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Glossary of Corporate Terms

accrual method Accrual Method is a method of keeping accounts which shows expenses incurred and income earned for a given period, although such expenses and income may not have been actually paid or received.
aggregate par value Aggregate par value is the par value multiplied by the number of authorized shares. This amount is important in determining initial fees and annual franchise taxes in many states.
annual meeting of shareholders Annual Meeting is the meeting of stockholders each year called to elect officers and directors, to ratify actions of officers and directors and to vote on corporate matters which come before it. Annual meetings are required of publically held corporations.
apostilleis Apostilleis is a standard certification provided under the Hague Convention of 1961 for the purpose of authenticating documents for use in foreign countries. The completed apostille form certifies the authenticity of the document's signature, the capacity in which the person signing the document has acted, and identifies the seal/stamp which the document bears.
articles of incorporation The articles of incorporation are the primary legal document of a corporation and serve as a corporation's constitution. The contents thereof are prescribed in the general incorporation statutes, and commonly include the corporation's: name, period of existence, purpose and power, authorized number of shares, classes of stock, and other conditions of operation. After approving the articles, the state issues a Certificate of Incorporation the two documents together become the Charter of Incorporation.
articles of organization Articles of Organization is an equivalent in general form to a corporations articles of incorporation, an LLC must file the articles of organization with the proper state authorities (usually secretary of state) to begin existence.
assumed name Assumed Name is a term used to indicate another name under which a corporation conducts business that is not the legal name of the corporation as shown in its articles of incorporation. Assumed name is also known as fictitious name and Doing Business As (DBA). Assumed names are typically filed at the county level with the county recorders office. A corporation can use multiple assumed names.
authorized shares stock Authorized Shares is the total number of shares of capital stock which the charter or articles of incorporation permit the corporation to sell. The corporation does not have to sell (issue) all authorized shares of stock.
business entity Business Entity is an organization that possesses a separate existence for tax purposes. Some types of business entities include corporations and foreign corporations, business trusts, limited liability companies, and limited partnerships.
business judgment Business Judgment is the rule stating that directors of corporations will not be held personally liable for unwise business decisions providing that the directors made an informed decision and that decision was not tainted by self-interest.
bylaws Bylaws are the rules and regulations adopted by a corporation for its internal governance. Bylaws usually contains provisions relating to shareholders, directors, officers and general corporate business. At the corporation's initial meeting the bylaws are adopted. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend.
c corporation A C corporation is simply a standard business corporation. It is called a C corporation because it is taxed under subsection C of the IRS code. Certificate of Authority Is a document issued by the proper state authority to a foreign corporation granting the corporation the right to do business in that state.
capital gains or losses Capital Gains or Losses is the profit or loss realized on the sale or exchange of a capital asset. The gain is the difference between the cost or the adjusted basis of an asset and the net proceeds from the sale or exchange of such asset.
capital stock Capital Stock is the stock authorized by a firm's charter and having par value, stated value, or no par value. The number and the value of issued shares are usually shown, together with the number of shares authorized, in the capital accounts section of the balance sheet.
cash method Cash Method or cash casis is an accounting system that treats as income only cash which is actually received and as expense only cash which is actually paid out in any one tax year, in contrast to the accrual method.
certificate of authority Certificate of Authority is a document issued by a state corporation authority, usually secretary of state, on application of a foreign corporation granting such corporation the right to do business in that state.
close corporations A close corporation is a corporation that possesses the following traits: a small number of shareholders; no ready market for the corporation's stock; and substantial participation by the majority shareholders in the management of the corporation. This kind of corporation typically has 30 to 50 stockholders and is a good match for businesses in which the majority of stockholders is actively involved in the management of the company.
common stock Common Stock is the primary stock of a corporation. Common stock gives shareholders the right to participate in management of the corporation and give the shareholder a proportionate share of the dividends.
corporate record book Corporate Record Book is a record book containing all important documents such as: articles of incorporation, by-laws, meeting minutes, annual reports, stock registers, etc. Corporate record book is very important as evidence that in fact the company is acting as a corporation thus entitling its shareholders to limited liability.
cumulative voting Cumulative Voting is the method of voting which is intended to create adequate representation of minority shareholders. Cumulative voting allows shareholders to aggregate their votes in favor of fewer candidates than there are slots available.
directors Directors are people elected by the shareholders to manage or direct the affairs of corporation. Typically, the directors make only major business decisions, major policy changes and monitor the activities of the officers.
dissolution Dissolution is the termination of a corporation's legal existence. Dissolution may be caused many ways including, failure to file annual reports, failure to pay certain taxes, bankruptcy, or voluntary dissolution of the corporation by the shareholders and directors.
dividend Dividend is the distribution of current or accumulated earnings to the shareholders of a corporation pro rata based on the number of shares owned. Dividends are usually issued in cash but may be issued in the form of stocks or property.
doing business as DBA DBA is also known as an "assumed name". DBA is typically completed by making a filing at the county level where the business is located. This filing does not change the official name of the corporation; however, it allows the company to use additional names.
domestic corporation Domestic Corporation is one that is organized and chartered in a particular state. Domestic corporation is considered a domestic corporation of that state.
double taxation Double Taxation is a term referring to the fact that earnings of a corporation may be taxed twice, both as the net income of the corporation and again as the dividends distributed to the stockholders. S corporations and LLCs are pass-through entities which are not subject to the double tax.
EIN or employer identification number "Employer Identification Number or EIN is a unique number assigned by the Internal Revenue Service to every employer in the United States for the purposes of identification. Similar in purpose to the Social Security Number assigned to individuals. "
equity Equity is the stockholders' proportionate share (ownership interest) in the corporation's capital stock and surplus. An owner's equity in a business is equal to the business's assets minus its liabilities.
federal tax identification number Federal Tax Identification Number is a number given to a corporation or other business entity by the federal government for tax purposes. Also known as an Employer Identification Number (EIN) it is often required in order to transact business in a similar manner that an individual requires a social security number.
fiscal year Fiscal year is a period of 12 consecutive months without regard to the calendar year. The fiscal year is designated by the calendar year in which it ends. The federal government's fiscal year begins October 1 and ends September 30. The fiscal year carries the date of the calendar year in which it ends and is referred to as FY.
foreign corporation Foreign Corporation is a corporation doing business in one state though chartered or incorporated in another state is a foreign corporation as to the first state and as such, is required by law to consent to certain conditions and restrictions in order to do business in such first state.
franchise tax Franchise Tax is a tax on the right and privilege of carrying on business in the corporate or LLC form in a state. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock, or by amount of business done.
general corporation General Corporation is the most common legal structure for incorporation. A general corporation can have an unlimited number of shareholders and each shareholder's personal liability is proportional to his or her amount of investment.
holding company Holding Company is a company that usually confines its activities to owning stock in and supervising management of other companies. A holding company usually owns a controlling interest in the companies whose stock it holds. In order for a corporation to gain the benefits of tax consolidation, including tax free dividends and the ability to share operating losses, the holding company must own 80% or more of the voting stock of the corporation.
incorporator Incorporator is a person or entity that prepares, files and signs the articles of incorporation and everything necessary for incorporation including raising funds and bringing in the people who will be investing.
indemnify Indemnify is the practice by which corporations pay expenses of officers or directors who are named as defendants in litigation relating to corporate affairs. In some instances corporations may indemnify officers and directors for fines, judgments, or amounts paid in settlement as well as expenses.
IRS 2253 IRS 2253 is the form used to apply for S corporation status.
IRS form 1023 IRS Form 1023 is used to apply for tax-exempt status with the IRS, mainly used for Non-Profits.
IRS form SS-4 IRS Form SS-4 is used to apply for a federal tax ID number.
limited liability company Limited Liability Company or LLC provide limited liability to their members, however are taxed like a partnership, preventing double taxation. LLCs can be formed in every state. An LLC is formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs are a relatively new entity in the United States, gaining more widespread acceptance during the early 1990's, although the concept has long been used internationally.
limited liability partnership Limited Liability Partnership or LLP is a partnership in which the general partners are not personally liable for malpractice related claims arising from the professional misconduct of another general partner. LLPs are considered partnerships for both federal and state tax purposes.
limited partnership Limited Partnership is a partnership with at least one general partner in which limited partners can purchase interest and be held liable only to the extent of their interest and not risk personal liability.
manager "Manager is an individual appointed by an associate director to manage a facility, program or other organization. The traditional functions of a manager include planning, resourcing, organizing, directing, and controlling work within an area of responsibility. "
membership interest Membership interest or interest means a member's rights in a limited liability company, collectively, including the member's share of the profits and losses of the limited liability company, the right to receive distributions of the limited liability company's assets, and any right to vote or participate in management.
merger Merger is a term used to refer when two corporations join together into one, with one corporation surviving and the other corporation disappearing. The assets and liabilities of the disappearing entity are absorbed into the surviving entity.
minutes Minutes is a written record which details the events of the corporation. These records should be kept in the corporation's or LLC's record book.
name reservation Name reservation is a procedure that allows a corporation to obtain exclusive use of a corporate name for a specified period of time. The name of a corporation or LLC must be distinguishable on the records of the state government.
nonprofit corporation Nonprofit Corporation are the corporation organized for other than profit making purposes, and of which no part of the income is distributable to its members, directors, or officers.
no-par-value stock No-Par-Value Stock is the stock with no minimum value. Most states allow no-par stock. If the stock is no-par stock then the amount of stated capital is an arbitrary amount assigned by the board of directors. Further, the value of capital for franchise tax purposes is determined by the state and this may result in higher franchise taxes in comparison with low par-value stock.
officers Officers are the people appointed by the directors to manage the daily affairs of the corporation. A corporation's officers usually consist of a president, vice-president, treasurer and secretary. In most states, one person can hold all of these posts.
operating agreement Operating Agreement is an agreement, similar to a corporation's bylaws, among the LLC's members which govern the LLC's operations and the rights of its members.
organizational meeting Organizational Meeting is the initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed such as: the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed. If the initial directors are named in the articles of incorporation, they can hold the organizational meeting. If they are not named, then the organizational meeting is held by the incorporator.
paid in capital requirements Paid in Capital Requirements a specified amount of paid in capital requires prior to starting business. Some states in US including CT, DC, SD, and TX require that the company must have $1,000 in paid in capital before starting business
partnership Partnership is the association of two or more persons who co-own a business for profit. A general partnership can come into existence without the need to file any formal papers with any state official.
par-value Par-Value is the stated minimum value of a share stock. Stock must be sold for at least this value or the owner of the stock can face liability. With low par value stock or no par value stock this liability is minimized.
pass-through taxation Pass-Through Taxation is the method whereby the income to the entity is not taxed at the entity level, however, the entity does complete a tax return. S corporations and LLCs are both pass-through taxation entities. The income or loss as shown on this return is "passed through" the business entity to the individual shareholders or interest holders and is reported on their individual tax returns.
piercing the corporate veil Piercing the Corporate Veil is a judicial process whereby a court would disregard usual immunity of corporate officers or entities from liability for wrongful corporate activities ie. when incorporation exists for the sole purpose of perpetrating fraud.
preemptive rights Preemptive Rights are the rights delineated in the articles of incorporation granting shareholders the first opportunity to buy a new issue of stock in proportion to their current equity percentage. The purpose of preemptive rights is to protect shareholders from dilution of value and control when new shares are issued.
preferred stock Preferred Stock is a type of stock that has characteristics of both common stock and fixed income securities. Preferred stock gives the holder ownership in a corporation and a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stocks provide a fixed dividend that is paid prior to the common stock. Preferred stock does not usually carry voting rights.
professional corporation Professional Corporation is a corporation which is organized for the purpose of engaging in a learned profession such as law, medicine or architecture. Professional corporations must file articles of incorporation with the state which meet the state's requirements for professional corporations.
proxy Proxy is the written authorization given by a shareholder to someone else to represent him and vote his shares at a shareholders' meeting.
quorum Quorum is the minimum attendance required to conduct business at a meeting of the shareholders, members, board of directors, etc. Usually, a majority of directors present of number of shares to be voted constitute a quorum. The provisions regarding what constitutes a quorum are usually provided for in the bylaws or other similar document.
registered office Registered Office is the office named in the articles of incorporation. The registered office need not be the principal office or place of business of the corporation but must be where the registered agent is located.
registered resident agent Registered/Resident Agent is a person or entity designated to receive important tax and legal documents on behalf of the corporation. This Agent must be named in the articles of incorporation and be located in the state of incorporation or organization in order to receive all legal notifications. The registered agent will receive important legal and tax documents, such as franchise tax forms and annual report forms. Also known as a Statutory Agent.
resolution Resolution is a formal decision of the corporation which has been adopted by either the shareholders or the board of directors.
s corporation S corporation is a small corporation which elects subchapter S tax treatment pursuant to rules set forth by the IRS. S corporation, which is limited to 75 or fewer shareholders, provides the benefits of incorporation but it eliminates "double taxation," which is when the profits of a corporation are taxed first as income to the corporation and then second as income to the shareholders when profits are distributed as dividends.
section 1244 stock Section 1244 entitles an individual investor in a corporation to treat up to $50,000 (or $100,000 if filing a joint return) of losses on the 1244 section stock as ordinary losses.
share Share is a unit of ownership in an equity or mutual fund. Share is often represented by a certificate, which names the shareowner and the company or fund.
shareholder Shareholder is any holder of one or more shares in a corporation. A shareholder usually has evidence that they are a shareholder; this evidence is represented by a stock certificate.
sole proprietorship Sole Proprietorship is a business owned and managed by one person, who is personally liable for all business debts and obligations. For tax purposes, the owner and his or her business are one entity, meaning that business profits are reported and taxed on the owner's personal tax return.
stated capital Stated Capital is the par value of shares multiplied by the number of shares outstanding. The amount of stated capital may effect the ability to pay dividends.
stock Stock is an equity or ownership interest in a corporation, measured in shares. Ownership of shares is demonstrated by stock certificates.
stock certificate Stock Certificate is a written instrument that shows ownership of shares in a corporation, and usually sets forth the name of the shareholder, number of shares authorized and outstanding, and states any restrictions imposed on the transfer of such shares of stock.
stock transfer book Stock Transfer Book is a record book which lists the owners of shares of stock in a corporation.
stockholder Stockholder is the owner of one or more shares of corporate stock. A preferred stockholder has first claim to: proportionate voting rights, dividends when issued, a proportionate share of the company's undivided assets, and, often, first opportunity to buy new stock issues before public offerings. Common stockholders have claims subordinate to preferred stockholders.
treasury shares Treasury Shares is the stock that has been bought back by the issuing corporation and is available for retirement or resale. Treasury Shares is issued but not outstanding. Treasury Shares cannot vote and pays no dividends.
ultra vires Ultra Vires is an act performed without any authority to act on the subject. An act is ultra vires when a corporation is without authority to perform it under any circumstances or for any purpose. Thus a contract made by a corporation beyond the scope of its corporate powers us unlawful.
unanimous written consent Unanimous Written Consent is a term used for a process that allows directors or shareholders to act without a meeting if they each give their consent to specific corporate actions in writing.



Incorporating

Corporate Glossary

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