How to Change the Nature of Business for a Corporation

By Ari Mushell, J.D.

How to Change the Nature of Business for a Corporation

By Ari Mushell, J.D.

Businesses have always changed with the times. Innovation, especially through technology, contributes to these changes. New markets open, creating more competition for resources while also creating new business opportunities. These conditions require a business to adapt to the changing landscape of the economy.

Businessman and businesswoman looking into computer screen and holding papers over desk

Although you can form a business for almost any legitimate purpose, there are restrictions regarding what your business may do. As such, if your business wants to change its nature for other opportunities, you should follow this two-step process.

1. Change the business purpose.

When you incorporated your company, you filed articles of incorporation, sometimes called a certificate of incorporation, with the local Secretary of State. Among other things, the articles of incorporation included a business purpose for your company. If you don't have a copy of the articles of incorporation, you can retrieve one from the Secretary of State's office.

If you change the nature of your business and the new business purpose is different than the original stated in the articles of incorporation, you must amend the articles of incorporation. Each state has a process for amending and refiling articles of incorporation and charges an applicable fee.

In some states, it is permissible for the articles of incorporation to state a general business purpose. This means that someone incorporating a business can file a clause stating that the business purpose is for "all lawful business." In this case, you do not need to amend the articles of incorporation because this broad designation includes the new nature of the business.

Note, however, that even if your business is in such a jurisdiction, many articles of incorporation will state a specific business purpose. Even if a business operates in a state that allows general-purpose businesses, articles of incorporation that state a specific purpose require amendment when the corporation changes that purpose.

2. Amend the bylaws.

The company's bylaws must also reflect the new nature of the business. A company that acts beyond its given capacity commits an ultra vires act, which is a Latin phrase for corporate action beyond its limitation. Ultra vires actions may be void.

To amend corporate bylaws, you should review the articles of incorporation and the operating agreement for an amendment procedure. It may require a vote by the board of directors or a proscribed number of shareholders.

Once the amendment process is complete, draft language that clearly addresses the change. Provide language that sets forth the new nature of the business without any gray area.

Be sure to keep copies of the amended articles of incorporation and bylaws and file them in a secure place.

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