Charter

Charter (also known as 'Articles of Incorporation' or 'Corporate Charter') A company's charter is its foundational legal document, its official birth certificate. Filed with a government authority (like the Secretary of State in a U.S. state), this document formally creates the corporation and grants it the right to exist. Think of it as the constitution for a business, laying down the fundamental rules and structure before a single share is sold or a single product is made. It establishes the company's name, its purpose, the location of its main office, and, crucially for investors, the maximum number of shares it is allowed to issue—its Authorized Shares. The charter also defines the different types of stock the company can offer, such as Common Stock and Preferred Stock, outlining the rights and privileges associated with each. While often seen as dry legal paperwork, this document contains the essential DNA of a corporation, and savvy investors know it can hold valuable clues about how a company views its shareholders.

Just as a person’s birth certificate records their name, date of birth, and parents, a corporate charter outlines a company’s essential identity. It's the primary source of governance, setting the stage for all future corporate actions. While the specifics can vary by jurisdiction, most charters contain the following key pieces of information:

• Corporate Name: The official, legal name of the company.
• Purpose: A statement describing the business the company will conduct. This is often written very broadly (e.g., “to engage in any lawful activity”) to give the company maximum flexibility.
• Stock Information: This is the most critical section for investors. It specifies the total number of shares the company is authorized to issue and breaks it down by class (e.g., common vs. preferred). It details the voting rights, dividend rights, and other features of each class of stock.
• Registered Agent and Office: The official address and designated person (or company) for receiving legal notices.
• Incorporators: The names and addresses of the people who originally filed the charter to form the corporation.

For a value investor, a company isn't just a ticker symbol; it's a piece of a business. The charter is the rulebook that governs your ownership in that business. Ignoring it is like buying a house without reading the deed. It reveals the balance of power between management and shareholders, and can often wave bright red flags—or green ones—about the company's governance.

Buried in the legal jargon of the charter are provisions that can significantly impact your investment. These clauses determine how much say you have, how protected your ownership stake is from dilution, and how easily a lazy or incompetent management team can be replaced. A shareholder-friendly charter is a good sign that management respects outside owners, a core tenet of good capital stewardship. Conversely, a charter loaded with defensive measures can suggest that management is more interested in protecting their jobs than in creating value for shareholders.

• Share Structure: Pay close attention to the authorized share count. A massive number of authorized but unissued shares gives management a blank check to issue more stock in the future, potentially causing significant Share Dilution and reducing the value of your existing shares. Also, look for a Dual-Class Share Structure, where founders or insiders hold “super-voting” shares. This structure allows them to maintain control without a majority economic stake, a setup that legends like Warren Buffett have famously criticized for disenfranchising ordinary shareholders.
• Anti-Takeover Defenses: Does the charter include provisions designed to fend off unwanted buyout offers? Clauses like a Staggered Board (where only a fraction of directors are up for election each year) or rules that enable a Poison Pill can entrench underperforming management, making it difficult for shareholders to force a change in strategy or leadership.
• Voting Requirements: Check what it takes to approve major corporate actions like a merger or an amendment to the charter itself. Some charters require a Supermajority vote (e.g., 67% or 80%) instead of a simple majority. While this can protect against rash decisions, it can also make it nearly impossible for shareholders to challenge the status quo.

Thankfully, you don't need a law degree or a private investigator to find this document. Corporate charters are public records. The easiest place for investors to find them is in a company's regulatory filings. When a company goes public, it must file its charter with the SEC. It is typically attached as an exhibit to the company's annual report (Form 10-K) or its registration statement (Form S-1). You can find these for free on the SEC's EDGAR database. It might take some digging, but the insights you gain are well worth the effort.