DGCL Sec. 102 - Contents of Certificate of Incorporation

The certificate of incorporation is the corporation's basic governing document. The certificate goes by different names in different states. In other states it is known as the articles of incorporation or the corporate charter, or the articles of organization. All of these refer to the same document.

The certificate lays out the basic understanding about governance of the corporation and the corporation's powers. It also limits the power and discretion of the corporation's board of directors in the management of the corporation. To the extent they comply with the requirements of the corporation law, the promoters of a corporation have the flexibility to tailor the internal governance of the corporation as well as to limit the powers of the board of directors.

The certificate of incorporation is contractual in nature. Initial stockholders have the ability, at least in theory, to negotiate the terms of their relationship with the corporation. Later stockholders take their stock pursuant to the terms of the certificate of incorporation already in place. As the corporation's constitution, the certificate may limit or define the power of the corporation and the corporation's board of directors.

Drafters of certificates have a great deal of flexibility when drafting these documents. Although most certificates are "plain vanilla" certificates that rely almost entirely on the state corporate law default rules to define the power of the corporation and its directors as well as delineate the rights of stockholders. Of course, such a minimal approach to drafting corporate documents is not required. The corporate law is "enabling" in nature. Incorporators are free to tailor the internal governance of the corporation in any way they might like, provided it does not conflict with other provisions of the statute.  

For example, some corporations, like United Holdings, the parent corporation of United Airlines, have highly tailored certificates of incorporation. United's certificate, available in the appendix, regulates the relationships between stockholders and the corporation as well as among stockholders. In the case of United Airlines, the certificate limits the percentage of foreign stockholders to no more than 24.9% of the total stockholding.  This limitation on foreign ownership is intended to faciltate compliance with federal law that prohibits the ownership of domestic airlines by foreign stockholders.  In addition, as a result of negotiations with its unions over pay in the mid-1990s, unions were granted a special class of stock that accounts for 55% of the company's total stock in exchange for salary reductions. The results of this negotiation are reflected in the company's certificate of incorporation.  

DGCL §102 describes the contents of every corporation's certificate of incorporation.  Section 102 has two basic components. First, §102(a) lays out the required elements of every certificate of incorporation.  Many of the required elements relate to notice (e.g. how can the state contact responsible parties in the corporation). To the extent some of the required elements of §102 seem out of place (e.g. par value), remember they were first included in the code following the transition from discretionary charters to general enabling laws. Consequently, they may reflect a number of vestigial elements of the corporate law.

Second, §102(b) lays out the optional elements of every certificate of incorporation. Many of the optional elements in a certificate relate to corporate governance rights of stockholders and/or the board of directors. Section 102(b) does not generally limit promoters' ability to tailor governance structures, but it does often provide promoters with menus of options that they can choose from as they draft certificates.