Owning a business, a company, or an organization in a particular location involves a legal process. The Entrepreneur needs to follow specific registration policies and procedures stipulated by a government. It ensures that the Entrepreneur remains compliant with state legislation and will reduce litigation risks in the future. Failure to comply with government rules and regulations leads to prosecution and imprisonment. Let us know more about that the charter in business-know more.
A Charter is a document that bestows power and authority over a specified entity. In business, this document is a corporate charter. The owner acquires it through a formal registration process. He has to meet specific criteria before getting approval to operate a company. The document serves as a confirmation that the registrar of companies approved the establishment of a corporation. The registrar of companies works under the government and is responsible for business and company registration in a given country or state. Let us review the contents of this document to understand its significance in a business.
Contents of a Corporate Charter
Name of Legal Entity
It refers to the business name or incorporation name. All business entities have a unique name for identification and distinction from another. The name may be associated with the nature of business or business activities it will be undertaking. Once they identify the preferred business, title there is submission to the registrar of companies for a system search to establish its uniqueness. It is essential to ensure that no other entity has already taken up this identity. Sometimes, the name selected by the business owners will be available for use immediately, while in other cases, they make several trials to obtain a “free name.” This process is chargeable by the Registrar of Companies. The owners directly do it, or they can contract the services of a legal professional. The owners receive a “grace period” to take up the “free name” once secured. If this period expires before booking, the government agency removes it from their database. As a result, any other applicant who happens to submit this “free name” is eligible for registration. Business owners should initiate the incorporation process as soon as they secure the “free name.”
Ownership
It refers to the identity and contact details of the founders, directors, and senior officers representing the corporation in business operations. They have to be willing to take up the responsibility of operating the business entity as their own; the registrar of companies should receive the details of these people. These details are the person’s name, physical address, postal address, phone number, email, taxation number, and identification card number. The details are also necessary for vetting by the registrar of companies. The requirements may vary depending on the company location and organization type.
Authorized Agent
It refers to the central contact person appointed by the company owners for inquiries and challenges. The role of this person under the law is to receive important legal documents for the corporation. The company owners can assign additional roles as they deem fit. The person is required to submit their identification and location details similar to the requirements of owners. These details allow vetting by the registrar of companies and include the person’s name, physical address, postal address, phone number, email, taxation number, and identification card number. These requirements may vary from one state to another and from one organization to another.
Corporate Governance
It refers to a company’s chain of command necessary in performing duties and business operations. It is a hierarchical structure referred to as an organogram. It provides the flow of power and authority within a company. It also displays categories, groups, or clusters of duties and responsibilities. It describes the interrelation between the various officeholders. It also describes the flow of power and authority through the hierarchy. The structure helps owners ensure that there is transparency and accountability in their business operations. It will improve the effectiveness and efficiency of the business operations. It will reduce the workload for the business owners due to delegation. It will enhance compliance and reduce risks due to job specialization.
Shareholding
It is the ownership ratio or percentage of a company assigned to each director. There is allocation based on the capital contributed by each of them in a company’s formation. The ownership ratio or percentage may be equal among the directors, or some will have a higher rate. It implies that the director with a higher rate will have more liability in case of disputes or litigation in the future. It affects the decision-making process, where the director with the most shares has more influence and privilege in the choice of action to take.
Corporate Stocks
Companies are either private or public. Corporate stocks apply to public listed companies, and it refers to company investments traded at the stock exchange or stock market. It is a source of revenue for a company, which are securities and equities. Company shares are broken down into stocks and offered at a price to investors, employees, and public members. The value of stock fluctuates at the stock market due to various reasons like positive or negative publicity. Stockbrokers buy and sell corporate stock on behalf of investors, employees, and public members. He monitors the performance of a given company’s stock at the stock market and advises his clients accordingly.
Business Classification
It refers to the source of revenue or revenue status. The registrar of companies categorizes companies as profit or non-profit making entities. Business owners need to declare their revenue status in advance. It goes back to the strategic plan they developed, which describes the reasons for a company’s inception. Profit-making companies are entities that generate income by selling products and services. They are required to pay taxes because they generate revenue and make a profit. A non-profit making company aims at improving living standards in society. They do not generate income, and they are tax-exempt.
Location
It refers to the physical address of a company as it conducts official business activities. It describes the actual geographical region, street, and building where the business is in case consumers want to reach them for products or services. This location has to be conducive for business activities. The environment needs to be safe and secure for both the personnel and clients. The property owner registers a business location legally if they are leasing it out or by a company if they own it. Local government authorities in a given jurisdiction facilitate the registration of the business location and issue a business permit to the respective entity. It ensures compliance with approved standards on residency and occupancy.
Core Business
It is the nature of business undertaken by a company. The focus here is on the sector and industry under which a company will offer its products or services. The economy (national, regional, or international) has three distinct business sectors these are primary (raw materials), secondary (manufacturing), and tertiary (services). The business industry is composed of several companies with similar primary operations like tourism, telecommunications, transport, information technology, construction, and education, among others.
Products and Services
These are items and expertise, which the company will offer customers and clients at a fair market price. Products refer to goods and assets, while services refer to professional skills and knowledge in an area of specialization such as teaching, engineering, and farming, to mention a few.
Operations Period
In the finance and accounting fields, the assumption is that a business entity will continue to operate indefinitely or at least for another twelve months. These are the principles used to determine the duration of company operations. Tax agencies expect annual returns, and a company’s financial year is cyclical.
Conclusion
All business entities must carry out their activities in compliance with state and industry-specific standards. Entrepreneurs need to familiarize themselves with relevant policies and procedures before setting up a Company. It reduces litigations and risks in the future. The corporate charter is an essential and mandatory inception document for any company. The registrar of companies issues this document when a company meets all the legal requirements. The registrar of companies implements these rules and regulations to protect entrepreneurs and public members from criminals while conducting business activities. Anytime you are in doubt concerning a company’s registration process or requirements, seek guidance from business consultants, legal professionals, and government agencies. In the past, there have been reported cases involving illegal entities that stole large sums of money from unsuspecting public members and entrepreneurs, hence the need to be extra vigilant in any trading process.
Frequently Asked Questions
- What are the other names of a “Corporate Charter”?
The other names are “Memorandum of Association” or “Articles of Incorporation” in other quarters.
- What is the difference between “Articles of Association” and “Memorandum of Association”?
The former describes the operational rules and regulations of the corporation, while the latter describes the scope and authority of the corporation.
- Explain the term “Stock Exchange” and give other names for it?
The other names are “Securities Exchange” or “Bourse.” It is a place where companies trade their equities and securities. The government regulates its activities.
