that country if you spend 183 or more there. The United States, however, has additional criteria for applying the 183-rule. If you were physically present in the U.S. on at least 31 days of the current year and 183 days during a three-year period, you are a U.S. resident for tax purposes. Additional stipulations apply to the three-year threshold.

How Do I Know if I Am a Resident for Tax Purposes?

If you meet the IRS criteria for being qualified as a resident for tax purposes and none of the qualified exceptions apply, you are a U.S. resident. You are a tax resident if you were physically present in the U.S. for 31 days of the current year and 183 days in the last three years, including the days present in the current year, 1/3 of the days from the previous year, and 1/6 of the days from the first year.

The IRS also has rules regarding what constitutes a day. For example, commuting to work from a neighboring country (e.g., Mexico and Canada) does not count as a day. Also, exempt from this test are certain foreign government-related individuals, teachers, students, and professional athletes temporarily in the United States.

Do I Meet the Substantial Presence Test?

It is important to consult the laws of the country for which the test will be performed. If wanting to find out about meeting the U.S.’s substantial presence test, you must consider the number of days present within the last three years.

First, you must have been physically present in the United States for 31 days of the current year. If so, count the full number of days present for the current year. Then, multiply the number of days present in year 1 by 1/6 and the days in year 2 by 1/3. Sum the totals. If the result is 183 or more, you are a resident. Lastly, if none of the IRS qualifying exceptions apply, you are a resident.

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What Are Articles of Incorporation? What’s Included

Written by admin. Posted in A, Financial Terms Dictionary

Allocated Loss Adjustment Expenses (ALAE) Definition, Examples

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What Are Articles of Incorporation?

Articles of incorporation are a set of formal documents filed with a government body to legally document the creation of a corporation. Articles of incorporation generally contain pertinent information such as the firm’s name, street address, agent for service of process, and the amount and type of stock to be issued. The articles of incorporation are used to legally form the corporation.

Key Takeaways

  • Articles of incorporation is the documents filed with a government body (usually the state) that signifies the creation of a corporation.
  • In the U.S., articles of incorporation are filed with the Office of the Secretary of State where the business chooses to incorporate.
  • Broadly speaking, articles of incorporation include the company’s name, type of corporate structure, and number and type of authorized shares.
  • While the articles of incorporation are used almost exclusively outside of the company, other documents such as bylaws, operating agreements, or business plans are more useful internally.
  • By filing articles of incorporation, corporations may gain favorable tax advantages, the ability to issue stock and raise capital, or shield owners from liability.

Understanding Articles of Incorporation

Many businesses in the U.S. and Canada are formed as a corporation, which is a type of business operation that is formed in the state where the company carries out its operations. To be recognized legally as a corporation, a business must incorporate by taking certain steps and making certain decisions required under corporate law. One such step is filing a document known as articles of incorporation.

Articles of incorporation are in the document necessary to register a corporation with a state and acts as a charter to recognize the establishment of a corporation. The document outlines the basic information needed to form a corporation, the governance of a corporation, and the corporate statutes in the state where the articles of incorporation are filed.

Articles of incorporation are also referred to as the “corporate charter,” “articles of association,” or “certificate of incorporation.”

Where to File Articles of Incorporation

In the U.S., articles of incorporation are filed with the Office of the Secretary of State in the state where the business chooses to incorporate. Some states offer more favorable regulatory and tax environments and, as a result, attract a greater proportion of firms seeking incorporation.

For example, Delaware and Nevada attract about half of the public corporations in the U.S., in part because of the state laws that protect their corporations. Once established, the articles become a public record and provide important information about the corporation.

Many states charge filing fees for a business that incorporates in the state, whether the business operates there or not. A business that is incorporated in one state and is physically located or doing business in another state must register in the other state as well, which involves paying that state’s filing fees and taxes.

Depending on the state of incorporation, a company may pay filing fees ranging from $50 (as in Iowa, Arkansas, and Michigan) to $275 (as in Massachusetts) as of 2020. The fees can vary depending on whether the articles of incorporation were filed online or by mail.

Articles of Incorporation Document Requirements

The articles in the document vary by state, but the following items (i.e. “articles” are typically included:

  1. Name of corporation
  2. Name and address of the registered agent
  3. Type of corporate structure (e.g., profit corporation, nonprofit corporation, non-stock corporation, professional corporation, etc.)
  4. Names and addresses of the initial board of directors
  5. Number and type of authorized shares
  6. Duration of the corporation, if it wasn’t established to exist perpetually
  7. Name, signature, and address of the incorporator, who is the person in charge of setting up a corporation

Most states also require the articles to state the firm’s purpose, though the corporation may define its purpose very broadly to maintain flexibility in its operations. Amazon’s certificate of incorporation, for example, states that the corporation’s purpose is “to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.”

Other provisions outlined in a company’s articles of incorporation may include the limitation of the directors’ liability, actions by stockholders without a meeting, and the authority to call special meetings of stockholders. Each state has certain mandatory provisions that must be contained in the articles of incorporation and other optional provisions that the company can decide whether to include.

While domestic companies will submit an article of incorporation, foreign corporate entities must file a certificate of registration to operate in a given state.

Articles of Incorporation vs. Other Documents

Articles of Incorporation vs. Bylaws

While the articles of incorporation are externally-filed formation documents, bylaws are more of use to a company when used internally. Bylaws set the internal processes and organization of how the company should be run. Bylaws outline the rules and procedures for the management of a company. Not all states require a company to maintain bylaws, though many require a company to formally memorialize the bylaws.

Articles of Incorporation vs. LLC Operating Agreement

Articles of incorporation are required state filings to form a corporation, while LLC operating agreements are used exclusively for LLCs. In addition, the articles of incorporation outline the information structure of the company. Meanwhile, operating agreements often outline how internal disputes will be resolved between members or owners. An LLC operating agreement acts more of a personal protection document than the articles of incorporation.

Articles of Incorporation vs. Business License

A business license often permits a company to operate within a specific jurisdiction or industry. It gives the holder the right to start and run a business in the designed geographical location that issues the license. The rights granted by a business license are often more specific and niche than the articles of incorporation; though similar information may be required for both, the articles of incorporation simply legally form an organization and is the highest governing document for a corporation.

Articles of Incorporation vs. Business Plan

A business plan is an internal document that may be shared with major customers, investors, or lending institutions that communicates the formal operating plan of a company. Often a strategic document, a business plan is mainly used by internal management as a roadmap for decision-making. This is in stark contrast of the articles of incorporation which are information-only, non-strategic requirements for legal reasons.

A company should internally maintain a copy of its articles of incorporation request.

Importance of Articles of Incorporation

A corporation should take care when filings its articles of incorporation as these formation documents carry great significance. For starters, they are legally required to structure a new business or company. The corporation can not form and be recognized by the state as a legal business entity until the forms are registered.

Once a business is incorporated, it often has a greater ability to raise capital via stock issuances. A corporation cannot sell stock until is incorporated via the filing of its articles of incorporation. Corporations may also receive more favorable tax treatment compared to individual or personal tax rates.

In addition, there are personal liability considerations for companies being formed. Individuals are often held liable for a company’s obligations until it is incorporated. By forming a legal corporation, business owners may be shielded from some personal liability for the company’s debts. This liability protection cannot occur until the articles of incorporation have been filed.

Example of Articles of Incorporation

The image below captures the first few requirements from the Secretary of State form required by the state of Washington. This form is to be completed and returned to the government agency for review.

Articles of Incorporation, Sample (WA State).

Some sections simply require a check mark for applicability or a ‘yes/no’ mutually exclusive selection. Other areas (such as the purpose of the corporation) require written response. As designated by the top of the form, this specific article of incorporation document template is for specific use for the formation of non-profit corporations.

The Washington State Articles of Incorporation form ends with the certification section in which an incorporator must certify the information given is correct to the best of their knowledge. The incorporator is also required to provide some personal information along with their signature.

Articles of Incorporation, Certification Section (WA State).

The form above had been filed by Parrot Foundation, a Washington nonprofit organization. A snipped of Parrot Foundation’s articles of incorporation has been provided below as an example of the dates, structure, and business purpose a company may request when filing its articles of incorporation.

Parrot Foundation, Articles of Incorporation.

What Is the Purpose of the Articles of Incorporation?

The purpose of the articles of incorporation is to legally form a corporation. The filing submits information to a state agency, and the state agency officially determines whether the corporation can be recognized as a formal company. Once incorporated, the business may receive a number of different benefits (mentioned below) via its status as a corporation.

What Are the Benefits of Filing Articles of Incorporation?

By filing articles of incorporation, a company can officially become incorporated. Once incorporated, the company may receive favorable tax benefits and have the ability to raise capital by issuing stock. In addition, the owners of the corporation have different liability over company debts once a corporation is formed.

How Do You Write Articles of Incorporation?

Articles of incorporation are filed with your state’s Secretary of State office. That department provides a form that requests a variety of information about your newly forming corporation. Upon completing the required fields, the form is submit back to the Secretary of State for review. The state agency that reviews the form will contact you should they have any clarifying questions regarding your information.

Can One Person Submit Articles of Incorporation?

Yes, it is possible to incorporate a business with just one employee. That single owner will be responsible for all aspects of the company. In addition, that sole individual will be the only shareholder. However, they may be listed as the only member on the articles of incorporation.

The Bottom Line

If a company wants to become a corporation, it must file articles of incorporation with its appropriate state agency. This formation document is required as part of the incorporation process, and the articles provide the state a variety of information about the company and its incorporators. Different from other legal documents that outline how a company will operate internally, the article of incorporation is intended to help external parties evaluate and form a corporation.

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