A-C
Articles of Organization
A document filed with the Secretary of State that creates a
limited liability co m pa n y. It can include the name of the
company, its purpose, the principal address of business, the
Registered Agent’s name and address, duration of the company,
and its members.
Asset protection
A form of financial self-defense which places assets beyond the
reach of creditors.
Assets
Anything owned with monetary value. This includes both real
and personal property.
Authorized shares
The number of shares a corporation is authorized to sell.
Bylaws
Rules adopted by the corporation itself for the regulation of a
corporation’s own actions; a subordinate law adopted by a
corporation, association, or other body for its self-government or
to regulate the rights and duties of its officers and members.
Bulletproof statutes
State statutes governing LLC formation that, if followed, assure
the LLC it will be taxed as a partnership for federal tax purposes.
C Corporation
Any corporation that is not an S corporation.
Calendar year
The accounting year beginning January 1 and ending on
December 31.
Certificate of Organization
The document that creates an LLC according to the laws of the state. This
must be filed and approved by the state.
Certificate or Articles of Incorporation
The document that creates a corporation according to the laws
of the state. This must be filed and approved by the state.
Consolidation
When two corporations combine, creating a third.
Corporation
A business formed and authorized by law to act as a single entity, although
it may be owned by one or more persons. It is legally endowed with rights
and responsibilities and has a life of its own independent of the owners and
operators. The owners are not personally liable for debts or obligations of
the corporation.
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D-I
Deceptively similar
A name so similar to another name that the two become confused in the
public eye.
Default rules
Statutory rules that take effect in the absence of contrary provisions in an
Operating Agreement.
Dissolution
Formal statutory liquidation, termination and winding up of a business
entity.
Distribution
Payment of cash or property to a member, shareholder or partner according
to his or her percentage of ownership.
Double taxation
Occurs when corporations pay tax on corporate profits and shareholders
pay income tax on dividend or distributive income.
Dividend income
Dividends that must be declared as regular income for income tax purposes.
Fictitious business name
A name other than the registered name under which a company may do
business as long as it is not used for fraudulent purposes.
Fiscal year
Any 12-month period used by a business as its fiscal accounting period. Such
accounting period may, for example, run from July 1 of one year through
June 30 of the next year.
Flexible statutes
State formation statutes that allow an LLC options that exceed IRS
guidelines for special tax status.
Foreign corporation
A corporation formed in one state or country but conducting some or all of
its business in another state or country.
Foreign LLC
A limited liability company formed in one state or country but
conducting some or all of its business in another state or country.
Free transfer of interests
The ability to transfer a membership interest to a non-member without
consent of the other members.
General partner
The partner who accepts personal liability and is responsible for the
daily management of a partnership.
Gift
For tax purposes, the IRS recognizes as a gift any voluntary transfer of
property without consideration whose value does not exceed $10,000.
Incorporate
To form a corporation or to organize and be granted status as a
corporation by following procedures prescribed by law.
Incorporator
The person who signs the Articles of Incorporation upon petitioning the
state for a corporate charter.
Indemnification
Financial or other protection provided by an LLC or corporation to its
members, managers, directors, officers and employees, which protects them
against expenses and liabilities in lawsuits alleging they breached some duty
in their service to, or on behalf of, the company.
Insolvency
Being unable to pay one’s debts because liabilities exceed assets.
Issued shares
The number of shares actually sold by the corporation.
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L-P
Limited liability
The condition in LLCs and corporations that frees owners from being
personally liable for debts and obligations of the company, with a few tax related
exceptions. With company or corporate debt, general creditors
cannot attach the owners’ homes, cars and other personal property.
Limited liability company
A business entity created by legislation that offers its owners the limited
personal liability of a corporation and the tax advantages of a partnership.
Limited partner
A partner who contributes capital or property to the partnership and enjoys
limited liability to the extent of his or her investment but who may not
participate in the management of the partnership.
Member
One who contributes capital, property or services to an LLC and in return,
receives a membership interest in the company.
Membership Certificate
Written instrument evidencing a percentage, interest or unit of ownership of a
Limited Liability Company.
Membership interest
The right to vote, participate in management decisions and receive
distributions from the company.
Merger
The absorption of one corporation by another.
Minority stockholder
One who owns or controls less than 50 percent of the stock in a
corporation.
Minutes
Written records of formal proceedings of stockholders’ and directors’
meetings.
Non-par value stock
Shares of stock without specified value.
Not-for-profit corporation
A corporation organized for some charitable, civil, social or other
purpose that does not entail the generation of profit or the distribution
of its income to members, principals, shareholders, officers or others
affiliated with it. Such corporations are accorded special treatment under
the law for some purposes, including taxation.
Operating Agreement
A statement of the general principles of a limited liability company
which combines information from the Articles of Organization with
resolutions passed unanimously by members. It details economic and
management arrangements as well as members’ rights and
responsibilities.
Parliamentary procedure
Rules such as “Roberts Rules of Order,” which govern stockholders’
meetings, directors’ meetings, etc.
Par value stock
Shares of stock with a specified value.
Pass-through tax status
Profits that are not taxed on the company level but are distributed
directly to members who report such profits as dividend income.
Pro rata
Members receive rights or dividends based upon percentage of
ownership.
Proxy
Authorization by a stockholder allowing another to vote his shares of
stock.
Publicly owned corporation
One whose stock is owned by more than 25 stockholders and is regulated
by the Securities and Exchange Commission.
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Q-S
Quorum
A majority of the stockholders or directors necessary for vote-counting and
decision-making at a meeting. While a quorum is usually a majority of either
the total membership or the members present, a quorum may consist of a
greater number than a simple majority if desired and stated in the bylaws.
Regular corporation
Also known as a C Corporation.
S Corporation (Subchapter S Corporation)
A small business corporation which elects to be taxed as a partnership or
proprietorship for federal income tax purposes. Individual shareholders
enjoy the benefits under state law of limited corporate liability, but avoid
corporate federal taxes.
Service business
A business that sells service or advice instead of a tangible product.
Shareholder
See Stockholder.
Sole proprietorship
A business owned by an individual who is solely responsible for all
aspects of the business, and where the business and its owners are thus
considered the same entity.
Start-up venture
A new business having no track record.
State statutes
Laws created by a state legislature.
Statutory agent
A lawyer, corporation or individual who has assumed the responsibility
of being the legal representative for the corporation for purposes of
accepting legal service in a certain state.
Stock certificate
Written instrument evidencing a share in the ownership of a
corporation.
Stockholder
A holder of one or more shares of the stock of a corporation. A
stockholder may be called a “shareholder.”
Subsidiary
A corporation owned by another corporation.
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This Summary of Terms does not constitute the rendering of legal advice or services. This information is intended for informational use only and is not a substitute for legal advice. State laws vary, so consult an attorney on all legal matters.