Basis

Basis, a tax and accounting term, is the measuring rod against which gain or loss is measured. With stock, basis is what you pay for stock or the fair market value of property you contribute in exchange for the stock.

Bearer Instrument

An instrument is payable to its bearer when by its terms it is payable to 1) a bearer or the order of a bearer; 2) a specified person or bearer; or 3) “cash” or the order “cash,” or any other indication that does not purport to designate a specific payee. Bearer shares are a common example of a bearer instrument.

Blue Sky Law

A term used to describe state laws and regulations governing the issuance and sale of securities to residents of a state and the licensing and regulation of securities brokers and dealers.

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.

Bond

A long-term debt secured by a mortgage on real property or a lien on other fixed assets.

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.

C Corporation

The most common corporate structure, also known as a general corporation. A C corporation may have an unlimited number of stockholders. Consequently, it is usually chosen by those companies planning to have more than 30 stockholders or large public stock offerings.

Certificate of Authority

Formal evidence of qualification issued by a state to a foreign corporation.

Certificate of Existence

See Certificate of Good Standing.

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.

Close Corporation

A corporation that 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.

Closely Held Corporation

A closely held corporation is any corporation in which the stock is held by a relatively small group of people or entities. Stock of a closely held corporation is not publicly traded on any stock exchange.

Common Shares

A class of shares that has no special features and possesses no greater rights than any other shares.

Commingle

Commingling, is the sharing and pooling of personal and corporate assets. For example, rather than maintain separate corporate and personal bank accounts, you choose to use one account for personal and corporate purposes. This is considered commingling and an easy way to become personally liable for corporate acts.

Compliant

As used throughout the Compliance WatchSM suite of services, this term refers to a level of completion of a legal entity’s responsibilities to maintain the formalities of corporate existence under the laws of the jurisdiction in which it is formed. The term is not intended to mean or imply conformity with all of the federal and state regulatory or tax requirements which may exist for operating your business.

Consent Resolution

A consent resolution is any resolution signed by all of the directors or shareholders, which authorizes a particular action. This act eliminates the need for face-to-face meetings of directors and shareholders.

Consideration

Relating to forming an incorporation in the state of Illinois. (1) Something of value, such as money or personal services, given by one party to another in exchange for an act or promise. For example, amount paid for stock in a corporation. (2) Something promised, given, or done that has the effect of making an agreement a legally enforceable contract.

Consolidation

The statutory combination of two or more corporations to create a new corporation.

Constituent

A party to a transaction; a corporation involved in a merger, consolidation or share exchange.

Contract Creditors

Contract creditors are people or businesses which you owe money or property to because of a written or verbal contractual agreement. If you buy 30 widgets from Widget World, Widget World becomes a contract creditor.

Convertible Security

A security that may be exchanged by the holder for another type of security.

Corporate Charter

See Articles of Incorporation.

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 The Company Corporation include sample minutes and bylaws, 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. The Company Corporation includes custom-made corporate seals as part of the Corporate Kit.

Corporation

An artificial entity created under and governed by the laws of the state of incorporation.

Corporation Law

The statutory provisions of a state relating to domestic and foreign corporations.

Cumulative voting

A procedure used for electing directors in which shareholders are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two or more candidates.

DBA

Doing business as; see Fictitious Name.

Debenture

A long-term debt issued mainly to evidence an unsecured corporate debt.

Debt Financing

A method of raising capital in which a corporation borrows money.

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.

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

When a corporation must pay taxes on its earnings and individual shareholders must also pay taxes on any dividends that are distributed.

Duration

How long a business will be recognized as a corporate entity. A company with a perpetual duration will last forever unless the state dissolves the company. A 30-year duration means that the company will automatically dissolve on its 30th anniversary of existence.

Employment Agreement

An employment agreement is a contract between your corporation and an employee. These agreements can be written or verbal; although all employment agreements should be in writing. Employers are more likely to have employment agreements with key employees. The terms and conditions of an employment agreement should be consistent with statutes, articles, bylaws, and any existing shareholder agreements.

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.

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” (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.

Foreign Corporation

A term applied to a corporation doing business in a state other than its state of incorporation.

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.

Going Public

The process by which a corporation first sells its shares to the public.

Good Standing

A corporation is said to be in good standing when it has remained current with the necessary reports and fees required by the regulatory jurisdictions under which it operates.

Hague Convention

Since October 5, 1961, abolished the requirement of legalization for foreign public documents, and established a basic certification, of public documents, outside their country of origination. Member countries have adopted a standard of the authenticity of public documents, called an Apostille.

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.

Jurat

Specific notary language citing, under oath, that a signature has been witnessed.

Legalization of Certified Documents

Needed for companies (overseas) that are not part of the Hague Convention. Companies in a country that is not part of the Hague will not benefit from an Apostille. (1) To make legal or lawful; authorize or sanction by law.

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.

Management

The board of directors and executive officers of a corporation, limited liability company or similar business entity.

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.

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.

Notice of Litigation

See Notice of Service of Process

Notice of Service of Process

Official notification of an action or proceeding by the delivery of a legal or court document, with a request to answer in a specific period of time.

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.

Operating Agreement

A contract among the members of a limited liability company governing the membership, management, operation and distribution of income of the company.

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.

Pass-Through Taxation

Rather than tax the income of the entity, taxation is “passed through ” to the individual shareholders in S corporations (and LLCs). Income or losses are declared on their individual tax returns.

Perpetual Existence

Unlimited term of existence; characteristics of most business corporations.

Piercing the Corporate Veil

Piercing the corporate veil is a legal theory sometimes used to impose personal liability on shareholders, officers, and directors for corporate acts. This theory permits a court to disregard the separate identity of the corporation.

Preemptive Rights

The right of a shareholder to subscribe ratably for his or her proportion of any additional shares issued by a corporation.

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.

Promoter

A promoter, in a corporation context, is one who generates interest and activity in and on behalf of a corporation before its formation. A promoter is usually personally liable for all pre-incorporation activities.

Proxy

A written authorization given by a person to another party directing the party to vote on behalf of him/her.

Qualification

The filing of required documents by a 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.

Regulations

Regulations are administrative rules which have the force and effect of laws. Government agencies promulgate rules. If you don’t comply, you are subject to the possibility of fines or revocation of the corporate charter.

Reinstatement

Returning a corporation that has been administratively dissolved or had its certificate of authority revoked, to good standing on a state’s records.

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.

Revised Model Business Corporation Act

A model corporation statute compiled by the American Bar Association that has been adopted in whole or in part by, or has influenced the statutes of many states.

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.

Scrip

A form used to represent ownership of fractional shares in lieu of issuing share certificates.

Security

A contract between a business and an investor whereby the investor supplies money and experts to profit from his or her investment.

Securities Laws

State and federal laws that govern the issuance, sale and transfer of stocks and bonds.

Services of Process

See Notice of Service of Process

Shares

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.

Short-Form Merger

The statutory merger of a subsidiary into its parent corporation in which shareholder approval is not required.

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.

Statutes

Statutes are laws passed by the state legislature or U.S. Congress. Business corporation laws are statutes. Statutes often authorize an administrative agency to declare regulations which are used to supplement the statute. In the event of a conflict, statutes control over regulations.

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.

Stock Purchase Agreement

A stock purchase agreement is an agreement between the shareholders and the corporation. It provides a mechanism to regulate the transfer and sale of corporate stock. Often, a stock purchase agreement will provide a right of first refusal in favor of the corporation or remaining shareholders in the event of a proposed sale of stock by a shareholder. A stock purchase agreement can also provide for a purchase upon the death, disability, retirement, discharge, resignation, or bankruptcy of a shareholder.

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

Subscribers

Persons who agree under specific conditions to purchase shares in a corporation.

Subscription

The agreement executed by a subscriber.

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.

Tort

A tort is any act or failure to act (if there was a duty to act) which causes harm or damage. Examples of torts include assault, battery, fraud, misrepresentation, defamation, libel, slander, invasion of privacy, and negligence. If there is a claim against your corporation, other than a claim by the government, it will likely be based in contract or tort.

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.

Treasury Share

Shares of a corporation reacquired by a corporation.

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.

Voting rights

Rights of shareholders to vote their shares pursuant to provisions of statutes, the articles of incorporation and the bylaws.

Voting or Pooling Agreement

A voting or pooling agreement is an agreement, preferably in writing, of two or more shareholders to vote their shares in a certain manner. The most common use of this agreement would be to pool voting strength for the election of directors.

Voting Trust

A voting trust is an agreement among the shareholders of the corporation. Under a voting trust, shareholders transfer their shares of stock to a trustee in exchange for voting trust certificates. The trustee votes the shares in the manner directed in the voting trust agreement. Voting trusts are often used to preserve control of the corporation.

Watered Shares

Shares that have been issued for a consideration less than the par or stated value of the shares.

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.