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 | Glossary of Corporate Terms This information is presented for educational purposes only. We suggest you talk to your attorney or accountant to see if this information would be beneficial to you and your business needs | |||||||
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GLOSSARY OF CORPORATE TERMS Accumulated earnings: Past profits, the previously taxed income reduced by any capital gain, within a C Corporation. They are the retained earnings held by the corporation without any capital gains reflected and the monies that the company needs for the future to operate and expand its business. (Note: the IRS does not like to see these profits undistributed to shareholders so it can be taxed again and this is a highly litigated issue.) Acquisition: Obtaining control of another corporation by purchasing all or a majority of its outstanding shares, or by purchasing its 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, to pay franchise taxes or maintain a valid Registered Agent. Advisory board of directors: An advisory board of directors are individuals appointed to advise an elected board of directors. This board is not bound by the duties imposed upon elected board members, and the corporation is not required to follow their recommendations. Agent: Anyone who is authorized to act on the behalf of another. A corporation acts only through its agents; therefore, it is important to define what actions an agent is authorized to perform. Agent for service of process: An agent, required to be appointed by a corporation, whose authority is limited to receiving process issued against the corporation. Also known as a Registered Agent or a Resident Agent. Alter Ego: "Other Self", a person who is legally the same as, and interchangeable with, another. Often used by the IRS and Courts to indicate that when a corporation's records are not kept, monies have been co-mingled with the Directors or Stockholders funds, that the corporate veil can be penetrated since the corporation is merely an "alter ego" of the Shareholder or Director. That is, there is no difference between the two. Amendment: An addition to, deletion from, or a change of existing provisions of the articles of incorporation of a domestic corporation. Annual meeting: A yearly meeting of shareholders at which directors are elected and other general business of the corporation is conducted. Annual report: A required annual filing in a state, usually listing directors, officers and financial information. Also, an annual statement of business and affairs furnished by a corporation to its shareholders. Apostille: Is a method of certifying a document for use in another country pursuant to the 1961 Hague Convention. With this certification by apostille, a document is entitled to recognition in the country of intended use, and no certification or legalization by the embassy or consulate of the foreign country where the document is to be used is required. With our international package, we include an apostilled copy of the certificate of incorporation for use in your desired country. Articles of incorporation: The title of the document filed in many states to create a corporation. Also known as the certificate of incorporation or corporate charter. Articles of organization: The title of the document filed in many states to register a limited liability company (LLC) with the state. Also known as articles of formation. Sometimes called a Charter or Corporate Charter. 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" (d/b/a). Authorized shares: The maximum number of shares that a corporation may issue pursuant to its articles of incorporation. Benefits: A Corporation may provide benefits for its employees (or owners working as employees such as in a small, closely held corporation). These benefits traditionally include: Health Insurance (including Dental, Eye Care, Prescription, Emergency Hospitalization, Disability, Sick Leave, etc.), Life Insurance, Vacation, and Equity Benefits, such as Tax-Qualified Retirement, 401(k), Supplemental Compensation, Stock Purchase, Incentive Stock Option, Phantom Stock and Stock Appreciation Rights Board of directors: The governing body of a corporation who is elected by shareholders. The directors are responsible for selecting the officers and the supervision and general control of the corporation. Business corporation act: A business corporation act is the collection of laws in each state that governs corporations. Bylaws: The regulations 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 (similar to the Operating Agreement in an LLC). Capital Stock: The outstanding shares of a joint stock company considered as an aggregate. 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. The certificate 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 its 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: The title of the document filed in many states to create a corporation. Also known as the articles of incorporation or corporate charter. Charging Order: When a person sues and obtains a court judgment, the creditor may only obtain a charging order against the company. This means that a creditor does not get title to the property owned by the company, but rather only the right to receive the interest holders' distributions from the company. Close corporation: A company whose shares are held mostly by a small grope of investors, management, founders, and/or families and elects in its articles of incorporation to be registered under the close corporation statutes of their 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 the corporate formalities. Exact specifications vary by jurisdiction. Not all state statutes provide for a close corporation provision. Common shares: A class of shares that has no special features and possesses no greater rights than any other shares Consolidation: The statutory combination of two or more corporations to create a new corporation. Controlled Group: A group of corporations which are grouped together for one tax purpose or another. Control may be through parent-subsidiary relationships or common control, such as a brother-sister controlled group. Control means ownership of a certain percentage (generally either at least 80% or less frequently, at least 50% of the the total combined voting power of all classes of voting stock or of the total value of shares.) Constituent: A party to a transaction; a corporation involved in a merger, consolidation or share exchange. 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 upon the jurisdiction in which the corporation is registered. Corporate kit: A binder usually containing essential items for the routine maintenance and administration of a corporation or limited liability company. Corporate kits provided by Active Filings, LLC. include, for instance, stock certificates, a corporate seal and stock ledger. Corporate seal: A corporate seal is a device made to either emboss or imprint certain company information onto documents. This information usually includes the company's name and date and 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. It is a body formed and authorized by law to act as a single person although constituted by one or more persons and legally endowed with various rights and duties including the capacity of succession. Corporation law: The statutory provisions of a state relating to domestic and foreign corporations. Debenture: A long-term debt issued mainly to evidence an unsecured corporate debt. Derivative suit: A lawsuit brought by a shareholder on behalf of a corporation to protect the corporation from wrongs committed against it. Directors: The individuals who, acting as a group known as the board of directors, manage the business and affairs of a corporation. They are appointed by the shareholders on a yearly basis at the annual shareholders meeting to oversee the management of the corporation. 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: The statutory procedure that terminates the existence of a domestic corporation. Distribution: A transfer of money or other property made by a corporation to a shareholder in respect of the corporation's shares. Dividend: A distribution of a corporation's earnings to its shareholders. Double taxation: Taxation by the federal government of corporate earnings once at the corporate level and again at the shareholder level upon distribution of dividends. Employment Law: This includes the Fair Labor Standards Act, Civil Rights Act, Age Discrimination and Employment Act, Americans With Disabilities Act, Occupational Safety and Health Act, Workers Compensation, Employee Polygraph Protection Act, Electronic Communications Privacy Act, and the Family and Medical Leave Act. 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. Federal Employer Identification Number: The Federal Tax Identification Number (also known as a "95 Number" or "EIN Number") is a number assigned to a corporation or L.L.C. by the Federal Government for purposes of taxation. The Federal Tax ID Number is to a corporation or L.L.C. as a Social Security Number is to an individual. Most banks require that a corporation or L.L.C. obtain a Federal Tax Identification Number as a prerequisite to opening a bank account regardless of whether the company will have employees. 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" (DBA) Foreign corporation: A corporation carrying on business in any state other than the state of its creation--in all such states it is ""foreign."." Fractional share: Ownership in a corporation in an amount less than a full share. Franchise tax: A tax or fee 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 the company and forfeiture of the charter. Fraudulent Conveyance:: A contractual misrepresentation of the nature, quality, or existence of transferred assets. Also, a term denoting potential risk for sellers and lenders. General Partnership: A partnership in which there are no limited partners, and each partner has managerial power and untitled liability for partnership debts. Going public: The process by which a corporation first sells its shares to the public. 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. Incorporator: The person(s) who perform the act of incorporation and who sign the articles of incorporation and deliver them 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 some 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; dissolution 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. 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 consisting of one or more general partners who manage the business and are liable for its debts, and one or more limited partners who invest in the business and 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 percent; commonly used as the percentage of votes required to approve certain corporate actions. Managers: The individuals who are responsible for the maintenance, administration and management of the affairs 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 provide 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 corporate minutes are the written record of transactions taken or authorized by the board of directors or shareholders. These are usually kept in the corporate minute book in diary fashion. Minutes Book: Corporate Minutes Books are binders for holding your meeting minutes as well as articles, bylaws, and other corporate documents. Name: The name of an entity is chosen by the company owners and approved by the Secretary of State. Any approved entity name is only a grant by the State for you to use that name--it has nothing to do with your right to conduct business. For protection and the right to do business, a trademark is necessary. 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 not-for-profit corporation is generally organized for some socially beneficial purpose, rather than for the direct monetary benefit of the directors or members. 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 non-profit corporation. Officers: Individuals appointed by the board of directors who are responsible for carrying out the board's policies and for making day-to-day decisions. These may include: Chief Executive Officer, President, Vice President, Corporate Secretary, Treasurer, General Manager, Controller, and Assistant Officers. Officers can be terminated by the Directors at any time, on a majority vote of the directors. Organizational meetings: Meetings of incorporators or initial directors that are held after the filing of the articles of incorporation to complete the organization of the corporation. Organizer: The person(s) who perform the act of forming a limited liability company. Parent corporation: A corporation that owns a controlling interest in another corporation. Partnership: A business organization in which two or more persons agree to do business together. Par value: A minimum price of a share below which the share cannot be issued, as designated in the articles of incorporation. Passive income: Income to certain taxpayers (including "S" corporation shareholders) that is subject to the passive activity loss (PAL) rules because the taxpayer does not materially participate in the business activity producing the income. Generally includes receipts from royalties, rents, dividends interest, annuities, and the sale and exchange of stock and securities. Perpetual existence: Unlimited term of existence; characteristics of most business corporations. Personal holding company: A corporation whose income is passive, i.e., from interest, dividends, royalties and rents. Pierce the Corporate Veil: To disregard the corporate entity, and thus hold the shareholders liable for corporate actions (such as in cases of fraud). Preferred shares: A class of shares that entitles the holders to preferences over the holders of common shares, 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. Qualification: The filing of required documents by a foreign corporation to secure a certificate of authority to conduct its business in a state other than the one in which it was incorporated. Limited liability companies or similar business entities may also conduct this process. Quorum: The percentage or proportion of voting shares required to be represented in person or by proxy to constitute a valid shareholders meeting, or the number of directors required to be present for a valid meeting of the board. Record date: The date for determining the shareholders entitled to vote at a meeting, receive dividends, or participate in any corporate action. Redeemable shares: Shares 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 and available at a legal address within the specified jurisdiction at all times. Failure to maintain a Registered Agent in the jurisdiction in which the corporation is registered, may result in the forfeiture of the 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, it is usually the address of the Registered Agent. Reinstatement: Returning a corporation that has been administratively dissolved or had its certificate of authority revoked, to good standing on a state's records. Related persons: For purposes of the related person rule, the following are related to a corporation: 1) another corporation that is a member of the same controlled group; 2) an individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation; 3) a trust fiduciary when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation; 4) an "S" Corporation if the same persons own more than 50% in value of the outstanding stock of each corporation; 5) a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership, and 6) any employee-owner if the corporation is a personal service corporation, regardless of the amount of stock owned by the employee-owner. Resolution: A formal statement of any item of business that has been voted upon. Restated articles of incorporation: A document that combines all currently operative provisions of a corporation's articles of incorporation and amendments thereto. S Corporation: A corporation 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 this type of corporation pays no income tax, all gains and losses of the corporation pass through to the individual shareholders in proportion to their holdings. 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: Shareholders are 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. 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. Special meeting: A shareholder meeting called so that the shareholders may act on the specific matters stated in the notice of the meeting. Stock: Stock represents ownership in a corporation. It 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. Stockholders: Stockholders are 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. 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 may be required to operate exclusively for charitable, religious, literary, educational or similar types of purposes. Trademark: A word or mark that distinctly indicates the ownership of a product or service, and that is legally reserved for the exclusive use of that owner. 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. | ||||
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