How to Change the Nature of Business for a Corporation

by Jeff Clements
Companies are generally free to pursue any legal purpose.

Companies are generally free to pursue any legal purpose.

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A corporation is an independent legal entity that is formed under state law and managed by a board of directors. Although it is usually formed to pursue a given business objective, it is ordinarily not limited to a specific business purpose and is free to enter various industries. Nonetheless, restrictions can be placed on a corporation, but they can be changed or removed later if necessary.

Corporate Formation

A corporation is formed by filing articles of incorporation with the state business authority. Most states allow corporations to be formed for any legal purpose and conduct any sort of business without specifying any limitation in their articles. However, the law does give incorporators the right to specify a specific business purpose, if the initial shareholders so desire. This is common for nonprofits that wish to obtain tax-exempt status as a recognized charity with the Internal Revenue Service or for institutions, such as banks, that may be required to have specific regulatory approval in their charter.

Articles of Incorporation

If such a limiting purpose is contained in the articles and the corporation wishes to change the nature of its business, the articles must be amended accordingly. Amending the articles requires reference to the corporation's bylaws and an authorizing vote, either by the board of directors or shareholders. Amended articles ordinarily must be filed with the state to take effect and once filed, become public record.

Corporate Bylaws

Another way to limit a corporation's business activities is to place the limitation in the corporation's bylaws. The bylaws govern the internal affairs of the corporation, including the nature of the business of the corporation. As with the articles of incorporation, corporate bylaws may be amended by the board of directors -- or shareholders, depending on the corporation -- to change or remove an existing limitation of purpose.

Amending Bylaws

If the limitation is in the bylaws, the bylaws must be amended. Amending the bylaws is an internal process that is governed by the procedures specified in the most recent version of the document. The bylaws typically allow amendment by a vote of the board of directors. Sometimes, bylaws will classify a change of the corporation's purpose as significant enough to require a majority vote of the shareholders of record.