Glossary

Administrative Dissolution - When the state dissolves the corporation for failure to file an annual report.

Amendment - A change to one of the Articles in the Articles of Incorporation, such as the name of the company, number of authorized shares, etc.

Annual Report – Every Corporation and LLC need to file a report typically with the Secretary of State’s office updating annually the address of the company, registered office, directors and officers, and other information depending upon the state.

Annual Shareholders' Meeting - Most states require a corporation to hold an annual shareholders' meeting during which the shareholders elect directors and vote on major corporate issues.

Articles of Incorporation - This is the name customarily given to the document that is filed in order to form a corporation. Depending on the state statute, it is also known as "certificate of incorporation," "charter," "articles of association," or other similar name.

Articles of Organization - This is the name customarily given to the document that is filed in order to form a Limited Liability Company. It is very similar in content and function to the Articles of Incorporation for a corporation.

Assumed Name - A name under which an entity (i.e. a corporation) conducts business that is not the legal name of the entity. Many states require the filing of a registration in order to conduct business under an assumed name in their territories.

Authorized Shares - Authorized shares are the shares described in the articles of incorporation which a corporation is permitted to issue. It is often advisable to authorize more shares than will be issued so that the company has a reserve for the future.

Authorized Stock - See Authorized Shares

Bylaws - Bylaws are the formal rules of internal governance adopted by a corporation. They are usually adopted at the first shareholders' meeting, and contain rules governing the actions of shareholders, directors, officers, and other actions of the company.

C Corporation - A corporation that is subject to federal income tax at the corporate level. In other words, it has not elected S corporation status. The taxable income of a C corporation is subject to tax at the corporate level while the dividends continue to be taxed at the shareholder level.

Certificate of Authority - A document issued by a state corporation authority (e.g. Secretary of State) on application of a foreign corporation granting it the right to do business in the state.

Certificate of Incorporation - In most states, the document that is prepared by the Secretary of State that evidences the acceptance of the articles of incorporation and the commencement of the corporate existence. In Delaware, the certificate of incorporation is the name given to the document filed with the Secretary of State.

Certificate Of Good Standing – A document issued by the Secretary of State that states that the company is in Good Standing. Also known as a Certificate of Status.

Common Shareholders - The holders of common shares, the ultimate owners of the residual interest of a corporation.

Common Shares (Common Stock) - The residual ownership in the corporation. Common shareholders select the directors to manage the corporation, are entitled to dividends out of the earnings of the corporation declared by the directors, and are entitled to a per share distribution of whatever assets remain upon dissolution of the corporation after satisfying creditors and holders of senior securities.

Corporate Kit – Holds the records of the corporation such as the Bylaws, Minute Book, Stock Transfer Ledger, other pertinent documents and the Corporate Seal.

Corporate Records - Corporate records usually take the form of a corporate record book. Carefully maintaining records is very important to assure limited liability to the corporate shareholders. The records should include a copy of the articles of incorporation, the minutes of all shareholder and director meetings, and a stock register for keeping track of stock transactions.

Corporate Seal – A device used to emboss the signature of the corporation.

Directors - Directors are elected by the shareholders and manage the affairs of the corporation. Directors typically elect the officers and only participate in major business decisions.

Dissolution - The termination of a corporation's legal existence.

Dividend - Payment to shareholders from or out of current or past earnings.

Domestic Corporation - A corporation is domestic to the state where it was incorporated.

Double taxation - Refers to the structure of taxation under the Internal Revenue Code which subjects income earned by a C corporation to an income tax at the corporate level and a second tax at the shareholder level if the previously taxed income is distributed to the shareholders as dividends. Note that S corporations and Limited Liability Companies are not subject to double taxation.

Equity - A financial term referring in general to the extent of an ownership interest in a venture. Equity refers not to a legal concept, but to a financial definition that an owner's equity in a business is equal to the business's assets minus its liabilities.

Equity Financing - Raising money by the sale of stock.

Fiscal Year - A twelve month period used by a company for accounting purposes.

Federal Tax Identification Number - A number given to a business entity by the federal government for tax purposes. It is a Nine Digit Number similar to a Social Security Number.

Fictitious Name – See Assumed Name

Foreign Corporation - A corporation is referred to as a foreign corporation in all states outside its state of incorporation. In order to conduct business in another state, it must register for a certificate of authority to conduct business in the other state.

Franchise Tax - A tax on the privilege of carrying on business in a state. It is typically measured by the earnings or amount of business done within the state.

Holding Company - A company that owns a majority of the shares of one or more corporations. A holding company is not engaged in any business other than the ownership of shares.

Incorporators - The person or persons who execute the articles of incorporation.

Indemnification - The practice by which corporations pay expenses of officers or directors who are named as defendants in litigation relating to corporate affairs. Note that directors and officers may also be paid for the expenses they incurred in the process of forming the corporation.

Involuntary Dissolution – When a corporation fails to file it's Annual Report, the state of incorporation will eventually dissolve the company.

Issued Shares - Shares a corporation has actually issued and not cancelled.

Interest - Ownership of a Limited Liability Company is represented as an interest or percentage of the LLC.

Limited Liability Company - An unincorporated business form that provides limited liability for its owners and may be taxed as a partnership. To create an LLC, a certificate must be filed with a state official. Unlike C corporations, the earnings of LLCs are not subject to double taxation.

Manager - A management option for a Limited Liability Company is to have the LLC be operated by a group of managers. The actions of the managers are very similar to the board of directors of a corporation. In order for an LLC to be managed by managers, the Articles of Organization must that the company will be managed by managers.

Member - A person who is an owner of a Limited Liability Company. The business decisions are made by the members unless managers have been appointed in the Articles of Organization.

Minutes - A written record of the events of a corporation, typically including all of the events taking place at both shareholders' meetings and board of directors' meetings. These records are usually kept in the corporations' record book.

Name Reservation - The name of a corporation or a Limited Liability Company must be different from those previously on the records of the government of the state of incorporation. A name can be reserved in some states with the proper fee.

No Par Shares - Shares issued under a traditional par value statute that are stated to have no par value. Such shares may be issued for consideration designated by the board of directors. Note that the value of no par shares is determined by the state for franchise tax purposes and may result in higher franchise taxes in comparison with low par-value stock.

Not For Profit Corporation – A corporation filed under a non-profit state statute. In order for the corporation to not pay Federal Income Tax, the company must file an application under specific IRS statutes to be exempt from Federal Tax.

Officers - People appointed by the directors to manage the daily affairs of a corporation. The officers usually consist of a president, vice-president, treasurer, and secretary.

Operating Agreement - An agreement among the members of a Limited Liability Company which governs the LLC's operations and the rights of its members (analogous to a corporation's bylaws).

Organizational Meeting - The initial meeting at which the formation of the corporation is completed. At this meeting, initial tasks such as ratification of the articles of incorporation, issuance of the initial shares, election of officers, approval of bylaws, and authorization of the opening of bank accounts is passed.

Organizer – The individual or entity executing the Articles of Organization for a Limited Liability Company.

Par Value - An arbitrary or nominal value assigned to each share of stock. Stock must be sold for at least this value.

Pass-Through Taxation - A taxation situation where the business entity is not taxed and tax is only paid at the shareholder or interest holder level. Note that S corporations and Limited Liability Companies are pass-through taxation entities.

Perpetual Existence – Most Corporations and LLCs exist indefinitely unless stated otherwise in the Articles of Incorporation.

Preferred Shares - Shares that have preferential rights to dividends or to amounts distributable on liquidation, or both, ahead of common shareholders. Preferred shares are usually entitled only to receive specified limited amounts as dividends or on liquidation.

Professional Corporation - A corporation organized for the purpose of engaging in a profession such as law, medicine, or engineering. Professional corporations must file articles of incorporation with the state which meet its requirements for a professional corporation.

Proxy - A person authorized to vote someone else's shares. It may also refer to the document granting authorization to vote someone else's shares.

Quorum - The minimum participation required to conduct business at a particular meeting. Usually a quorum is achieved by a meeting of the majority of the directors or a meeting with the majority of outstanding shares represented. Note that the percentage needed for quorum may be modified in the bylaws.

Registered Agent - The agent named in the articles of incorporation to receive service of process on the corporation or other important documents.

Registered Office - The office named in the articles of incorporation located where the registered agent is located. Note that this need not be the principle office or place of business of the corporation.

Reinstatement - When a company is administratively dissolved, company can file to reinstate the company so it is in good standing again.

Resolution - A formal decision of a corporation adopted by either the directors or the shareholders.

Retained Earnings - Net profits accumulated by a corporation after payment of dividends.

S Corporation - A corporation that has elected to be taxed under Subchapter S. The taxable income of an S corporation is not subject to tax at the corporate level, but is allocated to the shareholders to be taxed at that level. S corporation taxation is similar, but not identical, to partnership taxation.

Securities - A general term that covers a variety of interests, including shares of stock, bonds, debentures, and other forms of interest.

Share - An interest in a corporation.

Shareholder – An owner of one or more shares in a corporation as evidenced by a stock certificate.

Sole Proprietorship - A business carried on with an individual both as owner and conductor of business. The owner of a sole proprietorship is liable for all business debts.

Stock - An equity ownership interest in a corporation as demonstrated by stock certificates.

Stock Certificate - A written document showing ownership of shares in a corporation.

Stockholder - See shareholder.

Stock Transfer Ledger - A ledger where all the owners of shares of stock in a corporation are listed.

Subchapter S - See also S corporation.

Unanimous Written Consent - Most states allow directors to act without a formal meeting if they all give consent to specific corporate actions in writing.