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An Introduction to the Law of Corporations: Cases and Materials

DGCL Sec. 101 - Formation

A certificate of incorporation is the functional equivalent of a corporation's constitution. 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.As the corporation's constitution, the certificate may limit or define the power of the corporation and the corporation's board of directors. Drafter's 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 the Green Bay Packers professional football team, have highly tailored certificates of incorporation. The Green Bay Packers' certificate is available on the course website. Promoters of the Green Bay Packers corporation tailored the rights of shareholders so that no shareholder can expect to receive any portion of the profits of the Packers - those have to be donated to a charity - and that no shareholder can expect their shares of the Packers to have any resale value on a stock exchange - any attempt to transfer shares to someone other than a family member will result in the corporation redeeming the shares for pennies. 

In addition to permitting the corporation's promoters a high degree of freedom in the design of their internal governance mechanisms, enabling statutes upend the 19th Century view that a corporation is a special act of the state that requires legislative action. Rather, section 101 that follows below makes it clear that the filing of  a certificate of incorproation is sufficient to form a corporation. This is the essence of an enabling statute.

This subtle, but important change, is more important than you might imagine at first glance. To the extent government control over decisions about who can form a corporation and under what circumstances gives rise to incentives for corruption and generally mucks up the business environment, the switch to a bottom-up incorporation regime can be seen as a valuable contribution of the Progressive Era.