The Role of an Incorporator in Business Formation

Incorporation is a pivotal step in the life of a business, marking its transition from a mere idea or informal operation to a recognized legal entity. Central to this process is the figure known as the “incorporator.” But who exactly is an incorporator, and what do they do?

Definition of an incorporator

An incorporator is an individual, association, or corporation responsible for the incorporation process. They prepare and file the necessary documentation required to form a corporation in a specific jurisdiction, typically the company’s home state.

Key responsibilities of an incorporator

• Document Preparation: The incorporator’s primary duty is to draft and submit the Articles of Incorporation. This document, sometimes called the Certificate of Incorporation in a state like Delaware, is the application for the corporation to conduct business legally.
• Filing with the State: Once the Articles of Incorporation are prepared, the incorporator submits them to the appropriate state agency, often the Secretary of State. This filing usually comes with a fee.
• Point of Contact: The state will contact the incorporator to address any issues with the filing, such as missing information or discrepancies.

Duration of Role

The role of an incorporator is temporary. Once the state officially recognizes the corporation, the incorporator’s job is considered complete. 

Their involvement technically ceases after the corporation has been established with the state.

Incorporator vs. Owner vs. Shareholder

While incorporators often initiate the incorporation process, being named an incorporator doesn’t automatically grant ownership rights.

Incorporators can be owners, but they can also be third-party entities hired just for the incorporation process, such as attorneys or business formation companies.

On the other hand, shareholders own a portion of the company, and their relationship with the company differs from that of an incorporator.

Qualifications and eligibility of a business incorporator

Most states have minimal restrictions on who can serve as an incorporator. The general requirements are:

• Must be an adult (typically 18 years or older).
• Some states require the incorporator to be a resident of the state.
• Can be an individual, attorney, accountant, or a professional business formation company.

If I use an online incorporation service, does that service become my incorporator?

Yes, if you used an online incorporation service to help you form your corporation, that service typically acts as the incorporator on your behalf. 

These services facilitate the incorporation process by preparing and filing the necessary documentation with the appropriate state agency, such as the Articles of Incorporation.

Once the state officially recognizes the corporation, the role of the online service as the incorporator ends.

However, review any agreements or terms of service to understand the specific roles and responsibilities the online service will undertake during the incorporation process.

Is an incorporator the same as a business owner?

No, an incorporator is not necessarily the same as a business owner. An incorporator is an individual, association, or corporation responsible for preparing and filing the necessary business documentation to form a corporation.

Their role is temporary, and once the state officially recognizes the corporation, the incorporator’s job is considered complete.

On the other hand, a business owner has a vested interest in the company through equity, shares, or operational control.

While an incorporator can be an owner or a shareholder, they can also be third-party entities hired just for the incorporation process, such as attorneys or business formation companies.

Is the role of an incorporator the same in for-profit versus non-profits?

The fundamental role of an incorporator remains consistent between for-profit and nonprofit organizations: to prepare and file the necessary documentation to formally establish the corporation with the appropriate state agency.

In both cases, the incorporator’s responsibilities typically end once the state officially recognizes the corporation.

However, there can be differences in the specific details and requirements of the incorporation documents between for-profit and nonprofit entities. 

For instance:

1. Purpose of the Organization: Non-profit Articles of Incorporation often require a clear statement of the organization’s charitable, educational, religious, or scientific purpose, aligning with the criteria for tax-exempt status.

2. Distribution of Profits: For-profit corporations are established to generate profits for shareholders. In contrast, non-profit corporations are prohibited from distributing profits to members, directors, or officers and must reinvest any surplus into the organization’s mission.

3. Tax Exemption: Nonprofits may seek tax-exempt status, which requires additional provisions in the Articles of Incorporation and subsequent filings with the IRS.

4. Dissolution Clause: Non-profit Articles of Incorporation often include a dissolution clause specifying that, upon dissolution, the organization’s assets will be distributed for an exempt purpose to the federal government or a state or local government.

While the core role of the incorporator remains the same, the nuances of the incorporation process can vary based on the nature of the entity being formed.

Key Takeaway

The incorporator plays a crucial role in the early life of a corporation. By ensuring that the incorporation process adheres to state regulations and requirements, the incorporator paves the way for the business to operate legally and enjoy the benefits of corporate status.

Whether you’re just starting a business or an established business owner looking to incorporate, understanding the role of the incorporator is essential for a smooth transition to corporate status.

If you’re considering incorporating, consider seeking professional assistance to ensure the process is handled correctly and efficiently.