Accounting year

A twelve-month period used for accounting and tax purposes.  An accounting year ending on December 31 is called a “calendar year.”  An accounting year ending on the last day of a month other than December is called a “fiscal year.”

Agent for service of process (registered agent)

A person or entity designated in the Articles of Incorporation to receive service of process and other official corporate correspondence on behalf of the corporation.

Alter ego liability

A legal principle whereby a court disregards the limited liability of the shareholders as a result of fraudulent or wrongful corporate activities.  The corporation is determined to be the “alter ego” of its shareholders, who are held personally liable for corporate debts and obligations in a particular transaction. To learn more about limited liability protection in a corporation, click here.

Amendment

A change to existing provisions of a corporation’s Articles of Incorporation or bylaws.

Annual meeting (of shareholders)

A yearly meeting of shareholders at which directors are elected and other general business of the corporation is conducted.

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,” “Certificate of Existence,” or other similar name. To learn more about Articles, click here.

Articles of Organization

A document similar to Articles of Incorporation but used to create a Limited Liability Company (LLC).

Authorized shares (Authorized stock)

Authorized shares are the shares described in the Articles of Incorporation specifying the maximum number of shares that a corporation is permitted to issue (without filing an Amendment to its Articles specifying a greater number).  Usually, more shares are authorized than are issued, so the corporation has a reserve for the future.

Board of Directors

The governing body of the corporation responsible for making major policy decisions to be carried out by the corporation’s officers. The board of directors also elects or appoints the officers of the corporation. The shareholders elect the board annually. To learn more about the board of directors, click here.

Business corporation – see Corporation

Bylaws

The internal operating document for the corporation.  Bylaws detail the responsibilities, rights, and duties of directors, shareholders and officers.  The document is not filed with any state agency. To learn more about bylaws, click here.

Calendar year

An accounting year ending on December 31.

C corporation

The tax classification for every “for profit” corporation that does not make an election to be treated as an “S” corporation under the Internal Revenue Code. A “C” corporation is a separately taxable entity and therefore raises the issue of “double taxation” of the corporation’s profits. See “S” corporation for comparison. To learn more about "C" corporations, click here.

Close corporation (statutory close corporation)

A corporation whose ownership is held by a single person or a small group of people and where the shareholders are involved in the conduct of business.  Statutory requirements for close corporations vary from state to state, but typically limit the number of shareholders and require that the shareholders enter into a written agreement concerning voting and other rights. To learn more about close corporations, click here.

Consideration

Anything of value, either tangible or intangible, given in exchange for shares of stock in a corporation.  Consideration may be cash or a promissory note, equipment, property, or services rendered.

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 Nationwide Incorporators include personalized bylaws, minutes, stock certificates, a corporate seal and stock ledger, all contained in a binder embossed with each corporation’s name.

Corporate resolution – see Resolution

Corporate seal

A corporate seal is typically a metal device made to either emboss or imprint certain company information (usually the corporate name and date of incorporation) onto documents.  A corporate seal is often required when opening bank accounts, issuing stock certificates, or conducting other corporate business. It is generally provided as part of the Corporate Kit.

Corporation

A separate and artificial legal entity created under and governed by the laws of the state of incorporation. For a description of the common tax classifications of corporations, see “C” corporation” and “S” corporation.”

Director

A person elected by the shareholder(s) to manage the affairs of the corporation.  If there is more than one director, the group is called the board of directors.  Directors typically elect or appoint the officers and only participate in major business decisions. To learn more about directors, click here.

Dissolve / dissolution

Termination of a corporation's legal existence with the state’s incorporating agency.

Dividend

A payment to shareholders from or out of current or past earnings.

Domestic corporation

A corporation is domestic to the state where it was incorporated. As to all other states, it is referred to as a foreign corporation.

Double taxation

A situation in a “C” corporation in which the owners of the corporation are taxed twice on the same income: first, in the form of a corporate income tax on the corporation’s net income, and second, in the form of a personal income tax when the corporation’s net income after taxes is paid to the shareholders as a dividend.  "S" corporations and LLC's are “pass-through” tax entities and generally are not subject to double taxation.

EIN (Employer identification number) – see Federal tax identification number

Federal tax identification number (Employer identification number, EIN, tax number)

A federal tax identification number is a unique number assigned by the IRS for tax purposes.  Analogous to a social security number, but for a business. As a separate legal and taxable entity, every corporation must have its own EIN assigned by the IRS.

Fictitious business name

A name other the entity’s true name, under which an individual or business entity conducts business.  Also referred to as an assumed name, a trade name or "doing business as" (D.B.A.).

Fiduciary relationship

A relationship in which one party (the fiduciary) must act in good faith and with due regard to the best interests of the other party or parties. For example, directors and officers have a fiduciary relationship to the corporation.

Fiscal year

A twelve-month period used by a company for accounting purposes.  Fiscal years always end on the last day of a month.  The term “fiscal year” refers to a twelve-month accounting period that ends on the last day of a month other than December. 

Foreign corporation

A corporation conducting business in a state other than its state of incorporation.  A foreign corporation usually must obtain authorization, or “qualify,”  to transact business within any state in which it conducts business other than its state of incorporation.

Franchise tax (in California)

An annual tax imposed on a corporation, limited partnership or an LLC for the privilege of doing business in a limited liability form within the state.  It is typically measured by the earnings or amount of business done within the state. However California imposes a minimum annual franchise tax of $800 regardless of the amount of income (or loss) of the entity. To learn more about the California franchise tax, click here.

General business corporation – see Corporation

General partnership

Same as “Partnership,” but designated as “General partnership” to distinguish this kind of entity from a “Limited partnership.”  All partners in a general partnership are general partners and have unlimited liability for the debts and obligations of the general partnership. To learn more about general partnerships, click here.

Gross receipts fee (in California)

This is a fee imposed by California on the gross revenues generated by all limited liability companies from all sources. It is separate from the franchise tax that must also be paid by all LLCs in California, and the franchise tax payment is not credited against the gross receipts fee owed by the LLC. To learn more about the gross receipts fee and see a table of the current fees, click here.

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Incorporator

The person who signs and files the Articles of Incorporation with the state’s incorporating agency and completes the initial steps required to form the corporation.

Issued shares

Refers to the authorized shares of a corporation that have actually been issued to one or more shareholders. Each share certificate is completed to specify the number of shares being issued and the name of the shareholder to whom the shares are being issued.

Joint venture

A general partnership formed for a specific, limited purpose, or a limited amount of time.

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Limited liability

A characteristic of certain business entities in which the liability of a business owner is limited to the amount of his or her capital investment. The personal assets of the owner are generally not at risk for the debts and obligations of the business. To learn more about limited liability protection in a corporation, click here.

Limited Liability Company (LLC)

A type of business entity combining the characteristics of limited liability with “pass through” taxation of profits, thus preventing double taxation. Owners are called members. An LLC may be managed by its members or by one or more managers. To learn more about the characteristics of an LLC, click here. To learn more about the structure of an LLC, click here. To learn more about the advantages and disadvantages of LLC's, click here.

Limited Liability Partnership (LLP)

A statutory form of partnership having the characteristics of an LLC, but reserved for certain professionals In California, these include attorneys, accountants and architects only. The professions affected vary from state to state. To learn more about LLP's, click here. To learn more about LLP's, click here.

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 liability. To learn more about limited partnerships, click here.

Limited partner

A partner in a limited partnership who enjoys limited liability in exchange for having very limited management rights in the operation of the business entity.

Manager (in an LLC)

A limited liability company may be managed by its members (equivalent to shareholders) or by one or more managers. Managers may, but need not be, members. An LLC is thus referred to a “member-managed” or “manager-managed” and this fact must be noted in the Articles of Organization that is filed with the Secretary of State to create an LLC. To learn more about the management in an LLC, click here.

Member (in an LLC)

An owner of a limited liability company.  Members manage an LLC unless the Articles of Organization provide for management by a manager or a group of managers. To learn more about the management in an LLC, click here.

Minutes

A written record of the important events or transactions of a corporation, typically including all of the events taking place at both shareholders’ meetings and directors’ meetings.  These records are usually kept in the corporation’s minute book. Typical events documented in minutes include loans, signing important agreements or leases, adopting employee fringe benefits, and so on. It is equally important for LLC's to keep minutes of the same types of transactions as corporations.

Nonprofit corporation (Not-for-profit corporation)

A nonprofit corporation is generally organized for some socially beneficial purpose, rather than for the direct monetary benefit of the shareholders or members.  Not all nonprofit corporations are tax-exempt, and some make a profit; however, the profit is not distributed to the owners. To receive tax-exempt status, the corporation must submit a written application to the federal and state tax agencies and meet certain requirements relating to the distribution of its assets and profits as well as other requirements. To learn more about nonprofit corporations, click here.

Officer

A person holding office in a corporation or LLC and having specific management responsibilities. Officers generally include a president, chief financial officer or treasurer, and secretary, and may include vice presidents and assistant officers. To learn more about the officers of a corporation, click here.

Operating Agreement

An internal agreement among an LLC's members governing the LLC's structure and operations.  This agreement is essentially equivalent to a partnership agreement in a general or limited partnership. To learn more about operating agreements, click here.

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 the opening of bank accounts is authorized.

Partner

Together with the other partners, the co-owner of a partnership.

Partnership

A business organization in which two or more persons agree to do business together and share profits and losses. To learn more about general partnerships, click here.

Par value

An arbitrary or nominal value assigned to each share of stock. Stock must be sold for at least this value. Stock may be par value or “no par” stock.

Pass-through taxation

A tax characteristic where the business entity is not taxed and tax is only paid by the owners of the entity on their personal tax returns. This includes shareholders in an “S” corporation, members in an LLC and partners in a partnership. It is called “pass-through” taxation because the profits of the entity are “passed through” to the owners for the taxes to be paid by them individually. To learn more about pass-through taxation in an S corporation, click here.

Preemptive rights

These give an existing shareholder the opportunity to purchase or subscribe for a proportionate part of a new issue of shares before it is offered to other persons. This allows existing shareholders to maintain their current ownership percentage in the corporation without such percentage becoming “diluted” through the issuance of new or additional shares to others.

Professional corporation

A corporation whose purposes are limited to certain specified 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. State law, as well as the regulations of each licensed profession, imposes requirements on who may be officers, directors and shareholders in a professional corporation.

To learn more about professional corporations, click here.

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 number of persons required to attend a shareholders’ or directors’ meeting (in person or by proxy) for a vote on corporate matters.

Registered agent – see Agent for service of process

Resolution (Corporate resolution)

A formal decision of a corporation, adopted by either the directors or the shareholders. Resolutions are generally set forth in the recorded minutes of the corporation and maintained in the corporation’s minute book.

S corporation (Subchapter S corporation)

A tax classification for a corporation making it a pass-through tax entity and allowing it to avoid double taxation.  A corporation may obtain this designation by satisfying certain requirements and filling proper paperwork with the IRS. To learn more about "S" corporations, click here.

Securities laws

State and federal laws that govern the issuance, sale and transfer of securities. These include shares in a private corporation, memberships in an LLC and limited partnership interests in an LP.

Service Mark

A word or mark that distinctly indicates the ownership of a service, and that is legally reserved for the exclusive use of that owner.

Share

The unit into which the ownership interest in a corporation is divided.

Shareholder (Stockholder)

Owner of a corporation.

Sole proprietorship

An unincorporated business with a sole owner in which the owner is personally liable for business debts and claims against the business. To learn more about sole proprietorships, click here.

Statement of Officers (in California)

A statement filed with the Secretary of State’s Office listing the names and addresses of the corporation’s officers, directors and agent for service of process. The initial Statement of Officers must be filed within 90 days of incorporating, and thereafter on a biennial basis. Most states require the filing of a similar form or report and payment of a fee for the corporation to remain in good standing.

Statutory close corporation – see Close corporation

Stock

Representation of ownership interest in a corporation.  Stock is usually represented by a certificate.  Stock conveys rights of proportionate dividends to the owner, as well as voting rights. Classifications and special designations, if any, of the stock are set forth in the Articles of Incorporation.

Stock certificate – see Stock

Stockholder – see Shareholder

Subchapter S corporation – see S corporation

Tax clearance certificate (in California)

A document issued by the California Franchise Tax Board indicating that the payment of an entity’s tax obligations have made or otherwise adequately provided for. This Certificate is required by the Secretary of State before a Certificate of Dissolution will be filed terminating the existence of a corporation.

Trademark

A word or mark that distinctly indicates the ownership of a product, and that is legally reserved for the exclusive use of that owner.

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Voting rights

Rights of shareholders to vote their shares pursuant to provisions of statutes, the Articles of Incorporation and the bylaws.

Winding up

The discharging of a corporation's liabilities and the distributing of its remaining assets to its shareholders in connection with its dissolution.

Withdrawal

The statutory procedure whereby a foreign corporation obtains the consent of a state to terminate its authority to transact business there.

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