Corporate Charter: Definition, Purpose, and Legal Requirements

Corporate Charter

Investopedia / Laura Porter

What Is a Corporate Charter?

A corporate charter, also known as a "charter" or "articles of incorporation," is a written document filed with the Secretary of State (or registrar in Canada) by the founders of a corporation. It details the major components of a company, such as its objectives, structure, and planned operations. If approved by the state, the company becomes a legal corporation.

Key Takeaways

  • A corporate charter is a document filed with the Secretary of State or registrar to establish a company as a corporation.
  • The corporate charter must detail the governance, structure, objectives, operations, as well as other major details of the company.

Understanding Corporate Charters

The creation of corporate charters is the start to building a new corporation. Corporate charters signal the birth of a new corporation. Once filed and approved, a corporation becomes legitimate and legal. The document must be created and filed before the company can transact as a corporation.

If the corporate charter is not created before the business starts, the owners 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.

A corporate charter is a document establishing a company as a corporation in the US or Canada and detailing its governance, structure, operations, and more.

Requirements of Corporate Charters

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. Corporate charters are filed with the state secretary in which the corporation is located. Typically, the state in which the company is located charges a filing fee to process the corporate charter.

Some government websites provide templates for corporate charters. However, some businesses 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 has specific requirements pertaining to the parts of the corporate charter. Depending on the type of corporation, some states require the inclusion of "Inc." or "Incorporated." The charter also includes the name of the authorized agent. No matter the location, 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 formed. This statement includes what the corporation does, their industry, 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 founders, corporate officers, and initial directors.

Also, corporations that are designated as stock corporations must provide the number of stock shares the company has the authority to issue and the par value per share.

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