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Forming a Corporation: The Corporate Charter

what's up guys Jack Shelton here in this

video I'm going to briefly discuss how

to form a corporation by filing a

corporate charter and I'm gonna discuss

what goes into a corporate charter now

I'll discuss this from the perspective

of Tennessee corporations the rules that

I'm going to discuss in this video apply

to a lot of different states but I have

to pick one state to be specific so

we'll go with Tennessee let's get

started alright the first document that

actually creates the the corporation is

called a charter in Tennessee we call it

a charter in some states it's called

Articles of Incorporation

either way whatever you call it is the

same thing it's the document that forms

the corporation in Tennessee its Charter

must include certain things and this is

pretty standard regardless of what state

you're in corporate name and there's

certain rules about the corporate name

usually you're going to have to have

something at the end of the name it has

to be for example law office of Jack

Shelton Inc or corporation or Corp or

incorporated usually you have to have

some kind of tag like that on the end of

a company's name next you have to

describe the number of shares authorized

now the number of shares authorized

isn't necessarily the same as the number

of shares that actually get issued we'll

talk about that later classes of shares

authorized you always have to have at

least one class that is common stock

where the stock represents both

financial rights in the company and

voting rights you can also have other

classes of stock for example preferred

stock in many cases a corporation will

issue preferred stock and with preferred

stock the people who own the preferred

stock will have a superior right it's

the common stockholders in case the

corporation has ever liquidated you have

to have the name and address of the

incorporator now the incorporator is

just the person who files the Charter at

the Secretary of State's office in many

cases I act as the incorporator for my

clients that's not necessary sometimes

they just do it on their own

address of the principal place of

business often if a company is just

getting started they don't have a lease

yet so they will put somebody's

residence as the principal place of

business but very often since this is a

public document they don't want to do

that so they might get a street address

from the Postal Service or UPS store or

they can get a Regis office or we work

office or some other co-working space

like that if to have the name and

address of a registered agent you know

you might have seen this in movies

before where somebody gets sued and

somebody called a process server brings

them the lawsuit in paper form and hands

it to them and says you've been served

now a corporation isn't a person

obviously so somebody has to be that

person who gets served and in many cases

that person is the registered agent

every corporation must have registered

agent sometimes we designate a person

there are also certain corporations

certain companies that act as

professional registered agents and so

you can google those pay them a monthly

fee and they'll act as registered agent

for you also typically are gonna have to

have a statement of whether the

corporation is for-profit or

not-for-profit now you have a lot of

things that you may include in a charter

and typically you can include just about

anything you want but here's some common

things first a list of the initial

directors and Tennessee this is

something that you may include that you

don't have to include again a lot of my

clients don't like to put much

information that identifies people in

this document because it is a public

document and sometimes they just don't

want that information out there often we

put a provision that limits the

liability of directors so for example if

you have shareholders that come together

and they think that one of the directors

has done something not in the best

interest of the corporation they might

decide to sue that director well if you

have a provision in the Charter the

directors might have their liability

limited the corporation might have to

pay for that directors defense

and pay for any liability that the

director ends up owing but these kinds

of paragraphs have limited effect and

you have to actually look at the state

statutes in each case to see to what

extent the directors liability can be

limited we also have pre-emptive rights

so for example you have a class of

shareholders and the corporation decides

this going to issue more shares to

outsiders well the current shareholders

might want to have a right of first

refusal essentially where they can say

all right if you're going to issue more

shares we don't want our ownership

interest to be diluted so we have

pre-emptive rights we can purchase those

newly issued shares before any outsiders

do next we have cumulative voting for

directors ok what does this mean

so shareholders get to vote for the

directors who govern the corporation and

they get to vote the number of shares

that they have so let's say that there

are 100 shares outstanding and I'm a

shareholder and I have 20 shares now

under the normal scenario let's imagine

that there are three different board

seats that are up so if I have 20 shares

for each of those board seats I get to

vote 20 shares so in each instance I'm

voting 20 shares out of a hundred I

really only have 20 percent of the vote

I'm gonna have to get other people on

board with me if I want to get my person

in elected as the director under a

cumulative voting system however I have

the option of instead of voting 20

shares 20 shares 20 shares for each of

those three directors I can accumulate

all of my votes and for the first

director I can vote 60 shares and then I

just don't have a vote for the second

and third directors that might be really

important to me if I want to be able to

make sure that I get at least one of my

people voted in now of course all of the

other shareholders get to accumulate

their votes also but this gives me more

of an opportunity to

really push all of my votes in favor of

somebody that I like

finally a charter can include really

just about anything you want it to but

those are the things that we typically

put into a charter very often in bylaws

we we make the vote to change a charter

a supermajority as opposed to a majority

so we really tend to restrain the number

of things that we put into a charter but

those are the typical things anyway

that's it for this video I'm going to

put together several more videos all

about setting up a corporation in

corporate governance check me out at

Jack Shelton law comm if you have any

questions thanks a lot