Freezing the Company Charter
Posted: 7 Apr 2001
When legislatures alter corporate, partnership, and other business entity statutes, they simultaneously amend the governing document of all entities of that type formed within the jurisdiction. In many circumstances, however, some firms may wish to retain existing rules for internal governance. This article offers a novel tool for firms wishing to so manage their own legal transitions: the "charter freeze." A freeze provision declares that future (non-mandatory) changes in the relevant statute have no effect on the firm. Owners may affirmatively adopt the new rules, but choose to exercise complete control over their adoption vel non of legal innovation. This article argues that current law permits firms to adopt charter freezes, and demonstrates those situations in which freezes are socially desirable.
Keywords: corporations, articles of incorporation, charter, amending charter, amending articles, freeze, immutable rules, enabling, enabling rules, off-the-rack
JEL Classification: K22, L21
Suggested Citation: Suggested Citation