So this is continuing the trend I started two weeks ago, as I realized Startup Weekend Honolulu was approaching, and a lot of first time startup people have frequent questions. By the way, other fun events are coming up in Honolulu (with me speaking or people who are more entertaining because it is not with legalese speaking), so check out my calendar later this week for information on them. Anyway, I spoke about the differences of trade names, trademarks, and trade secrets as it is a source of constant confusion for people starting up their business. I’ll be honest, it actually is still confusing even for people who have been in busy for a long time and should know the difference.
Today’s topic is one that I discuss during my business entity formation talk. Today’s post is much more abbreviated, but it’s goal is to clear confusion about all that paperwork we attorneys like to make for you when you start a business. So frequently, when a person gets an idea in their head they know they have to protect it and themselves, so they know to set-up a business entity. Remember that very first Draw the Law on Limited Liability? (If you don’t remember or know, go ahead click the links.) So the only way you get to have a legal entity is by filing information with the state you plan on doing business in. Therefore, in the State of Hawaii you turn to the Department of Commerce and Consumer Affairs to file your Articles of Incorporation OR Articles of Organization.
What’s the Difference between the Documents?
Articles of Incorporation are filed for a corporation whereas Articles of Organization are filed for a limited liability company. They are similar documents, but the wording indicates what the entity is which for let’s say transfer of ownership, buying-selling the business, matters for tax consequences and other important aspects of a business deal. I always tell people it’s like your business’s birth certificate. Once filed and registered with the state your company is born and can do business.
What Information do these Documents Contain?
Your articles contain information about your company that is accessible by the public. It’s things like your mailing address, who owns the corporation, if there is corporate stock, or if your limited liability company is managed, and if there is a registered agent for the company. All things you have to discuss with your co-founders, and usually with an attorney, before you set-up. Sometimes your articles may also need to contain certain purpose statements like that for a nonprofit corporation OR a B-corporation.
What’s the Difference for between Articles and Bylaws/Operating Agreements?
Articles of Incorporation or Organization, depending on your entity, MUST be filed with the state you are transacting business in (*note it is not the same department or agency as it depends on your state, so check with your local government). Therefore, you can kind of think of it as an external record, your business exists and the whole world now knows it. However, bylaws and operating agreements are INTERNAL documents. You do NOT need to file them with the state. They are your agreements with fellow co-founders and how you operate internally. I will follow-up next week about their differences between each other, and then individualized posts on each document.
So that is a good place to leave off for this week. Next week, I will focus in on those internal documents, the bylaws and the operating agreement and the differences between the two and addressing some of the more frequently asked questions about them.
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.