What Is the Difference Between a Corporate Charter & a Certificate of Formation?
A corporate charter is a public document that establishes the existence of a corporation. A certificate of formation is a document that establishes a limited liability company. Once the certificate of formation is filed with the secretary of state, a limited liability company is formed. Once a charter is approved by the state corporation commission, a corporation is formed.
There are different documents required to register different types of business structures with the appropriate state agencies. Statutes differ regarding the requirements to form different business structures, when companies are formed pursuant to state laws. A corporation and a limited liability company are two separate types of business entities, and different formal documents must be filed with the secretary of state to register the businesses under specific business structures. Once established, both types of businesses exist as legal entities.
A corporation exists independently from its shareholders, directors, officers and employees. A corporation can enter into contracts, own property and be a party to a court proceeding. The corporation’s charter establishes its existence as a legal entity. Pursuant to state statutes, when the application to form a corporation is approved, the state corporation commission grants the charter to the company’s incorporators.
A limited liability company is similar to a partnership, but the owners are protected from being personally liable for the debts and liabilities of the business. The owners can participate fully in the management activities of a limited liability company and receive the same protections as shareholders in a corporation. When a certificate of formation is filed with the secretary of state, the owners may operate their business in the state as a registered limited liability company.
Corporations and limited liability companies are both formed under state laws. The provisions that must appear in a charter and a certificate of formation may vary from state to state, but there are minimum provisions required for each type of document. A corporate charter must include the name of the incorporators, the legal name of the corporation, the address of its principle place of business, and the address of the corporation’s resident agent. A certificate of formation must include the legal name of the limited liability company, the name and address of the individual executing the certificate of formation, the address of its resident agent, and the principle place of business. Both documents must include the duration and purpose of the business. The charter must also include the number of shares of stock, the bylaws, and the names and addresses of the board of directors.