In our previous post on California Nonprofit Articles of Incorporation, we noted that filing of the Articles effectively forms the corporation. As a corporation evolves over time, provisions in the original Articles may no longer accurately describe what is desired by the corporation’s leaders. When that happens, it becomes necessary to amend the Articles.
Because the Articles are the ultimate authoritative governing document of the corporation, a contrary provision in the Bylaws or in a Board resolution will have no effect. Accordingly, a corporation must carefully review its other governing documents and provisions to ensure that they do not conflict with the Articles. If they do, either such other documents or provisions must be amended to conform with the Articles, or the Articles must be amended.
Probably the two most common reasons for amending the Articles are to effect:
- a change of the name, and
- a change of the purpose statement.
The Articles provide for the legal name of the corporation. This is the name that should generally appear on the corporation’s filings, licenses, permits, contracts, deeds, mortgages, and other legal documents.
If a corporation wants to change its name, it should decide whether it wants to change its legal name, which would require an amendment to the Articles, or use a fictitious business name (sometimes referred to as a “dba”). Changing the legal name will create some additional burdens like updating certain licenses and permits, notifying certain contractual parties, and changing account holder names. It may also create some risks if its former name is unprotected and used by another charity. Not only might there result public confusion over the identities of the two charities, but a future check that might have been intended for the first charity using the name might end up in the account of the second charity. If the check is related to a bequest or other planned gift, this could be a very costly mistake.
Purpose Statement Change
The nonprofit corporation must include a purpose statement in its Articles. This purpose statement serves to limit the activities of the corporation and overrides any conflicting purpose statement in the bylaws or other corporate communication. It also impresses upon all of the assets of the corporation a charitable trust, practically imposing a purpose restriction on all of the assets while such purpose statement is in effect.
If a corporation feels unnecessarily constrained by the purpose statement in the Articles, it may choose to amend its purpose. This is not an uncommon occurrence, particularly where the corporation initially included a very specific purpose statement beyond which the corporation has evolved or expects to evolve.
In order to maintain maximum flexibility, a corporation’s specific purpose statement may be extremely broad. For example, the Articles might be amended to provide for a specific purpose that is charitable, educational, and scientific, within the meaning of Section 501(c)(3) of the Internal Revenue Code. Such broad purpose statement might cover any future activities of the corporation as it continues to evolve. We’ve previously written about the purpose statement in nonprofit articles of incorporation here and here.
Certificate of Amendment
The easiest way to amend the Articles is to draft, adopt, and file a Certificate of Amendment of Articles of Incorporation. For a name change only, the Secretary of State offers a simple form that can be used.
A Certificate of Amendment may be appropriate for minor other changes. However, the corporation must be very careful to ensure that the Certificate of Amendment is attached to the Articles so everyone knows that they must be read together to know what the Articles, as amended, provide. If the Articles are read alone, they will look complete, but the reader may have no idea that at least one provision has been amended. If the Articles (without the Certificate of Amendment) are included in a representation in a contract, the corporation may find itself immediately in breach.
If a corporation, over its history, makes additional amendments, it may find itself with Articles and multiple Certificates of Amendment. Reading a corporation’s Articles, as amended, can be daunting where there are multiple amendments, sometimes to the same article or section of the original Articles. This is when a corporation may be encouraged to adopt Restated Articles instead of a Certificate of Amendment.
Unlike a Certificate of Amendment, which must be read together with the Articles, Restated Articles replace the original Articles as of the date they are filed. Accordingly, they are generally much easier to read, which helps to better assure compliance and may make it a little bit easier to engage in deals requiring another party’s due diligence of the corporation’s governing documents. For a significant change in the purpose statement, we typically recommend using Restated Articles rather than a Certificate of Amendment.