What is a 'Corporate Charter'

A corporate charter — simply referred to as "charter" or "articles of incorporation" — is a written document filed with a U.S. state by the founders of a corporation detailing the major components of a company such as its objectives, its structure and its planned operations. If the charter is approved by the state government, the company becomes a legal corporation.

BREAKING DOWN 'Corporate Charter'

The creation of corporate charters is the start to building a new corporation. Corporate charters signal the birth of a new company. Once filed and approved, a corporation becomes legitimate and legal. The document must be created and filed before the corporation starts business transactions. If the corporate charter is not created before the business starts business transactions, the owners of the corporation expose themselves to risk, including being personally liable for all the possible damages and debts created by the business during the period that the corporation transacted business without a legitimate corporate charter.

Parts of the Corporate Charter

At the most basic level, the corporate charter includes the corporation's name, its purpose, whether the corporation is a for-profit or nonprofit institution, the location of the corporation, the number of shares that are authorized to be issued, and the names of the parties involved in the formation. Companies' corporate charters are filed with the state secretary in which the corporation is located. Typically, the creation of corporate charters has no fees.

Some government websites provide templates for corporate charters. However, some businesses still opt to consult and hire business lawyers when creating and filing corporate charters to provide more legitimate and favorable legal business documents and environments.

The state in which the corporation is headquartered in has particular requirements pertaining to the parts of the corporate charter. Some states require the inclusion of "Inc." or "Incorporated," depending on the specific type of corporation. It also includes the name of the authorized agent. No matter where the business is located, a corporation must have a designated registered agent who serves as the authorized receiver of important legal documents for the corporation.

Corporations must provide the reasons why they were built. This part includes what the corporation does, what industry they are in and what type of products and services they provide.

Aside from providing a designated registered agent, the corporate charter must also include the names and addresses of the corporation's founders, corporate officers, and initial directors.

Also, corporations that are designated as stock corporations must provide the specific number of stock shares and stock prices for its initial public offering.

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