Key Takeaways

  • A corporate charter (Articles of Incorporation) is a foundational document required to legally form a corporation.
  • It includes essential details like the company’s name, purpose, registered agent, and share structure.
  • Filing the corporate charter protects owners from personal liability but also subjects the business to regulatory and tax obligations.
  • Corporate charters differ by state, and some jurisdictions are considered more business-friendly.
  • Amending a corporate charter allows for changes in structure or operations, often requiring board or shareholder approval.
  • Noncompliance or failure to file a charter can lead to personal liability or dissolution of the corporation.

A corporate charter, also known as the Articles of Incorporation, is a legal document establishing the existence of a corporation. Once the charter is registered with the state in which the corporation will do business, the corporation is legally recognized.

Corporations shield their owners from business liabilities, so in the event the corporation goes bankrupt, creditors will not be able to go after shareholders' assets. However, one of the drawbacks of traditional corporations is that they're subject to double taxation: they pay taxes on business profits before they're distributed to shareholders, and shareholders pay taxes on the income separately on their personal returns.

About Corporate Charters

One misconception that some people have about corporation charters is that they're a separate document from an Articles of Incorporation. Corporate charters, in essence, “give birth” to a new corporation. The charter represents the legal creation of a corporation once the Secretary of State approves and files it.

A corporate charter outlines basic information about a corporation. Each state may have slight variations in how corporations start, but the general requirements for a charter are pretty much the same. A charter isn't the same thing as corporate bylaws, which establish the rules for a company's daily operations.

Each state typically has its own requirements about what to include in a corporate charter. While detailed requirements vary from state to state, a corporate charter usually includes the following:

  • Corporation name and address
  • Purpose of the corporation
  • For-profit or nonprofit status
  • Registered agent name and address
  • Number of authorized shares
  • Share classes and their par values
  • Corporate directors

Charter documents register the company with the state, and they're guidelines for beginning the company. After a corporate charter is officially filed, the board of directors has to hold an initial meeting. In the meeting, they must adopt governing rules for the new corporation. Stock corporations are required to provide a specific number of stock shares as well as stock prices for the initial public offering, or IPO.

When applicable, a charter transitions a business from a sole proprietorship or partnership to a corporation. There has to be a corporate designation in a company name when filing a corporate charter, such as Inc. or Corporation.

Individuals who wish to start a corporation will file the charter with the Secretary of State office. In most cases, the state charges a fee to file these documents, but nonprofits often pay a reduced fee. You can always contact the Secretary of State office in your state to get more information about requirements, rules, and fees for filing a corporate charter.

You can find a basic corporate charter template on various state government websites, but many people choose to consult business attorneys when they file because some states have more favorable business environments for corporations.

The individual writing the corporate charter should be familiar with the company's goals and startup activities. The writer should also be familiar with the laws that govern corporations in that jurisdiction.

What Happens After Filing the Corporate Charter?

After state approval, the corporation should:

  • Hold its organizational meeting to adopt bylaws, elect initial directors (if not named in the charter), and authorize issuing shares.
  • Apply for an Employer Identification Number (EIN) from the IRS.
  • Open a corporate bank account under the new legal entity’s name.
  • Register for any necessary business licenses or permits.
  • Comply with ongoing state reporting and tax filing requirements, which vary by jurisdiction.

Filing a corporate charter is only the first step—corporate maintenance and compliance are key to preserving legal protections.

Steps to File a Corporate Charter

Filing a corporate charter typically involves the following steps:

  1. Choose a Business Name: Ensure the name is unique and complies with your state’s naming conventions.
  2. Designate a Registered Agent: This individual or service must have a physical address in the state of incorporation and be available during business hours.
  3. Prepare the Charter Document: Include key elements like business purpose, share structure, and incorporator details.
  4. Submit to the Secretary of State: File through the state's online portal or by mail.
  5. Pay the Filing Fee: Fees vary by state and business type; some states offer expedited service for an additional fee.
  6. Receive State Approval: Once approved, the corporation becomes a legal entity authorized to conduct business.

Businesses may consult legal counsel to avoid mistakes and ensure compliance, especially when filing in jurisdictions with complex corporate laws.

Purpose and Legal Function of a Corporate Charter

A corporate charter serves as the official birth certificate of a corporation. Its primary purpose is to establish the corporation as a legal entity distinct from its owners. This separation grants limited liability protection, ensuring that shareholders are not personally responsible for business debts or legal claims. Additionally, the charter defines the legal scope within which the corporation can operate, laying the groundwork for governance, ownership, and operational structure.

Beyond forming the business, the charter is often required for other legal processes, such as applying for business licenses, opening bank accounts, or securing financing. In short, without a valid corporate charter, a corporation cannot legally exist or operate.

Other Considerations

The corporation's founders must create and file the charter before they start running the business. The charter establishes the basic elements of the corporation, such as the activities the business will engage in.

Corporations have to give reasons for their creation or state a purpose. For purpose, it's commonly stated in a corporate charter that the corporation will engage in lawful activities permitted by the state. This may also include what the corporation does, the type of services and products it provides, and the industry it's in.

If the corporation begins business transactions without first filing a corporate charter with the state, the corporation's owners put themselves at risk. This includes the risk of being held personally liable for business debts and damages created while the corporation conducted business without a legitimate charter.

Many people choose to begin a business in their home state because it's often less complicated to do so. However, some states have a reputation for being business-friendly, which is why many companies choose to start there. Make sure you adhere to all guidelines in the state you form your company so that you remain compliant and in good standing.

Charter Compliance and Good Standing

Maintaining compliance after filing the corporate charter is essential to preserve the corporation’s good standing. This typically involves:

  • Filing annual reports or statements of information as required by the state.
  • Paying state franchise taxes or other applicable fees.
  • Updating the Secretary of State promptly when any information in the charter changes.

Failure to comply can result in administrative dissolution, penalties, or loss of limited liability protections. Some corporations opt to register in states like Delaware or Nevada due to their favorable laws and efficient corporate filing systems, but even these require strict adherence to compliance rules.

Amending a Corporate Charter

Corporations may need to amend their charter to reflect significant changes, such as:

  • Changing the company name
  • Modifying the number or types of shares authorized
  • Updating the registered agent or business address
  • Expanding or refining the corporation’s business purpose

Amendments generally require approval from the board of directors and, in many cases, shareholder consent. Once approved, the amended document must be filed with the Secretary of State along with a filing fee. The amendment becomes effective upon acceptance by the state.

Frequently Asked Questions

  1. What is included in a corporate charter?
    A corporate charter typically includes the corporation’s name, purpose, registered agent information, stock structure, and the names of the incorporators or initial directors.
  2. How do you file a corporate charter?
    You must submit the Articles of Incorporation to the Secretary of State in the state where the business is forming. This usually includes paying a filing fee and completing a form that outlines basic corporate information.
  3. Can a corporate charter be changed?
    Yes, corporations can amend their charter by filing an amendment with the Secretary of State. Changes often require board and/or shareholder approval.
  4. Is a corporate charter the same as bylaws?
    No. A corporate charter establishes the legal existence of a corporation, while bylaws govern its internal operations, including meetings, officer roles, and voting procedures.
  5. What happens if you operate without a corporate charter?
    Operating without a charter means the business is not legally recognized as a corporation. This can expose owners to personal liability and prevent the business from accessing legal and financial protections.

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