Definition of Business Charter
Business charter refers to a written document filed with a government agency 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.
When a company incorporates in the United States,it must prepare a document that describes its intents as a business,its structure and its operational procedures. This is its corporate charter.To get permission from the state government to incorporate,the company must submit the corporate charter to the Secretary of State's office.After reviewing the corporate charter and other information,the state will decide whether or not to allow the company to exist as a corporation.
Normally,the details of a charter will vary based on specific regulations and the size of the company.However,at the most basic level,the charter will include the corporation's name,its purpose,and the number of shares that are authorized to be issued and the names of the parties involved in the formation.This is generally the first document in the life of a corporation.
A set of formal documents filed with a government body to legally document the creation ofa corporation.Articles of in corporation must cont a in pertinent information such as the firm's name,street address,agent for service of process,and the amount and type of stock to be issued.Articles of incorporation are also referred to as the“corporate charter,”“articles of association”or“certificate of incorporation.”
In the United States,most states also require the articles to state the firm's purpose,though the corporation may define its purpose very broadly to maintain flexibility in its operations.Amazon's certificate of incorporation,for example,states that the corporation's purpose is“to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.”Other provisions outlined in a company's articles of incorporation may include limitation of directors'liability,actions by stockholders without a meeting and authority to call special meetings of stockholders.Each state has certain mandatory provisions that must be contained in the articles of incorporation and other optional provisions that the company can decide whether to include.The corporation also must pay the state a fee to incorporate and may have to pay a corporate franchise tax as well.
For American corporations,articles of incorporation are filed with the secretary of state in the state where the business chooses to incorporate.Some states offer more favorable regulatory and tax environments and,as a result,attract a greater proportion of firms seeking incorporation.For example,Delaware and Nevada attract about half of public corporations,in part because of the tax advantages they offer,and also because shareholders,directors and officers aren't required to be residents in these states.
Another key corporate document is the bylaws,which outline how the organization is to be run.Bylaws work in conjunction with the articles of incorporation to form the legal backbone of the business.
1.1 Necessity
A corporation is a type of business structure that,because of its complexity,can easily become a medium of corrupt and illegal business practices.For instance, someone could conceivably create a fake company and sell stock to investors with no intentions of using that money to build the business.Someone else might convince investors that he wants to start a corporation when,though having good intentions, he has very little idea of what he is doing and will only end up wasting investors' money.State government,therefore,make founders of corporations apply for incorporation and show that they have the ability and intent to create a legal and honest opportunity for investors to become part of a potentially successful business.
1.2 Aspects
A corporate charter must include basic corporate information such as the names of founders and key individuals,the type of business in which it will engage and the location of its office.The corporate charter must also declare the types of stock that the corporation will offer.The main question in that regard is how much preferred stock to offer with the common stock.Preferred stock is stock that comes without voting rights in the company but with a guaranteed level of dividend payment from the company.The corporate charter must also stipulate who has what voting rights in making corporate decisions.
1.3 Associated Fees
Most states require filing fees to process corporate charters and applications for incorporation.These fees vary from state to state,but they usually amount to hundreds of dollars.If you do not pay these fees,the state will not process your corporate charter.