Glossary of Terms

Articles of Organization A document filed with the Secretary of State that creates a limited liability company. It can include the name of the company, its purpose, the principal address of business, the Registered Agent's name and address, duration of the company, and its members.

Asset protection A form of financial self-defense which places assets beyond the reach of creditors.

Assets Anything owned with monetary value. This includes both real and personal property.

Authorized shares The number of shares a corporation is authorized to sell.

Bylaws Rules adopted by the corporation itself for the regulation of a corporation's own actions; a subordinate law adopted by a corporation, association, or other body for its self-government or to regulate the rights and duties of its officers and members.

Bulletproof statutes State statutes governing LLC formation that, if followed, assure the LLC it will be taxed as a partnership for federal tax purposes.

C Corporation Any corporation that is not an S corporation.

Calendar year The accounting year beginning January 1 and ending on December 31.

Certificate of Organization The document that creates an LLC according to the laws of the state. This must be filed and approved by the state.

Certificate or Articles of Incorporation The document that creates a corporation according to the laws of the state. This must be filed and approved by the state.

Consolidation When two corporations combine, creating a third.

Corporation A business formed and authorized by law to act as a single entity, although it may be owned by one or more persons. It is legally endowed with rights and responsibilities and has a life of its own independent of the owners and operators. The owners are not personally liable for debts or obligations of the corporation.

Deceptively similar A name so similar to another name that the two become confused in the public eye.

Default rules Statutory rules that take effect in the absence of contrary provisions in an Operating Agreement.

Dissolution Formal statutory liquidation, termination and winding up of a business entity.

Distribution Payment of cash or property to a member, shareholder or partner according to his or her percentage of ownership.

Double taxation Occurs when corporations pay tax on corporate profits and shareholders pay income tax on dividend or distributive income.

Dividend income Dividends that must be declared as regular income for income tax purposes.

Fictitious business name A name other than the registered name under which a company may do business as long as it is not used for fraudulent purposes.

Fiscal year Any 12-month period used by a business as its fiscal accounting period. Such accounting period may, for example, run from July 1 of one year through June 30 of the next year.

Flexible statutes State formation statutes that allow an LLC options that exceed IRS guidelines for special tax status.

Foreign corporation A corporation formed in one state or country but conducting some or all of its business in another state or country.

Foreign LLC A limited liability company formed in one state or country but conducting some or all of its business in another state or country.

Free transfer of interests The ability to transfer a membership interest to a non-member without consent of the other members.

General partner The partner who accepts personal liability and is responsible for the daily management of a partnership.

Gift For tax purposes, the IRS recognizes as a gift any voluntary transfer of property without consideration whose value does not exceed $10,000.

Incorporate To form a corporation or to organize and be granted status as a corporation by following procedures prescribed by law.

Incorporator The person who signs the Articles of Incorporation upon petitioning the state for a corporate charter.

Indemnification Financial or other protection provided by an LLC or corporation to its members, managers, directors, officers and employees, which protects them against expenses and liabilities in lawsuits alleging they breached some duty in their service to, or on behalf of, the company.

Insolvency Being unable to pay one's debts because liabilities exceed assets.

Issued shares The number of shares actually sold by the corporation.

Limited liability The condition in LLCs and corporations that frees owners from being personally liable for debts and obligations of the company, with a few tax related exceptions. With company or corporate debt, general creditors cannot attach the owners' homes, cars and other personal property.

Limited liability company A business entity created by legislation that offers its owners the limited personal liability of a corporation and the tax advantages of a partnership.

Limited partner A partner who contributes capital or property to the partnership and enjoys limited liability to the extent of his or her investment but who may not participate in the management of the partnership.

Member One who contributes capital, property or services to an LLC and in return, receives a membership interest in the company.

Membership Certificate Written instrument evidencing a percentage, interest or unit of ownership of a Limited Liability Company.

Membership interest The right to vote, participate in management decisions and receive distributions from the company.

Merger The absorption of one corporation by another.

Minority stockholder One who owns or controls less than 50 percent of the stock in a corporation.

Minutes Written records of formal proceedings of stockholders' and directors' meetings.

Non-par value stock Shares of stock without specified value.

Not-for-profit corporation A corporation organized for some charitable, civil, social or other purpose that does not entail the generation of profit or the distribution of its income to members, principals, shareholders, officers or others affiliated with it. Such corporations are accorded special treatment under the law for some purposes, including taxation.

Operating Agreement A statement of the general principles of a limited liability company which combines information from the Articles of Organization with resolutions passed unanimously by members. It details economic and management arrangements as well as members' rights and responsibilities.

Parliamentary procedure Rules such as Roberts Rules of Order, which govern stockholders' meetings, directors' meetings, etc.

Par value stock Shares of stock with a specified value.

Pass-through tax status Profits that are not taxed on the company level but are distributed directly to members who report such profits as dividend income.

Pro rata Members receive rights or dividends based upon percentage of ownership.

Proxy Authorization by a stockholder allowing another to vote his shares of stock.

Publicly owned corporation One whose stock is owned by more than 25 stockholders and is regulated by the Securities and Exchange Commission.

Quorum A majority of the stockholders or directors necessary for vote-counting and decision-making at a meeting. While a quorum is usually a majority of either the total membership or the members present, a quorum may consist of a greater number than a simple majority if desired and stated in the bylaws.

Regular corporation Also known as a C Corporation.

S Corporation (Subchapter S Corporation) A small business corporation which elects to be taxed as a partnership or proprietorship for federal income tax purposes. Individual shareholders enjoy the benefits under state law of limited corporate liability, but avoid corporate federal taxes.

Service business A business that sells service or advice instead of a tangible product.

Shareholder See Stockholder.

Sole proprietorship A business owned by an individual who is solely responsible for all aspects of the business, and where the business and its owners are thus considered the same entity.

Start-up venture A new business having no track record.

State statutes Laws created by a state legislature.

Statutory agent A lawyer, corporation or individual who has assumed the responsibility of being the legal representative for the corporation for purposes of accepting legal service in a certain state.

Stock certificate Written instrument evidencing a share in the ownership of a corporation.

Stockholder A holder of one or more shares of the stock of a corporation. A stockholder may be called a "shareholder".

Subsidiary A corporation owned by another corporation.

This Summary of Terms does not constitute the rendering of legal advice or services. This information is intended for informational use only and is not a substitute for legal advice. State laws vary, so consult an attorney on all legal matters.