Administrative Dissolution:  When the state dissolves the corporation for failure to file required paperwork, such as an annual report, or for failure to make payment of required fees.

Amendment:  A change to a document (i.e. corporate Articles of Incorporation or LLC Articles of Organization), such as the name of the company, number of authorized shares, etc.

Annual Report:  A formal financial statement issued yearly.

Annual Shareholders’ Meeting:  Most states require a corporation to hold a yearly shareholders’ meeting during which the shareholders elect directors and vote on major corporate issues.

Articles of Incorporation:  The document that creates a corporation according to the general corporation laws of the state.  Depending on the state statute, it is also known as "certificate of incorporation," "charter," "articles of association," or other similar name.

Articles of Organization: The document that creates a limited liability company or LLC according to the general corporation laws of the state.  It is very similar in content and function to the Articles of Incorporation for a corporation.

Assumed Name:  A name under which an entity (i.e. a corporation of LLC) conducts business that is not the legal name of the entity. Many states require the filing of a registration in order to conduct business under an assumed name in their territories.  This is also referred to as a “doing business as” or “d.b.a.” name.

Authorized Shares:  The shares described in the corporate Articles of Incorporation which a corporation is permitted to issue. It is often advisable to authorize more shares than will be issued so that the company has a reserve for the future.

Authorized Stock: See Authorized Shares, above.

Bylaws:  The formal rules for regulation of the entity’s (i.e. corporation) actions, such as rights and duties of officers, directors, share holders, and members. Bylaws are adopted by an entity (i.e. corporation), usually at the first shareholders’ meeting.

C Corporation:  A corporation that is subject to “double taxation”. In other words, it has not elected S corporation status. The taxable income of a C corporation is subject to tax at the corporate level as income while the dividends continue to be taxed at the shareholder level.

Certificate of Authority:  A document issued by a state corporation authority (i.e. Secretary of State) on application of a foreign corporation granting it the right to do business in the state.

Certificate of Incorporation:  In most states, the document that is issued by the state corporation authority (i.e. Secretary of State) that evidences the acceptance of the corporate Articles of Incorporation and the commencement of the corporate existence. In Delaware , the certificate of incorporation is the name given to the document filed with the state corporation authority.

Common Shareholders:  The holders of common shares, the ultimate owners of the residual interest of a corporation.

Common Shares or Common Stock:  An equity or ownership interest in the corporation. Common shareholders are entitled to pro rata dividends without any priority or preference over any other shareholders or class of shareholders, but share equally with all other shareholders except preferred stock.  Common shareholders receive dividends out of the earnings of the corporation as declared by the directors, and are entitled to a per share distribution of whatever assets remain upon dissolution of the corporation after satisfying creditors and holders of senior security interests.

Corporate Kit:  An organized package of documents typically used by a corporation or limited liability company (LLC) in the normal course of business, such as: corporate Articles of Incorporation (or LLC Articles of Organization), Operating Agreements or By Laws, stock share certificates, stock ledgers, minutes of the meetings, etc.

Corporate Records:  Corporate records usually take the form of a corporate record book. Carefully maintaining records is very important to assure limited liability to the corporate shareholders. The records should include a copy of the Articles of Incorporation (or Articles of Organization), By Laws or Operating Agreement, the minutes of all shareholder and director meetings, and a stock register for keeping track of stock transactions.

Corporate Seal or Common Seal:  An impression placed on a document having legal effect.  The purpose of a corporate seal is to attest in a formal manner to the execution of a document.

Directors:  Directors are elected by the shareholders and manage the affairs of the corporation. Directors typically elect the officers and only participate in major business decisions.

Dissolution:  The termination of a corporation, limited liability company or other entity’s legal existence.  After the filing of a certificate of dissolution with the state corporation authority (i.e. secretary of state) the corporation is technically dissolved, but the corporation and its directors (or LLC and its members/mangers) continue to “wind up” the affairs of the corporation.  A dissolution may be voluntary or involuntary, see below Involuntary Dissolution and Involuntary Dissolution.

Dividend:  Payment or distribution of profits or earnings to shareholders.

Doing Business As, d.b.a., or d/b/a: A name under which an entity (i.e. a corporation or limited liability company) conducts business that is not the legal name of the entity. Many states require the filing of a registration in order to conduct business in that state under such a name.  This is also referred to as a an “assumed name.”

Domestic Corporation:  A corporation is “domestic” in the state where it was incorporated.

Double Taxation:  The structure of taxation under the Internal Revenue Code which subjects income earned by a C corporation to income tax at the corporate level and a second tax at the shareholder level when the previously taxed income is distributed to the shareholders as dividends. Note: S corporations and limited liability companies (LLC) are not subject to double taxation.

Equity Capital:  A financial term referring in general to the extent of an ownership interest in a venture.

Equity Financing:  The sale of stock in order to raise money in exchange for the buyers receipt of an interest in the entity.

Fiscal Year:  A twelve month period used by a company for accounting purposes.

Federal Tax Identification Number or Employer Identification Number:  A number given to a business entity by the federal government for tax purposes.  A form SS-4 needs be prepared and filed out in order to receive this number.

Foreign Corporation:  A corporation is referred to as a “foreign” corporation in all states outside the state in which it was incorporated. In order to conduct business in another state, it must register for a Certificate of Authority to conduct business in the other state.

Franchise Tax:  A tax on the privilege of carrying on business in a state. It is typically measured by the earnings or amount of business done within the state.

Holding Company:  A corporation organized to hold the stock of other corporations. It is in a position to control or materially influence the management of a corporation or company by the fact that it has an ownership interest in the company.

Incorporation:  To form a corporation, organize and be granted status as a corporation by following the legal procedures of the state in which the company will be registered.

Incorporators:  The person or persons who execute the articles of incorporation or form the corporation.

Indemnity or Indemnification: The obligation of one person to make good any loss or damage that another has incurred or may incur by acting at the request or benefit of the requesting party. For example, an agreement by a corporation to represent and pay the expenses of officers or directors who are named as individual defendants in litigation relating to actions performed on behalf of the corporation.

Involuntary Dissolution:  The right to end the legal existence of a corporation or entity without the consent of the corporation, which belongs to the state or through the granting of a petition to the court by a specified percentage of shareholders on grounds that are defined by statute.

Issue Stock or Issue Shares:  The process by which a corporation authorizes, executes, and delivers shares of stock for the sale to the public.

Interest:  The ownership percentage that a member or manager of a limited liability company (LLC) has in the company is represented by “interests”. This is similar to the shares of stock that a shareholder has in a corporation.

Limited Liability Company (LLC):  A legal entity form that provides limited liability for its owners and may be taxed as a partnership. To create a limited liability company (LLC), Articles of Organization and the required fee must be filed with the state corporation authority (usually the Secretary of state). Unlike C corporations, the earnings of LLCs are not subject to “double taxation”.

Manager:  An ownership option for a limited liability company (LLC) is to be operated by a manager. The actions of the managers are similar to the board of directors of a corporation. In order for an LLC to be controlled by a manager, this fact must be noted in the Articles of Organization.

Member:  A person who is an owner of a limited liability company (LLC). Unless the Articles of Organization specify that the LLC is to be operated by a manager, the business decisions are made by the members as designated in the Operating Agreement.

Minutes:  A written record of the events of a corporation, typically including all of the events taking place at both shareholders’ meetings and board of directors’ meetings. These records are usually kept in the corporations’ record book.

Name Reservation:  The name of a corporation or a limited liability company (LLC) must be different from those previously registered on the records of the state of incorporation. A name can usually be reserved for 120 days with the payment of a proper fee.

No Par Shares:  Shares issued under a traditional par value statute that are stated to have no par value. Such shares may be issued for consideration designated by the board of directors. Note that the value of no par shares is determined by the state for franchise tax purposes and may result in higher franchise taxes in comparison with low par-value stock.

Not For Profit Corporation:   A business entity that is generally charitable in purpose, rather than established to earn profits.

Officers:  People appointed by the directors to manage the daily affairs of a corporation. The officers usually consist of a president, vice-president, treasurer, and secretary.

Operating Agreement: An agreement among the members (and managers if any) of a limited liability company (LLC) which governs the LLC’s day to day operations and the rights, duties, and obligations of its managers and members (analogous to a corporation’s bylaws).

Organizational Meeting:  The initial meeting of a corporation in which the formation is completed. At this meeting, the Articles of Incorporation are ratified, By Laws are passed, the initial shares are assigned, officers are elected and authorization of the opening of bank accounts is passed.

Par Value:  The stated value or nominal value assigned to each share of stock. Stock must be sold for at least this value. 

Pass-Through Taxation:  A taxation situation where the business entity is not taxed.  Tax is only paid at the shareholder or interest holder level. Note: S corporations and limited liability companies are pass-through taxation entities.

Perpetual Existence:  When an entity does not have a specified expiration, it can continue indefinitely, until dissolved by the entity or the state (see dissolution).

Preferred Stock or Preferred Shares:  A class of stock or shares that have preferential rights over other types of stock (i.e. Common stock) in the payment of dividends or to amounts distributable on liquidation, or both.

Professional Corporation:  A corporation organized for the purpose of engaging in a profession such as law, medicine, or engineering. Professional corporations must file articles of incorporation with the state which meet that state’s requirements for establishing a professional corporation.

Quorum:  The minimum participation required to conduct business at a particular meeting. Usually a quorum is achieved by a meeting of the majority of the directors or a meeting with the majority of outstanding shares represented. Note that the percentage needed for quorum may be modified in the By Laws or Operating Agreement.

Registered Agent:  The agent named in the Articles of Incorporation or Articles of Organization to receive service of process other documents on behalf of the corporation or limited liability company.  The Registered Agent must be named in the Articles of Incorporation or Articles of Organization.

Registered Office:  The address specified in the Articles of Incorporation or Articles of Organization where the registered agent is located. Note that this address does not have to be the principle office or place of business of the corporation or limited liability company.

Reinstatement:   To restore to a former state, authority, or status from which one has been removed.

Resolution:  A formal decision of an entity (i.e. corporation or limited liability company) adopted by either the members, directors or the shareholders.

Retained Earnings:  Net profits accumulated by a corporation after payment of dividends.

S Corporation:  A corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code of 1954. The “double taxation” of a C Corporation is not present.  The taxable income of an S corporation is not subject to income tax at the corporate level, but is allocated directly to the shareholders to be taxed at that level. This is also known as “pass through taxation”.  An S corporation is similar, but not identical, to partnership taxation.

Securities:  Written assurances for the return or payment of money, such as shares of stock, bonds, debentures, and other evidence of a secured indebtedness or of a right created in the holder to participate in profits or assets distribution of a profit making enterprise.

Share:  An interest in a corporation.

Shareholder:  Any holder or owner of one or more shares in a corporation as evidenced by a stock certificate.

Sole Proprietorship:  A business where an individual is both the owner and conductor of the business affairs. The owner of a sole proprietorship is personally liable for all business debts.

Stock:  An equity or ownership interest in a corporation, usually created by contribution of capital of the corporation. It is demonstrated by stock certificates.

Stock Certificate:  A written document showing ownership of shares in a corporation.

Stockholder:  See shareholder, above.

Stock Transfer Book:  A book or list where all the owners of shares of stock in a corporation are listed.

Subchapter S:  The subchapter of the Internal Revenue Code of 1954 that regulates the S corporation. See also S corporation, above.

Subscribers:  Persons who agree to invest in a corporation by purchasing shares of stock.

Subscription:  An offer to buy a specified number of theretofore unissued shares of a corporation.

Subsidiary:  An inferior portion or capacity.  A Subsidiary corporation is one in which another corporation (a parent corporation) owns at least a majority of the shares and had control. 

Trademark:   Any word, name, symbol, or device used by a person or entity to identify its product and to distinguish them from others.

Unanimous Written Consent:  Most states allow directors to act without a formal meeting if they all give consent to specific corporate actions in writing.

Withdrawal: The removal something from the place where it is kept (i.e. removal of money from a bank) or the separation of one’s self from a position (i.e. the stepping down of a candidate for an office).