Looking at a typical Charter filing (take Delaware's Certificate of Incorporation for example), the questions seem pretty self-evident. But even the “Company Name” section holds the potential for costly delays if it isn’t answered carefully.
We've outlined some of the trickier questions you’ll encounter on almost any Charter filing to help you save time and money down the road.
Trick question #1: The name of the company.
This seems pretty straightforward. However, making sure your company name isn’t in use is key to avoiding delays and potential infringement issues. Getting the right URL is great, but often that doesn't mean you're in the clear. The name may still be registered or otherwise have priority protection under trademark law! Do your research to get this right the first time around.
Trick question #2: The purpose or purposes of the corporation.
You might think the answer to this question is along the lines of a mission statement, or at least the company’s current product or purpose. But your answer here can limit what your company can do down the line. How can you keep this as wide open as possible? Many companies answer that their purpose is to do anything that’s lawful. One example of the way companies phrase this is to state that the purpose of the business is to, “engage in any lawful act or activity for which corporations may be organized.” That certainly can keep options open should your business pivot in the future!
Trick question #3: The total number of shares authorized for issuance.
When you’re a small company it’s hard to imagine needing more than a few thousand shares of stock, but in fact companies frequently incorporate with millions of shares of stock. Why? Having a generous pool of shares to grant to investors, advisors, and employees down the road is important. For further reading, check out our blog post, Authorized Shares: Where Do They All Go?
The par value is another important decision. 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 post Par Value: More Than Zero.
Of course, you still have to complete the rest of the form and file it, but now you can do so armed with ways to deal with the tricky questions that can otherwise trip you up!
Fidelity makes keeping track of your outstanding equity quick and easy.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.