Introduction

The Charter, also called a Certificate of Incorporation, has many important terms about your company. 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
Amending your Charter

What is a Charter?

The Certificate of Incorporation, also called the Charter, is a legal document that serves as a license for the formation of a company or corporation. The Charter is a fundamental part of a corporation’s constitutional framework and include important details such as the company’s name, purpose, the type of company (e.g. C-Corp), the company incorporator, and details on the type of stock the company has authorized to issue. Below is an excerpt from an example Charter filed with Delaware.

Finding Your Most Recent Charter

Each time a Charter is filed with Delaware, the Secretary of State will stamp the document as in the example below. This stamp is a signal that Delaware has seen and accepted this document. The stamp will likely be in the upper right- or left-hand corner of the first page of your Charter.

Look at the Filed date to find the most recent copy of your Charter. If you're not sure that you have all versions of your Charters, you could contact your lawyer if they handled the initial filing, or you can contact the Delaware Secretary of State office directly.

What's in Your Charter?

In addition to the equity information, the Charter typically includes information about the formation and management of a company. In Fidelity Private Shares, there is key information related to your equity that is located 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 a total of $1 for their 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 define the total number of shares that can be issued for a specific share class. To learn more, read our post, Authorized Shares: Where Do They All Go? Below is an example for a company that only has Common Stock issued.

When a company plans to raise funds, the Charter is typically amended to authorize the new shares related to the financing. The example below shows the authorized amounts for the Series A Preferred stock classes. See this article for more information on Equity Financing in Fidelity Private Shares.
Liquidation Preferences dictate the payout to your stockholders in the case of a company exit (such as a merger or IPO). These terms can include liquidation multipliers, conversion ratios, participating preferred preferences, and the order in which the share classes are paid out. See our Next Round Planner article for more information about the liquidation preferences.

Classes of Stock

Private companies typically issue two types of stock: Common Stock and Preferred stock. Common Stock acts as the building blocks of your company's ownership and is used as the baseline when calculating your company's Fully Diluted ownership percentages (see this blog post about Company Ownership to learn more about Fully Diluted and Company Ownership calculations.)

Preferred Stock typically is reserved for investors and issued during an Equity Financing. Preferred Stock usually has preferential terms that can potentially turn into a larger return on investment for the stockholders. Details about both Common and Preferred stock can be found in the Charter. To read more about classes of stock, check out our article here.

Amending Your Charter?

When significant changes have happened or are planning to happen, you may need to amend your Charter to reflect these changes. This can include events such as:

Increasing or decreasing the authorized amounts of a stock class.
Adding a new stock class, such as during an Equity Financing.
Editing the terms of an existing stock class.
Stock splits.
Reflecting a company name change.

When there is a change that will require you to amend your Charter, you will need to notify the State of Delaware and pay a fee to the state in order to officially amend and restate your Charter. There are some workflows in Fidelity Private Shares that can generate the amendment form, but it is your responsibility to file the amendment directly with Delaware. If you are unsure if an amendment is necessary, you may wish to speak with your legal counsel.

Additional Resources

Par Value vs. Fair Market Value

The Incorporation Workflow Step-by-Step

Stock Classes

Screenshots and sample scenarios are for illustrative purposes only. Third parties mentioned and Fidelity are not affiliated. Fidelity does not provide legal or tax advice.

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