Eric Save, Partner at K&L Gates LLP explains why you need a certificate of incorporation.
Eric Save is a corporate/M&A partner in the firm’s San Francisco office and a member of the firm’s Latin America practice. He has represented clients with respect to a broad range of matters in Mexico, Brazil and other parts of Latin America, including cross-border M&A transactions, joint ventures, venture capital investments, start-up company matters, investments in energy and mining projects, secured lending transactions, and the establishment or sourcing of operations in the region.
What is a certificate of incorporation?
The certificate of incorporation is the document that creates your entity. Under Delaware law or under California law, wherever you're going to incorporate, whoever laws you choose to incorporate your entity, the way that you incorporate is by filing this certificate of incorporation with the Secretary of State in that state. In some states it's called something different, the Articles of Incorporation, if it's a limited liability company it will be called a certificate of formation, but basically it has the same purpose which is to bring into existence your entity as an entity incorporated under the laws of that state. And so typically, a certificate of incorporation that's filed say in Delaware, will be a very short document, it doesn't have a lot of detail. It will state for example, your registered address in the state where your incorporating, the agent for service of process in the state, and how many shares that company is authorized to issue, the par value, which is sort of the nominal or symbolic value of the shares. Sometimes they’re will be provisions about indemnification which basically means the situations where the company is permitted or required to identify directors or officers when directors or officers are sued or incur legal liabilities because of their work for the company. And a few other provisions, but it's really very basic.
It's part of, what in other countries refers to as the constituent instruments of the company, but in contrast to constituent instruments that you see in other countries, you don't have all of the provisions about how the company will be governed, that is, you know, what the powers of the board of directors will be, how the board of directors will meet, how it can act and adopt a resolution and a written consense, how the shareholders can meet and all of the other provisions regarding the governance of the company. Those will usually not go into the certificate of incorporation, those will go into a document that's called the bylaws.
In contrast to the certificate of incorporation, the bylaws you don't have to file those with the government, you don't have to provide those to the Secretary of State, in the state where you’re incorporated in. The bylaws are just a document that the shareholders of the company, the founders of the company, adopt when they form the company to say: “okay, here is how we're going to govern ourselves”. Typically the secretary of the corporation will certify that these are the bylaws that we've adopted. That will be the key governing document of the corporation going forward in terms of the corporate governance.
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