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Glossary of Business Terms

A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z


A

Accounts payable
Money owed by the business to others.

Accounts receivable
Money owed the business by others.
 
Aggregate Par Value
The number of authorized shares multiplied by their par value is a corporation’s aggregate par value.

Annual Shareholders’ Meeting
A meeting of a corporation’s shareholders regularly held each year as is normally required.
 
Annual Report
A company’s Annual Report typically refers to its annual financial statements which would include a Balance Sheet, Income Statement, and other information about its financial condition and operating results.

Apostille
An Apostille or gold seal certification of a corporation’s articles of incorporation or a limited liability company’s (LLC’s) articles of organization is required for a business to be recognized in a foreign country. One must also be provided to open a bank account in some countries.

Articles of Incorporation
A corporation’s Articles of Incorporation, setting forth general information about the corporation, must be filed with and approved by the state of formation before the corporation exists.

Articles of Organization
A Limited Liability Company’s Articles of Organization that forth general information about the LLC, must be filed with and approved by the state of formation before the LLC exists.

Assets – The resources of a company that have exchange value, i.e. cash, notes receivable, accounts receivable, inventory, real estate, stocks, bonds, or the goodwill of a business.

Assets, Fixed
Also called Capital Assets, they are assets that cannot be easily converted into cash.

Assets, Current
Also referred to as liquid assets, current assets are those that can be easily converted into cash.

Assumed Name
The name a business is “doing business as” that is other than the sole proprietor’s name or, as in the case of a corporation or limited liability company (LLC), the company’s name in the articles of incorporation or organization. Such a name is also referred to as a fictitious or trade name. Businesses make this assumed name official and part of the public record with a DBA filing with the appropriate state and/or local jurisdiction.

Authorized Shares of Stock
The upper limit of the number and type of shares of stock a corporation’s articles of incorporation authorize it to issue.

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B

Balance Sheet
A financial report that shows a company’s assets and liabilities and the equity of its owners.

Board of Directors
A corporation’s Board of Directors, elected by the shareholders, meets regularly to collectively make decisions as to how the business is run. They manage the business, making decisions concerning policy, personnel, compensation, dividends, and the like.

Business Entity
The legal business structure under which the business exists.

Business Licenses
Business licenses give formal permission as is may be required by constituted authorities to conduct specified kinds of business in their jurisdiction.

Business Permits
Business permits give formal permission as is may be required by constituted authorities to operate a business.

Business Plan
A detailed outline of the objectives, structure, operations and expectations of a proposed business venture.

Buy-Sell Agreement
An agreement between business owners that sets forth circumstances under which, and a predetermined price or formula at which, the interests of an owner will be sold to the remaining owner(s).

Bylaws (Corporate)
Adopted by its shareholders, a corporation’s bylaws are the standing rules under which its internal affairs will be governed.

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C

Capital
The money or dollar value of assets used in a business.

Capitalization
The process of getting the money and assets required to start a corporation is referred to as the capitalization of the business.

Capital Gains or Losses
Gains or losses from the sale or exchange of assets.
 
C Corporation
A standard corporation taxed under subsection C of the Internal Revenue code, hence the name “C Corp”.

Certificate of Authority
A certificate authorizing a “foreign” company to operate (do business) in a state other than the state in which it was formed.

Certificate of Good Standing
A certificate showing that a company exists, is in good standing and is authorized to do business in a state.

Close Corporation
Not to be confused with the term “closely held corporation”, a “close corporation” is the legal term for a special type of corporation allowed under the laws of many states. Normally permitted to have no more than 35 shareholders, they are allowed to operate without a board of directors in accordance with a specially prepared shareholders’ agreement, eliminating many of the normal corporate formalities.

Closely Held Corporation
Not to be confused with the legal term “close corporation”, a “closely held corporation” is frequently used to describe small privately held corporations owned and operated by a small group of individuals. Though not a legal term “closely held corporation” does have a special tax meaning, defined by the Internal Revenue Service as one where over 50% of the value of the corporation’s stock is owned by 5 or fewer individuals during the last half of the corporation’s tax year.

Collateral
An asset pledged to secure a debt.
 
Common Stock
The ordinary stock of a corporation which would yield to preferred stock in dividends.

Conversion
The process of converting a business from one type of business entity to another.

Corporate Kit
The term “Corporate Kit” generally refers to a group of things designed to help one comply with any state rules and regulations regarding documentation and record keeping. In addition to a binder for important documents like the corporation’s articles of incorporation, bylaws, and minutes of shareholders and board of directors meetings, they would typically include a seal, stock certificates, a Stock Transfer Ledger, and sample forms.
 
Corporate Seal
Usually made of metal, a corporate seal is used to make an official impression identifying the company on official documents.

Corporate Veil
A term commonly used to refer to the liability limiting advantage a corporation provides shareholders.

Current Assets
Also referred to as liquid assets, current assets are those that can be easily converted into cash.

Current Liabilities
Obligations that will become due and payable in one year or less.

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D

Date of Record
The date on which the holders of record of a company's stock are designated as recipients of dividends or stock rights. Also called the Holder-of-record Date.

Directors
A corporation’s Directors, elected by the shareholders, meet regularly to collectively determine how the business is run. They manage the business, making decisions concerning policy, personnel, compensation, dividends, and the like.

Dissolution
Dissolution of a corporation or LLC terminates its legal existence and can occur voluntarily or involuntarily should certain rules and regulations be violated. To voluntarily dissolve a Corporation or LLC, Articles of Dissolution must be filed with the appropriate state agency.

Dividend
A dividend is a share of a sum paid by a corporation out of the corporation's earnings.

Doing Business As (DBA)
The name a business is “doing business as” that is other than the sole proprietor’s name or, as in the case of a corporation or limited liability company (LLC), the company’s name in the articles of incorporation or organization. Such a name is also referred to as a fictitious or trade name. Businesses make this assumed name official and part of the public record with a DBA filing with the appropriate state and/or local jurisdiction.

Domestic Corporation
A corporation is a domestic corporation in the state in which it is incorporated.

Double Taxation
“Double taxation” occurs when a corporation pays dividends to its shareholders since the corporation has already paid income taxes on its profits and the shareholders must then report the dividends on their personal tax returns. This double taxation does not occur with S Corporations and Limited Liability Companies (LLC’s) since all profits are passed through to the shareholders or members.

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E

Employer Identification Number (EIN)
The Employer Identification Number (EIN), or Federal Tax Identification Number, is a number assigned by the Internal Revenue Service (IRS) to officially identify the business.

Entrepreneur
One who organizes and manages a business, usually assuming substantial risk

Equity
The amount a company’s assets exceed its liabilities.

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F

Federal Tax Identification Number (EIN)
The Federal Tax Identification Number, or Employer Identification Number (EIN) is a number assigned by the Internal Revenue Service (IRS) to officially identify the business.

Fictitious Name
The name a business is “doing business as” that is other than the sole proprietor’s name or, as in the case of a corporation or limited liability company (LLC), the company’s name in the articles of incorporation or organization. Such a name is also referred to trade name. Businesses make this assumed name official and part of the public record with a DBA filing with the appropriate state and/or local jurisdiction.

Financial Statements
Reports that include a Balance Sheet & Income Statement designed to show the financial condition of a business.

Fiscal Year
The twelve month period chosen by a business for accounting purposes.
 
Foreign Corporation
A corporation is known as a foreign corporation in states other than the state in which it is incorporated and must file with the appropriate state agency in order to be qualified to operate in those states.

Franchise Tax
A tax charged by a jurisdiction for the right to do business there.

Funded Debt
Debt due to be paid after more than one year.

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G

Gross Profit
Sales less the cost of goods sold.

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H

Holder-of-record Date
The date on which the holders of record of a company's stock are designated as recipients of dividends or stock rights. Also called the Date of Record.

Human Capital
Special and unique expertise of individuals.
 
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I

Income Statement
Also called a Profit & Loss Statement, it is the part of a company’s financial statements showing its revenues, expenses, and net income or loss.

Incorporation
The act of forming a corporation by filing official documents, typically called a Certificate of Incorporation or Articles of Incorporation, with the appropriate state.

Incorporator
The party who, when forming a corporation, signs and files the Certificate of Incorporation or Articles of Incorporation.

Intangible Asset
An asset such as goodwill, patents and trademarks that is not physical property.

Intellectual Property
Intangible assets that normally consist of ideas and knowledge as do patents, copyrights, trademarks and trade secrets.

Involuntary Dissolution
The dissolution of a corporation by order of the state or judicial system for failure to comply with its rules and regulations.

IRS Form 1023
IRS Form 1023 is submitted when applying for tax-exempt status with the Internal Revenue Service (IRS).

IRS Form 1120
A corporation’s income tax return.
 
IRS Form 1120S
An S Corporation’s income tax return.

IRS Form 2553
IRS Form 2553 is submitted when electing S Corporation status.

IRS Form SS-4
IRS Form SS-4 is submitted when applying for a Federal Tax Identification Number, or Employer Identification Number (EIN).

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J

Judicial Dissolution
Involuntary dissolution of a corporation ordered by the judicial system.

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K

Kit & Seal
“Kits” consist of a number of things that will help you comply with any state rules and regulations regarding documentation and record keeping. Corporations are required to hold and keep a record of initial and then annual meetings of the board of directors and shareholders. While the strict rules and regulations states apply to corporations do not apply to limited liability companies (LLC’s), you will be well advised to hold periodic meetings and maintain accurate records. Stock or membership certificates must be issued to corporation shareholders or LLC members and a record of the owners must be maintained. A metal seal is used to make an official impression identifying the company on official documents.

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L

Leverage
The use of debt (borrowed funds) financing.

Liabilities, Current
Obligations that will become due and payable in one year or less

Limited Liability Company (LLC)
A business entity which, like corporations, is formed by filing articles of organization with the appropriate state.

Limited Liability Company (LLC)  Kit
The term LLC kit generally refers to a number of things designed to help one with documentation and record keeping. In addition to a binder for important documents like the company’s articles of organization and other records, they would typically include a seal, membership certificates, a record of members, and sample forms.

Limited Liability Company (LLC) Seal
Normally made of metal, a limited liability company (LLC) seal is used to make an official impression identifying the company on official documents.

Liquid Assets
Also referred to as current assets, liquid assets are those that can be easily converted into cash.

Liquidity
The extent to which liquid assets (current assets) exceed current liabilities.

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M

Management
Those charged with the responsibility of managing the operation of a business.

Manager (LLC)
Limited Liability Companies (LLC’s) can either be managed by its members or by managers, as indicated in its articles of organization.

Market
The group of people who are potential buyers of a product or service.

Member (LLC)
A member is an owner of part or all of a Limited Liability Company (LLC).

Membership (LLC) Interest
A limited Liability Company member's ownership interest would represent the portion of the LLC owned by that member.

Merger
It is referred to as a merger when two corporations join to form one corporation.
 
Minutes
Written records of what took place at meetings are called minutes.

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N

Name Reservation
A name for a corporation, which must be unique and approved by the state, can be reserved for a short period prior to actually filing to form the corporation.

Net Income (Loss)
Net income is determined by subtracting all expenses from gross income. A loss occurs when expenses exceed income.

Net Worth
A companies net worth is the difference between its assets and liabilities.

No Par Value Stock
Stock with no assigned par value.

Nonprofit Corporation
A corporation formed for purposes other than making a profit, usually by groups involved in activities that benefit society in general.

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O

Officers (Corporate)
Normally consisting of a president, vice-president, treasurer, and secretary, a corporation’s officers are appointed by the directors and are responsible for the day to day operations of the company.

Operating Agreement (LLC)
As do the bylaws of a corporation, a Limited Liability Company’s (LLC’s) operating agreement sets forth the standing rules under which its internal affairs will be governed.

Organizational Meeting
The first meeting of the Board of Directors is called the Organizational Meeting and is held to take steps required to finalize organization of the corporation, i.e. Articles of Incorporation are accepted, Bylaws adopted, officers elected, issuance of stock and opening of a bank account is authorized, etc.

Organizer
The party who, when forming a Limited Liability Company (LLC), signs and files the Articles of Organization.

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P

Partnership
A partnership is business owned by two or more persons.

Par Value
The assigned value of a share of a corporation’s stock.

Pass-Through Taxation
“Pass-through taxation” refers the way in which certain business entities are taxed. Profits (or Losses) are passed through to the individual owners who report their share on their personal tax returns, avoiding the “double taxation” faced by shareholders of a corporation.

Preferred Stock
A corporation’s preferred stock gives its owners preferred treatment over common stock owners, normally putting them first in the payment of dividends and sometimes providing for preferential treatment in other areas.

Professional Corporation
A corporation whose owners provide state licensed professional services, i.e. doctors, lawyers, accountants, etc.

Proxy
A “proxy” is written document wherein a shareholder entitled to vote shares of a corporation’s stock authorizes another to act on their behalf “by proxy”.

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Q

Quorum
The minimum number of a group required to be present in person or by written proxy in order to conduct an official meeting.

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R

Registered Agent
The registered agent is the person authorized by the state to receive legal papers on behalf of the business.

Registered Office
The registered office is the registered agent’s business address for the purpose of receiving legal papers.

Reinstatement
The process of returning a corporation or LLC to “good standing” after it has, for some reason, lost its “good standing” status in the state of formation and/or a foreign qualified state by failing to comply with the state’s applicable rules and regulations.

Resolution
A formal expression of a decision made, after voting, by a corporation’s board of directors or shareholders.

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S

S Corporation
A corporation becomes an S Corporation by filing an IRS Form 2553 with the Internal Revenue Service.

Self Employment Taxes
A social security and Medicare tax, paid by self-employed taxpayers, that is similar to the social security and Medicare taxes normally withheld from the pay of most employees.

Share
One part of the ownership of a corporation which is represented by shares of stock.

Shareholder
The owner of one or more shares of stock in a corporation.

Shelf Company
A Shelf Company is previously formed company already in existence that can be purchased “off the shelf”.

Sole Proprietorship
A business owned by only one person.

Stated Capital
A corporation’s stated capital is usually determined by multiplying the number of authorized shares by their par value.

Stock
The shares of a specific corporation.

Stock Certificate
An official certificate issued by a corporation to document and provide tangible evidence of stock ownership.

Stockholder
The owner of one or more shares of stock in a corporation.

Stock Transfer Ledger
A record of the sale and transfer of the stock of a corporation that would show the shareholders and the number of shares owned.

Subsidiary
A company whose controlling interest is owned by another company.

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T
 
Tangible Asset
An asset whose value depends on actual physical properties such as buildings, machinery, land, etc.

Tender Offer
A public offer to buy a corporation’s stock.

Term Loan
A loan maturing in between one and ten years that calls for a specified repayment schedule.

Trade Secret
A method, formula, device, process or any other information that is generally unknown and kept secret that gives a competitive advantage to the business.

Transfer Agent
The party appointed by a company to look after the transfer of its securities.

Treasurer
The corporate officer charged with the design and implementation of the firm's financing and investing activity.

Treasury Stock
A corporation’s stock that has been repurchased by the corporation and is held in its treasury.

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U

Underwriter
A party like an investment bank who usually buys an issue of securities from a company and resells it to investors, thereby guaranteeing the proceeds from the issue to the company.

Unfunded Debt
Debt that will come due within one year (short-term debt).

Unlimited Liability
Full liability for the obligations of a legal entity.

Unsecured Debt
Debt that doesn’t specify assets that can be taken in the event of non payment.

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V

Variable Rate Loan
A loan whose interest rate fluctuates based on a base rate such as the Prime Rate.

Venture Capital
Money invested in the early stages of a business that does not yet have access to capital markets.

Voluntary Dissolution
Voluntary dissolution occurs when a corporation or limited liability company (LLC) elects to end its existence by filing Articles of Dissolution with the appropriate state agency.

Voting Rights
The rights given shareholders in regard to voting their shares of stock in a corporation.

Current Ratio
The ratio current assets to current liabilities, considered an indication of a company’s ability to pay its liabilities as they come due.

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W

Warrant
A security giving the holder the right to buy a specified amount of stock at a specified price within a specified time period.

Without Recourse
Without a lender having the right, in the event of nonpayment, to seize assets or seek payment from anyone other than the party specified in the contract.

Working Capital
The difference between current assets and current liabilities (excluding short term debt).

Working Capital Ratio
The ratio of working capital to sales.

Write-down
A reduction of the value of an asset to an amount equal to its current market value.

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Y

Yield
The percentage rate of return of dividends paid on a stock, or the effective rate of interest paid on a bond.

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Z

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