What Is a Corporate Charter: Everything You Need to Know
A corporate charter also called a charter or articles of incorporation, is a composed record that the creators of a corporation file with the US state.3 min read
What is a corporate charter? A corporate charter, also called a charter or articles of incorporation, is a composed record that the creators of a corporation file with the applicable US state.
Introduction of a Corporate Charter
A corporate charter contains the following information concerning a corporation:
- Planned operations
While many state laws vary regarding the founding of corporations, the requirements concerning a corporate charter are usually very similar.
The establishment of a corporate charter signifies the beginning of a corporation because once a charter receives state government approval, the business is officially a legal entity.
The purpose of a corporate charter is to publicly launch a new corporation.
Comparatively, a certificate of formation is used to create a limited liability company or LLC.
A limited liability company is officially established after the certificate of formation is provided to the applicable secretary of state.
Prior to making any business transactions, a corporation must verify that the corporate charter document has been filed.
Also included in a corporate charter is simple information such as:
- Profit or nonprofit label
- Board member information
- Ownership information
In contrast to corporate bylaws, a corporate charter does not establish guidelines for a business's daily activities.
When filing the corporate charter, founders must send it to the secretary of state in which the company is located and include payment in the amount of the applicable fee.
While simple corporate charter forms are usually available online through many state governments' websites, some founders prefer to utilize a professional attorney who can assist in determining the best state for incorporation.
If a company begins business transactions prior to filing its corporate charter, the owners of the business become potentially liable for any destruction and debt affiliated with transactions preceding approval of the charter.
A corporate charter also assists in declaring the fundamentals of a company such as the operations the company plans to begin once it is approved.
A corporate charter also provides a company the right to partake in activities that are allowed according to the applicable state laws.
If the founders of a corporation choose to complete a corporate charter without the assistance of an attorney, they can locate the form online and have it filed in a relatively short amount of time.
Sections of a Corporate Charter
At a minimum, a corporate charter must include the following:
- Corporation's name
- Corporation's mission
- Classification of profit or nonprofit
- Corporation's location
- Amount of approved shares to be issued
- Names of individuals included in the incorporation
As mentioned previously, some corporate charters include a filing fee; however, most states do not charge to file.
Additional benefits to those mentioned previously concerning the use of a lawyer in creating a corporate charter include:
- More legally accurate documents
- Better business environments
While general information is typically uniform from state to state, some states have specific requirements concerning various sections of a charter such as:
- Including Inc. or Incorporated in the name
- Including the name of the legal agent
Regardless of location, a corporation is required to appoint a registered agent to act as the legal recipient of any significant legal documents.
The section providing the corporation's purpose must also include the following:
- Activities of the corporation
- Industry details
- Type of goods and services provided
The names of the individuals involved in the incorporation of the business should include the following titles:
- Corporate officers
- Original directors
The section that provides the number of authorized shares to be issued must also include the stock price for the initial public offering or IPO.
A corporate charter is often mistaken as an extra tool used in addition to the articles of incorporation; however, a corporate charter, and the articles of incorporation are actually the same legal document.
Corporate Charter and Business Registration
Each type of business entity requires distinct documents that must be filed with the applicable state agency in order to register the business.
For example, a limited liability company and a corporation are considered different types of business entities; therefore, they have different legal documents that must be submitted to the secretary of state. Once these legal documents are filed, both entity types become legally established.
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