What is corporate charter revocation?

Corporations are created by state law when the state government issues a corporate charter. A corporate charter provides special benefits that are not available to citizens, such as limited liability and perpetual life. In general, grant of these privileges through a corporate charter serves the public interest because corporations promote economic growth. But in virtually every state, corporate charters are conditioned on good behavior. Some corporations abuse their privileges by repeated violations of the law. For this reason, state laws have long authorized state officials to revoke the charters of corporations that exceed or abuse their legal authority.

How does a corporate charter revocation action work?

The plaintiff must prove to a court that the corporation has exceeded or abused the authority that the state has given it. (The attorney general already has the ability to file these cases in court; the model act allows citizens and shareholders to do the same, though they must meet the specific threshold of alleging three different corporate felonies in a ten-year period.) The MBCA already specifies the court’s powers and procedures in this type of case. The model act does not change any of these procedures—only who can bring the action in the first place.

 

Learn more about our Model Corporate Charter Revocation Act:

• Download Frequently Asked Questions about our Model Corporate Charter Revocation Act
• Read the text of our Model Corporate Charter Revocation Act