Administrative Dissolution: When
the state dissolves the corporation for failure to
file required paperwork, such as an annual report,
or for failure to make payment of required fees.
Amendment: A change to a document
(i.e. corporate Articles of Incorporation or LLC Articles
of Organization), such as the name of the company,
number of authorized shares, etc.
Annual Report: A formal
financial statement issued yearly.
Annual Shareholders' Meeting: Most states require a corporation to hold a yearly shareholders'
meeting during which the shareholders elect directors
and vote on major corporate issues.
Articles of Incorporation: The
document that creates a corporation according to the
general corporation laws of the state.
Depending on the state statute, it is also
known as "certificate of incorporation,"
"charter," "articles of association,"
or other similar name.
Articles of Organization: The document that creates a limited liability company or
LLC according to the general corporation laws of the
state. 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
of LLC) 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. This is also referred to as a "doing business
as" or "d.b.a." name.
Authorized Shares: The shares described in the corporate 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, above.
Bylaws: The formal rules for regulation of the entity's
(i.e. corporation) actions, such as rights and duties
of officers, directors, share holders, and members.
Bylaws are adopted by an entity (i.e. corporation),
usually at the first shareholders' meeting.
C Corporation: A corporation that is subject to "double taxation".
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 as income while the dividends
continue to be taxed at the shareholder level.
Certificate of Authority: A document issued
by a state corporation authority (i.e. 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 issued by the state corporation authority
(i.e. Secretary of State) that evidences the acceptance
of the corporate Articles of Incorporation and the
commencement of the corporate existence. In
Common Shareholders: The holders of common shares, the ultimate owners
of the residual interest of a corporation.
Common Shares or Common Stock: An equity or ownership interest in the corporation. Common
shareholders are entitled to pro rata dividends without
any priority or preference over any other shareholders
or class of shareholders, but share equally with all
other shareholders except preferred stock. Common shareholders receive dividends out of
the earnings of the corporation as 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 security interests.
Corporate Kit: An organized
package of documents typically used by a corporation
or limited liability company (LLC) in the normal course
of business, such as: corporate Articles of Incorporation
(or LLC Articles of Organization), Operating Agreements
or By Laws, stock share certificates, stock ledgers,
minutes of the meetings, etc.
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 (or Articles
of Organization), By Laws or Operating Agreement,
the minutes of all shareholder and director meetings,
and a stock register for keeping track of stock transactions.
Corporate Seal or Common Seal: An
impression placed on a document having legal effect. The purpose of a corporate seal is to attest
in a formal manner to the execution of a document.
Dissolution: The termination of a corporation, limited liability company or other entity's legal existence.
After the filing of a certificate of dissolution
with the state corporation authority (i.e. secretary
of state) the corporation is technically dissolved,
but the corporation and its directors (or LLC and
its members/mangers) continue to "wind up" the affairs
of the corporation.
A dissolution may
be voluntary or involuntary, see below Involuntary
Dissolution and Involuntary Dissolution.
Dividend: Payment or distribution of profits or earnings
to shareholders.
Doing Business As, d.b.a., or d/b/a: A name under which an entity (i.e. a corporation or limited
liability company) conducts business that is not the
legal name of the entity.
Many states require the filing of a registration in
order to conduct business in that state under such
a name. This
is also referred to as a an "assumed name."
Domestic Corporation: A corporation is "domestic" in
the state where it was incorporated.
Double Taxation: The structure of taxation under the Internal
Revenue Code which subjects income earned by a C corporation
to income tax at the corporate level and a second
tax at the shareholder level when the previously taxed
income is distributed to the shareholders as dividends.
Note: S corporations and limited liability companies
(LLC) are not subject to double taxation.
Equity Capital: A financial term referring in general to the
extent of an ownership interest in a venture.
Equity Financing: The sale of stock in order to raise money in
exchange for the buyers receipt
of an interest in the entity.
Fiscal Year: A twelve month period used by a company for
accounting purposes.
Federal Tax Identification Number or Employer Identification
Number: A number given to a business entity by the federal
government for tax purposes.
A form SS-4 needs be prepared and filed out
in order to receive this number.
Foreign Corporation: A corporation is referred to as a "foreign"
corporation in all states outside the state in which
it was incorporated. 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 corporation organized to hold the stock of
other corporations. It is in a position to control
or materially influence the management of a corporation
or company by the fact that it has an ownership interest
in the company.
Incorporation: To form a corporation, organize and be granted
status as a corporation by following the legal procedures
of the state in which the company will be registered.
Incorporators: The person or persons who execute the articles
of incorporation or form the corporation.
Indemnity or Indemnification: The obligation of one person to make good any loss or damage
that another has incurred or may incur by acting at
the request or benefit of the requesting party. For
example, an agreement by a corporation to represent
and pay the expenses of officers or directors who
are named as individual defendants in litigation relating
to actions performed on behalf of the corporation.
Involuntary Dissolution: The right to end the
legal existence of a corporation or entity without
the consent of the corporation, which belongs to the
state or through the granting of a petition to the
court by a specified percentage of shareholders on
grounds that are defined by statute.
Issue Stock or Issue Shares: The process by which
a corporation authorizes, executes, and delivers shares
of stock for the sale to the public.
Interest: The ownership percentage that a member or manager
of a limited liability company (LLC) has in the company
is represented by "interests". This is similar to
the shares of stock that a shareholder has in a corporation.
Limited Liability Company (LLC): A legal entity form
that provides limited liability for its owners and
may be taxed as a partnership. To create a limited
liability company (LLC), Articles of Organization
and the required fee must be filed with the state
corporation authority (usually the Secretary of state).
Unlike C corporations, the earnings of LLCs are not
subject to "double taxation".
Manager: An ownership option for a limited liability
company (LLC) is to be operated by a manager. The
actions of the managers are similar to the board of
directors of a corporation. In order for an LLC to
be controlled by a manager, this fact must be noted
in the Articles of Organization.
Member: A person who is an owner of a limited liability
company (LLC). Unless the Articles of Organization
specify that the LLC is to be operated by a manager,
the business decisions are made by the members as
designated in the Operating Agreement.
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 (LLC) must be different from those previously
registered on the records of the state of incorporation.
A name can usually be reserved for 120 days with the
payment of a 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 business entity
that is generally charitable in purpose, rather than
established to earn profits.
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 (and managers if any)
of a limited liability company (LLC) which governs
the LLC's day to day operations and the rights, duties,
and obligations of its managers and members (analogous
to a corporation's bylaws).
Organizational Meeting: The initial meeting
of a corporation in which the formation is completed.
At this meeting, the Articles of Incorporation are
ratified, By Laws are passed, the initial shares are
assigned, officers are elected and authorization of
the opening of bank accounts is passed.
Par Value: The stated value 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. Tax is only paid at the shareholder or interest
holder level. Note: S corporations and limited liability
companies are pass-through taxation entities.
Perpetual Existence: When
an entity does not have a specified expiration, it
can continue indefinitely, until dissolved by the
entity or the state (see dissolution).
Preferred Stock or Preferred Shares: A class of stock or
shares that have preferential rights over other types
of stock (i.e. Common stock) in the payment of dividends
or to amounts distributable on liquidation, or both.
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 that state's requirements for establishing
a professional corporation.
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 By Laws or Operating Agreement.
Registered Agent: The agent named in the Articles of Incorporation
or Articles of Organization to receive service of
process other documents on behalf of the corporation
or limited liability company.
The Registered Agent must be named in the Articles
of Incorporation or Articles of Organization.
Registered Office: The address specified in the Articles of Incorporation
or Articles of Organization where the registered agent
is located.
Note that this address does not have to be the principle
office or place of business of the corporation or
limited liability company.
Reinstatement: To restore to a former state, authority, or
status from which one has been removed.
Resolution: A formal decision of an entity (i.e. corporation
or limited liability company) adopted by either the
members, 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 of the Internal Revenue Code of 1954.
The "double taxation" of a C Corporation is not present.
The taxable income of an S corporation is not
subject to income tax at the corporate level, but
is allocated directly to the shareholders to be taxed
at that level. This is also known as "pass through
taxation". An S corporation is similar, but not identical,
to partnership taxation.
Securities: Written assurances for the return or payment
of money, such as shares of stock, bonds, debentures,
and other evidence of a secured indebtedness or of
a right created in the holder to participate in profits
or assets distribution of a profit making enterprise.
Share: An interest in a corporation.
Shareholder: Any holder or owner of one or more shares in
a corporation as evidenced by a stock certificate.
Sole Proprietorship: A business where an individual is
both the owner and conductor of the business affairs.
The owner of a sole proprietorship is personally liable
for all business debts.
Stock: An equity or ownership interest in a corporation,
usually created by contribution of capital of the
corporation. It is demonstrated by stock certificates.
Stock Certificate: A written document showing ownership of shares
in a corporation.
Stockholder: See shareholder, above.
Stock Transfer Book: A book or list where all the owners of shares
of stock in a corporation are listed.
Subchapter S: The subchapter of the Internal Revenue Code
of 1954 that regulates the S corporation. See also
S corporation, above.
Subscribers: Persons who agree to invest in a corporation
by purchasing shares of stock.
Subscription: An offer to buy a specified number of theretofore
unissued shares of a corporation.
Subsidiary: An inferior portion or capacity. A Subsidiary corporation is one in which another
corporation (a parent corporation) owns at least a
majority of the shares and had control.
Trademark: Any word, name, symbol, or device used by a
person or entity to identify its product and to distinguish
them from others.
Unanimous Written Consent: Most states allow
directors to act without a formal meeting if they
all give consent to specific corporate actions in
writing.
Withdrawal: The removal
something from the place where it is kept (i.e. removal
of money from a bank) or the separation of one's self
from a position (i.e. the stepping down of a candidate
for an office).