The Bizee Business Glossary

Acquisition

The act of obtaining control of another corporation through the acquisition or purchasing of all or a majority of its outstanding shares or assets.

Administrative Dissolution

An involuntary dissolution of a corporation by an act of the Secretary of State or similar state authority caused by the corporation's failure to comply with certain statutory requirements, especially the failure to file an annual report, pay franchise taxes, or maintain a valid Registered Agent.

Advisory Board of Directors

Individuals appointed to advise an elected board of directors. The advisory board members are not bound by the duties imposed upon elected board members, and the corporation is not required to follow the advisory board's recommendations.

Agent

Anyone authorized to act on behalf of another. A corporation acts only through its agents; therefore, it is important to define which exact actions an agent is authorized to perform.

Agent for Service of Process

An agent whose authority is limited to receiving process issued against a corporation. A corporation is required to appoint this agent, also known as a Registered Agent or a Resident Agent.

Alter Ego

A doctrine of law that disregards the principle of limited liability enjoyed by a corporate entity when it is proven that, in fact, no separate identity of the individual and corporation exists. The alter ego principle may also apply to relationships between corporate entities and their subsidiaries.

Amended Certificate of Authority/Foreign Qualification

A document issued by a state to a foreign corporation evidencing that the corporation has amended its original certificate of authority.

Annual Meeting

A yearly organizational meeting of shareholders in which directors are elected and the general business of the corporation is conducted.

Annual Report

A required annual state filing that lists the directors, officers, and financial information of a business. An annual report may include an annual statement of business and affairs furnished by a corporation to its shareholders.

Application for Certificate of Authority/Foreign Qualification

A form filed in many states that, once accepted, permits a corporation to transact business as a foreign corporation.

Arm's Length Relationship

A term used to describe a type of business relationship a corporation should have with a close associate to avoid conflict of interest. For example, when you negotiate with your banker or your supplier, any resulting agreement will likely reflect market value and commercially reasonable terms and conditions. When you loan money to your son or daughter, you may be inclined to provide much more favorable terms and conditions. The first example would be considered an arm's length relationship, while the second example would not. When your corporation does business with or makes loans to corporate officers and directors, the relationship must be at arm's length to avoid conflicts of interest.

Articles of Incorporation

A document that must be filed in many states in order to create a corporation. Articles of Incorporation may also be known as a certificate of incorporation or corporate charter.

Articles of Organization

A document that must be filed in many states in order to register a limited liability company (LLC). Also known as a certificate of formation.

Assumed Name

A name other than the true name under which a corporation or other business organization conducts business. Also referred to as a fictitious name, a trade name, or "doing business as" (DBA).

Authorized Shares

The maximum number of shares a corporation may issue pursuant to its Articles of Incorporation.

Basis

A tax and accounting term against which gain or loss is measured. With stock, the basis is what you pay for the stock or the fair market value of the property you contribute in exchange for the stock.

Bearer Instrument

An instrument that is payable to its bearer when, by its terms, it is payable to 1) a bearer or the order of a bearer, 2) a specified person or bearer, or 3) "cash" or the order "cash" or if there exists any other indication that does not purport to designate a specific payee. Bearer shares are a common example of a bearer instrument.

Blue Sky Law

A term used to describe a state law or regulation governing the issuance and sale of securities to residents of the state and the licensing and regulation of securities brokers and dealers.

Board of Directors

The governing body of a corporation elected by shareholders. This board has general control of a corporation and is responsible for selecting and supervising all officers.

Bond

A long-term debt secured by a mortgage on real property or a lien on other fixed assets.

Business Corporation Act

A body of state-specific laws for governing corporations.

Bylaws

The requirements of a corporation that, subject to statutory law and the Articles of Incorporation, provide the basic rules for the conduct of the corporation's business and affairs.

C Corporation

The most common corporate structure. Also known as a general corporation, a C corporation may have an unlimited number of stockholders. Consequently, it is usually chosen by companies planning to have more than 30 stockholders or large public stock offerings.

Certificate of Authority/Foreign Qualification

Formal evidence of qualification issued by a state to a foreign corporation.

Certificate of Existence

A certificate that serves as evidence that a corporation formally exists and is able to conduct business in a given state.

Certificate of Good Standing

A certificate issued by a state official as conclusive evidence that a corporation is in existence or authorized to transact business in the state. A certificate of good standing generally sets forth the corporation's name, that it is duly incorporated or authorized to transact business, that all fees, taxes, and penalties owed the state have been paid, that the corporation's most recent annual report has been filed, and that articles of dissolution have not been filed. Also known as a certificate of existence or certificate of authorization.

Certificate of Incorporation

A document that must be filed in many states in order to create a corporation. Also known as the Articles of Incorporation or corporate charter.

Close Corporation

A corporation that elects in its Articles of Incorporation to be registered under the close corporation statutes of its state of incorporation. Some state close corporation statutes provide for a maximum number of shareholders. In addition, close corporation statutes may eliminate or limit the powers of the board of directors, prescribe preemptive rights to the shareholders, or relax corporate formalities. Exact specifications vary by jurisdiction. Not all state statutes provide for a close corporation provision.

Closely Held Corporation

Any corporation in which stock is held by a relatively small group of people or entities. Stock of a closely held corporation is not publicly traded on any stock exchange.

Commingle

To share and pool personal and corporate assets. This is typically done by using one bank account rather than maintaining separate corporate and personal bank accounts. Commingling leaves business owners personally liable for corporate acts.

Common Shares

A class of shares that has no special features and possesses no greater rights than any other shares.

Compliant

This term refers to a level of completion of a legal entity's responsibilities to maintain the formalities of corporate existence under the laws of the jurisdiction in which it is formed. The term is not intended to mean or imply conformity with all of the federal and state regulatory or tax requirements which may exist for operating your business.

Consent Resolution

Any resolution signed by all of the directors or shareholders in order to authorize a particular action. This eliminates the need for face-to-face meetings of directors and shareholders.

Consideration

Related to incorporation in the state of Illinois. (1) Something of value, such as money or personal services, given by one party to another in exchange for an act or promise. For example, amount paid for stock in a corporation. (2) Something promised, given, or done that has the effect of making an agreement a legally enforceable contract.

Consolidation

The statutory combination of two or more corporations to create a new corporation.

Constituent

A party to a transaction; or, a corporation involved in a merger, consolidation, or share exchange.

Contract Creditors

People or businesses to which you owe money or property as stated in a written or verbal contractual agreement. If you buy 30 widgets from Widget World, for example, Widget World becomes a contract creditor.

Convertible Security

A security that may be exchanged by the holder for another type of security.

Corporate Charter

A document that must be filed in many states in order to officially register an LLC within those states. Also known as Articles of Incorporation.

Corporate Indicator

A word or an abbreviation of a word that must be included in a corporation's name to indicate that the named entity is a corporation. Valid corporate indicators include: incorporated, corporation, limited, company, inc., corp., ltd., and co. The list of acceptable corporate indicators will vary depending on the jurisdiction in which the corporation is registered.

Corporate Kit

A binder typically containing essential items for the routine maintenance and administration of a corporation or limited liability company. Corporate kits may include stock certificates, a corporate seal, a stock ledger, and blank forms for minutes and resolutions.

Corporate Seal

A device made to either emboss or imprint certain company information onto documents. A corporate seal usually includes the company’s name, its date of formation, and its state of formation. Corporate seals are often required when opening corporate or LLC bank accounts, distributing stock or membership certificates, or conducting other corporate business.

Corporation

An artificial entity created under and governed by the laws of the state of incorporation.

Corporation Law

The statutory provisions of a state relating to domestic and foreign corporations.

Cumulative voting

A procedure used to elect directors in which shareholders are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote for. They can then cast this number of votes for a single candidate or distribute votes among two or more candidates.

DBA

A state-recognized alternative name that a business goes by. A DBA may also be called an assumed name or a trade name.

Debenture

A long-term debt issued mainly to evidence an unsecured corporate debt.

Debt Financing

A method of raising capital in which a corporation borrows money.

Derivative Suit

A lawsuit brought by a shareholder on behalf of a corporation to protect the corporation from wrongs committed against it.

Directors

Leaders appointed by shareholders to run a corporation's day-to-day affairs. A group of directors are typically called a board of directors.

Dissenters Right

A right granted to shareholders that entitles them to have their shares appraised and purchased by the corporation if the corporation enters into certain transactions that the shareholders do not approve of.

Dissolution

A dissolution is a statutory procedure that terminates the existence of a domestic corporation.

Distribution

A transfer of money or other physical property from a corporation to its shareholders.

Dividend

A distribution of a corporation’s earnings to its shareholders.

Double Taxation

A process wherein a corporation must pay taxes on its earnings and individual shareholders must also pay taxes on any dividends received.

Duration

A time period indicating how long a business will be recognized as a corporate entity. A company with a perpetual duration will last forever unless the state dissolves the company. A 30-year duration means that the company will automatically dissolve on its 30th anniversary of existence.

Employment Agreement

A contract between a corporation and an employee. An employment agreement can be either written or verbal, but it should be put into writing immediately. Employers are more likely to have employment agreements with key employees. The terms and conditions of an employment agreement should be consistent with statutes, articles, bylaws, and any existing shareholder agreements.

Equity Financing

A method of raising capital in which a corporation sells shares of stock.

Equity Interest

An ownership interest; the interest of a shareholder as distinguished from that of a creditor.

Fictitious Name

A name, other than the true name, under which a corporation or other business organization conducts business. Also referred to as an assumed name, a trade name, or “doing business as" name (DBA).

Fiduciary Relationship

A relationship in which one party (the fiduciary) must act in good faith and with due regard to the best interests of the other party or parties.

Foreign Corporation

A corporation that has received foreign qualification to do business in a state other than its state of incorporation.

Fractional Share

Ownership in a corporation in an amount less than a full share.

Franchise Tax

A tax or fee that is usually levied annually upon a corporation, limited liability company, or similar business entity for the right to exist or do business in a particular state. Failure to pay the franchise tax or similar fees may result in the administration dissolution of a company and forfeiture of the charter.

Going Public

The process by which a corporation first sells its shares to the public.

Good Standing

A corporate status that affirms compliance with the government. A corporation is said to be in good standing when it has remained current with the necessary reports and fees required by the regulatory jurisdictions under which it operates.

Hague Convention

Since October 5th, 1961, this treaty has abolished the requirement of legalization of foreign public documents and established a basic certification of public documents outside a company's country of origin. An Apostille is a form of authentication used to certify these public documents, allowing them to be recognized by member countries.

Hostile Takeover

A takeover that occurs without the approval of the target corporation’s board of directors.

Incorporation

The act of creating or organizing a corporation under the laws of a specific jurisdiction. See the difference between incorporation and corporation.

Incorporator

The person(s) who performs the act of incorporation, signs the Articles of Incorporation, and delivers the articles for filing.

Indemnification

Financial protection provided by a corporation to its directors, officers, and employees against expenses and liabilities incurred by them in lawsuits alleging that they breached their duty in their service to or on behalf of the corporation.

Involuntary Dissolution

The termination of a corporation’s legal existence pursuant to an administrative or judicial proceeding. This dissolution is forced upon a corporation rather than decided upon by the corporation.

Judicial Dissolution

Involuntary dissolution of a corporation by a court at the request of the state attorney general, a shareholder, or a creditor.

Jurat

Specific notary language citing, under oath, that a signature has been witnessed.

Legalization of Certified Documents

Documents needed for companies (overseas) that are not part of the Hague Convention. Companies in a country that is not part of the Hague will not benefit from an Apostille. (1) To make legal or lawful; authorize or sanction by law.

Limited Liability Company (LLC)

An artificial entity created under and governed by the laws of the jurisdiction in which it was formed. Limited liability companies are generally able to provide the limited personal liability of corporations and the pass-through taxation of partnerships or S corporations.

Limited Partnership

A statutory form of partnership made up of one or more business partner(s) who manage the business and are liable for its debts and one or more limited partner(s) who invest in the business but have limited personal liability.

Limited Personal Liability

The protection generally afforded a corporate shareholder, limited partner, or a member of a limited liability company from the debts of and claims against the company.

Majority

More than 50%; commonly used as the percentage of votes required to approve certain corporate actions.

Management

The board of directors and executive officers of a corporation, limited liability company, or similar business entity.

Managers

The individuals responsible for the maintenance, administration, and management of a limited liability company (LLC). In most states, the managers serve a particular term and report to and serve at the discretion of the members. Specific duties of the managers may be detailed in the articles of organization or the operating agreement of the LLC. In some states, the members of an LLC may also serve as the managers

Members

The owner(s) of a limited liability company (LLC). Unless the articles of organization or operating agreement state otherwise, management of an LLC is vested in the members in proportion to their ownership interest in the company.

Membership Certificates

Evidence of ownership of and membership in a limited liability company.

Merger

The statutory combination of two or more corporations in which one of the corporations survives and the other corporations cease to exist.

Minutes

The written record of transactions taken or authorized by the board of directors or shareholders. Minutes are usually kept in the corporate minute book in diary fashion.

Name Registration

The filing of a document in a foreign state to protect the corporate name, often in anticipation of qualification in the state.

Name Reservation

A procedure that allows a corporation to obtain exclusive use of a corporate name for a specified period of time.

No Par Value Shares

Shares for which the Articles of Incorporation do not fix a par value and that may be issued for any consideration determined by the board of directors.

Not-for-Profit Corporation

A corporation that is generally organized for some socially beneficial purpose rather than for the directors' or members' direct monetary benefit. Not all not-for-profit corporations are tax exempt and some make a profit. However, the profit is not distributed to the members or directors. Also known as a nonprofit corporation.

Notice of Service of Process

Official notification of an action or proceeding by the delivery of a legal or court document with a request to answer in a specific period of time. Also called a Service of Process.

Officers

Individuals responsible for carrying out the board’s policies and for making day-to-day decisions. Officers are appointed by the board of directors.

Operating Agreement

A contract used by members of a limited liability company to outline company operations. An operating agreement governs the membership, management, and distribution of income of the company.

Organizational Meetings

Meetings of incorporators or initial directors that are held after the filing of the Articles of Incorporation. These meetings complete the organization of the corporation.

Organizer

The person(s) who perform the act of forming a limited liability company.

Par Value

A minimum price of a share below which the share cannot be issued, as designated in the Articles of Incorporation.

Parent Corporation

A corporation that owns a controlling interest in another corporation.

Partnership

A business organization in which two or more entities agree to do business together. A domestic LLC with two or more members is classified as a partnership by the IRS.

Pass-Through Taxation

A process where, rather than taxing the income of the entity itself, taxation is “passed through” to the individual shareholders in S Corps and LLCs. Income or losses are declared on owners' individual tax returns.

Perpetual Existence

Unlimited term of existence that is characteristic of most business corporations.

Piercing the Corporate Veil

A legal theory sometimes used to impose personal liability on shareholders, officers, and directors for corporate acts. This theory permits a court to disregard the separate identity of the corporation.

Preemptive Rights

The right of a shareholder to subscribe ratably for his or her portion of any additional shares issued by a corporation.

Preferred Shares

A class of shares that prioritizes the holders' preferences over those of common shareholders, usually with regard to dividends and distributions of assets upon dissolution or liquidation.

Professional Corporation

A corporation whose purposes are limited to professional services, such as those performed by doctors, dentists, and attorneys. A professional corporation is formed under special state laws that stipulate exactly which professionals are required to incorporate under this status.

Promoter

One who generates interest and activity in and on behalf of a corporation before its formation. A promoter is usually personally liable for all pre-incorporation activities.

Qualification

The filing of required documents by a corporation to secure a certificate of authority and conduct business in a state other than the one in which the corporation was formed. Limited liability companies or similar business entities may also conduct this process.

Quorum

The percentage or portion of voting shares required to be represented in person or by proxy to constitute a valid shareholders meeting. A quorum can also be the number of directors required to be present for a valid meeting of the board.

Record Date

The cut-off date for determining exactly which shareholders are entitled to vote at a meeting, receive dividends, or participate in any corporate action.

Redeemable Shares

Shares that are subject to purchase by the corporation on terms set forth in the Articles of Incorporation.

Registered Agent

A person or entity designated to receive important tax and legal documents on behalf of the corporation. The Registered Agent must be located at a legal address within the specified jurisdiction and available at all times. Failure to maintain a Registered Agent in the jurisdiction in which a corporation is registered may result in the forfeiture of corporate status. Also known as a Resident Agent.

Registered Office

The statutory address of a corporation. In states requiring the appointment of a Registered Agent, the registered office is typically the address of the Registered Agent.

Regulations

Administrative rules containing the force and effect of laws. Government agencies promulgate these rules. If you don't comply, you are subject to the possibility of fines or revocation of the corporate charter.

Reinstatement

A process in which a reinstatement order is issued, thus returning a corporation that has been administratively dissolved or had its certificate of authority revoked to good standing on a state's records.

Resolution

A formal statement of any item of business that has been voted and agreed upon.

Revised Model Business Corporation Act

A model corporation statute compiled by the American Bar Association that has been adopted in whole or in part by many states and has influenced the statutes of many states.

S Corporation

An entity that has been granted a special tax status as specified under the Internal Revenue Code. The code is very explicit on how and when this election is made and the number of shareholders this type of corporation can have. Since an S Corporation pays no income tax, all gains and losses of the corporation pass through to the individual shareholders in proportion to their holdings.

Scrip

A form used to represent ownership of fractional shares in lieu of issuing share certificates.

Securities Laws

State and federal laws that govern the issuance, sale, and transfer of stocks and bonds.

Security

A financial transaction or value such as a stock, bond, or investment interest between a business and an investor whereby the investor supplies money and/or experts to profit from the investment.

Service of Process

An official notice of legal action that requests a response within a specific period of time. Also called a Notice of Service of Process.

Share

The unit into which the ownership interest in a corporation is divided.

Share Exchange

A statutory form of business combination in which some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation and neither corporation ceases to exist.

Shareholders

The owners of a corporation based on their holdings. They own an interest in the corporation rather than specific corporate property. Also known as stockholders.

Short-Form Merger

The statutory merger of a subsidiary into its parent corporation in which shareholder approval is not required.

Sole Proprietorship

An unincorporated business with a sole owner in which the owner may be personally liable for business debts and claims against the business. Learn how to set up a sole proprietorship.

Special Meeting

A shareholder meeting wherein shareholders act on specific matters stated in the notice of the meeting.

Statutes

Laws passed by the state legislature or U.S. Congress. Business corporation laws are statutes. Statutes often authorize an administrative agency to declare regulations that are used to supplement the statute. In the event of a conflict, statutes control regulations.

Stock

A unit that represents ownership in a corporation. Stock may be represented by a certificate and can be common or preferred, voting or non-voting, redeemable, convertible, etc. The classifications and special designations, if any, of the stock are set forth in the Articles of Incorporation.

Stock Certificate

Evidence of ownership of shares in a corporation. May also be referred to as a share certificate.

Stock Purchase Agreement

An agreement between shareholders and a corporation. A stock purchase agreement provides a mechanism to regulate the transfer and sale of corporate stock. Often, a stock purchase agreement will provide a right of first refusal in favor of the corporation or remaining shareholders in the event of a proposed sale of stock by a shareholder. A stock purchase agreement can also provide for a purchase upon the death, disability, retirement, discharge, resignation, or bankruptcy of a shareholder.

Stockholders

The owners of a corporation based on their holdings. They own an interest in the corporation rather than specific corporate property. Also known as shareholders.

Subscribers

Persons who agree under specific conditions to purchase shares in a corporation.

Subsidiary

A corporation that is either wholly owned or controlled through ownership of a majority of its voting shares by another corporation or business entity.

Takeover

A merger, acquisition, or other change in the controlling interest of a corporation.

Target

A corporation that is the focus of a takeover attempt.

Tax-Exempt Organization

Any organization that is determined by the Internal Revenue Service to be exempt from federal taxation of income. A tax-exempt organization may be required to operate exclusively for charitable, religious, literary, educational, or similar purposes.

Tort

Any act or failure to act (if there was a duty to act) which causes harm or damage. Examples of torts include assault, battery, fraud, misrepresentation, defamation, libel, slander, invasion of privacy, and negligence. If there is a claim against a corporation other than a claim by the government, it will likely be based on contract or tort.

Trademark

A legal designation that provides legal ownership over crucial elements of a business, such as its business name or logo. Use our Trademark Name Search tool to see if the name you want for your business is already taken.

Treasury Shares

Shares of a corporation reacquired by a corporation.

Underwriter

A company that purchases shares of a corporation and arranges for their sale to the general public.

Voluntary Dissolution

Action by shareholders, incorporators, or initial directors to dissolve a corporation.

Voting Or Pooling Agreement

An agreement, preferably in writing, of two or more shareholders to vote their shares in a certain manner. The most common use of this agreement would be to pool voting strength for the election of directors.

Voting Rights

Rights of shareholders to vote their shares pursuant to provisions of statutes, the Articles of Incorporation, and the bylaws.

Voting Trust

An agreement among the shareholders of a corporation. Under a voting trust, shareholders transfer their shares of stock to a trustee in exchange for voting trust certificates. The trustee votes the shares in the manner directed in the voting trust agreement. Voting trusts are often used to preserve control of the corporation.

Watered Shares

Shares that have been issued for a consideration less than the par or stated value of the shares.

Winding Up

The discharging of a corporation's liabilities and the distributing of its remaining assets to its shareholders in connection with its dissolution.

Withdrawal

The statutory procedure whereby a foreign corporation obtains the consent of a state to terminate its authority to transact business within that state.