Your charter, also called a Certificate of Incorporation, has many important terms in it. Among them are par value, number of authorized shares, and information about your stock classes.
- What is a Charter?
- Finding Your Most Recent Charter
- What's in Your Charter?
- Classes of Stock
- When, Why, and How Do You Amend Your Charter?
What is a Charter?
The Certificate of Incorporation (aka Charter) is filed with the State of Delaware (assuming you're a Delaware company). It states what kind of corporation you are (LLC, C-corp, etc.), who the incorporator is, the authorized shares, par value, and number of stock classes the company has.
Finding Your Most Recent Charter
Your charter will have a stamp from Delaware on it. This stamp is a signal to everyone that Delaware has seen and accepted this piece of paper. The stamp will likely be in the upper right or left hand corner of the first page of your charter. It doesn't look very remarkable- it's just a few words in 5 lines that says, "Line 1: State of Delaware. Line 2: Secretary of State. Line 3: Division of Corporations. Line 4: Delivered [DATE] Line 5: FILED [DATE]." It will not actually say "Line 1," but you get the idea.
To find your most recent charter, you'll look through your charters and find the one that has the most recent "FILED" date. If you're not sure that you have all of your charters, you can either contact your lawyer if they filed or contact Delaware and ask them.
What's in Your Charter?
- Par value is the lowest amount for which a share of stock could be sold pursuant to state law. For example, if a founder wants to buy 10,000 shares of stock and the par value is $0.0001, then the founder will pay $1 for stock. For this reason, par value is usually set at a very small number. Learn more about par value in our blog post entitled Par Value: More Than Zero.
- Authorized Shares are the maximum number of Common shares that the company may initially issue. To learn more, read our post, "Authorized Shares: Where Do They All Go?"
- How to Find Par Value & Authorized Shares: Below we've put an example charter with authorized shares ("10,000,000") circled. We've also circled the "Par Value" which is $0.0001 in this case:
Classes of Stock
To read more about classes of stock, check out our article here.
When, Why, and How Do You Amend Your Charter?
- If you grant all of your authorized shares, then you'll need to amend your charter so that it allows for more authorized shares.
- If you have had a financing, you'll usually not only have common shares but also preferred shares. This will also require amending your charter. This is one of the few times in your company's legal lifecycle that changing your company documents actually requires you to notify the State of Delaware. You must send your amended charter to Delaware and pay a fee to the state in order to officially amend your charter.
Additional Resources:
Par Value v. Fair Market Value
The Incorporation Workflow Step-by-Step
Screenshots and sample scenarios are for illustrative purposes only.
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