Law Dictionary | Legal Glossary

Acquisition:

Annual Meeting of Shareholders: A meeting held each year to elect directors of a corporation, and to address other corporate matters.

Apportionment: The allocation of income earned from activities in a particular state or assets present in a particular state to determine the tax due in that state.

Articles of Incorporation: The document which gives birth to a corporation by filing in the state of incorporation. Articles cover foundational matters such as the name of the corporation, the shares it is authorized to issue, its corporate purpose, and its agent for service of process.

Authorized Capital: The total number of a corporation’ s authorized shares multiplied by the share’ s par value. For example, 1,000,000 authorized shares of stock with a one cent par value equals an authorized capital of $10,000.

Authorized Shares: The number of shares of a corporation’ s stock that the corporation has the authority to issue. The authorized shares of a class of stock is stated in a corporation’ s articles of incorporation.

Blue Sky Laws: The securities laws of individual states, collectively. These laws seek to protect people from investing in sham companies companies that offer nothing more than ‘blue sky.’

board of directors: The directors of a corporation, collectively. The directors of a corporation are its governing board. Elected by shareholders, they vote on major corporate matters such as the issuing of shares of stock, election of officers, and approval of mergers and acquisitions.

Business Judgment Rule: The rule that shields directors from liability for mismanagement of the corporations that they serve.

Bond: An interest-bearing instrument issued by a corporation or other entity that serves as evidence of a debt or obligation.

Bylaws: The internal operating rules of a corporation, usually set out in a five- to twenty page document. Bylaws govern such matters as holding meetings, voting, quorums, elections, and the powers of directors and officers.

C Corporation: Any corporation that has not elected S Corporation status.

Certificate of Authority: A document issued by the secretary or state or equivalent department that authorizes a foreign corporation to operate in a state other than its state of incorporation.

Certificate of Good Standing: A document issued by the secretary or state or equivalent department that certifies that a corporation in validly existing and in compliance with all periodic and taxation requirements.

Close Corporation: A corporation owned by a small number of individuals. Corporations must elect to be close corporations by inserting a statement in their articles of incorporation. State laws typically permit close corporations to be operated more informally than non-close corporations

Common Stock: A corporation’ s primary class of stock. Common stock holders typically have voting rights.

Conversion; Conversion Rights: Rights allowing the holder of shares of stock or other financial instrument to convert to other shares of stock.

Convertible Instrument: Financial instruments such as bonds or notes that can be converted into shares of stock. Shares of stock may also be convertible into shares of another class.

Corporate Secretary: A corporate officer, elected by the directors, usually charged with record-keeping responsibilities.

Cumulative Voting: A system of voting shares of stock used in some states. Cumulative voting gives minority shareholders additional voting power by allowing them to ‘cumulate’ their votes for a single director.

Deadlock: The circumstance that arises when either the board of directors or shareholders are evenly split on a vote and cannot take action. Deadlock can lead to judicial resolution of the underlying dispute.

Debt Financing: A method of financing where the company receives a loan and gives its promise to repay the loan. See also: Equity Financing.

Dilution: The effect of reducing an existing shareholder’ s interest in a corporation when new shares are issued.

Director: The directors of a corporation are its governing board. Elected by shareholders, they vote on major corporate matters such as the issuing of shares of stock, election of officers, and approval of mergers and acquisitions.

Dissolution: The process of shutting down a corporation, settling its affairs, and ending its life.

Distribution: A transfer of profits or property by a corporation to its shareholders.

Dividend: A share of profits issued to the holders of shares in a corporation. Dividends can be paid in shares of stock or other property such as shares in a subsidiary or parent company.

Dividend Priority: Special rights enjoyed by holders of a secondary class of stock that entitle holders to receive dividends before other shareholders.

Doing Business As (DBA): A company whose operating name differs from its legal name is said to be ‘doing business as’ the operating name. Some states require DBA or ‘fictitious business name’ filings to be made for the protection of consumers conducting business with the entity.

Domestic Corporation: In general, a corporation whose articles of incorporation are filed in the state in which it operates and maintains its principal office.

Equity Interest: : Another term for an ownership interest in a company.

Equity Financing: A method of financing where a company issues shares of its stock and receives money. See also: Debt Financing.

Equity Financing: A method of financing where a company issues shares of its stock and receives money. See also: Debt Financing.

Fictitious Business Name: A company whose operating name differs from its legal name is said to be doing business under a fictitious business name. Some states require DBA (doing business as) or fictitious business name filings to be made for the protection of consumers conducting business with the entity.

Fiduciary Relationship: A special relationship in which one party, the fiduciary, owes heightened duties of good faith and responsibility to the other party.

Foreign Corporation: In general, a corporation that operates in one state but whose articles of incorporation are filed in another state; the state in which it operates refers out-of-state corporations as ‘foreign.’ The term also refers to corporations chartered in foreign nations.

Franchise Tax: A tax levied in consideration for the privilege of either incorporating or qualifying to do business in a state. A franchise tax may be based upon income, assets, outstanding shares, or a combination.

Fully Reporting Company: A public company that is subject to the Securities and Exchange Commission’ s periodic reporting requirements.

Go Public: The process of becoming a public, fully reporting company either by filing a registrations statement with the SEC, or by merging with a public company.

Good Standing: A state a corporation enjoys when it is in full compliance with the law.

Illiquidity Discount: A discount in the value of an interest in a business because of legal restrictions on the resale of such interest.

Incorporator: The person or entity that organizes a corporation and files its Articles of Incorporation. The incorporator can take corporate actions before directors and officers are appointed.

Involuntary Dissolution: The forced dissolution of a corporation by a court or administrative action.

Judicial Dissolution: The forced dissolution of a corporation by a court at the request of a state attorney general, shareholder, or creditor.

Liquidation Preference: Certain classes of stock (usually preferred stock) may have a liquidation preference, which entitles the holders to be paid first in the event of the liquidation of a corporation’ s assets.

Limited Liability Company (LLC): A new and flexible business organization that offers the advantages of liability protection with the simplicity of a partnership.

Limited Partnership: A business organization that allows limited partners to enjoy limited personal liability while general partners have unlimited personal liability.

Merger : The combination of one or more corporations into a single corporation.

No Par Shares: Shares for which there is no designated par value.

Nonprofit Corporation: A business organization that serves some public purpose, and therefore enjoys special treatment under the law. Nonprofits corporations, contrary to their name, can make a profit, but cannot be designed primarily for profit-making. Distributions upon liquidation typically must be made to another nonprofit.

Officer: The managers of a corporation such as the President, CFO, and Secretary. The officers are appointed by the board of directors.

Outside Director: A independent member of the board of directors that is not a shareholder or regular employee of a corporation.

Par Value: The issued price of a security that bears no relation to the market price.

Parent Corporation: A corporation that either owns outright or controls a subsidiary.

Partnership: A business organization formed when two or more persons or entities come together to operate a business for profit. Partnerships do not enjoy limited liability, except in the case of limited partnerships.

Pierce the veil: Doctrine that attaches liability to corporate shareholders in cases of commingling of assets and failure to observe corporate formalities.

Preemptive Rights : Rights enjoyed by existing shareholders to purchase additional shares of stock in the same proportion to their existing holdings.

Preferred Stock: A separate and/or secondary class of stock issued by some corporations. Preferred stock typically has limited or no voting rights, but its holders are paid dividends or receive repayment priority in the event the corporation is liquidated.

Professional Corporation: A corporation whose members are all licensed professionals, such as doctors, lawyers, accountants and architects.

Proxy: An authorization by one shareholder giving another person the right to vote the shareholder’ s shares. Proxy also refers to the document granting such authority.

Qualification: The process by which a foreign corporation registers in a state of operation other than its state of incorporation.

Quorum: The minimum percentage of either shareholders or directors that must be present at a meeting in order for a vote to be legally effective.

Record Date: The date used to determine

Redemption: A repurchase of shares from shareholders by a corporation.

Redemption Rights: Right of repurchase enjoyed by a corporation that exist for certain shares of stock.

Registered Agent: The person or entity that is authorized to receive legal papers on behalf of a corporation.

Registered Office : The official address of a corporation. Typically this address is the same as that of the registered agent.

Resident Agent: The person or entity that is authorized to receive legal papers on behalf of a corporation.

S Corporation: A ‘subchapter S’ corporation is a corporation that elects by filing with the IRS to be treated as a partnership for taxation purposes.

Secretary (Corporate Secretary): A corporate officer, elected by the directors, usually charged with record-keeping responsibilities.

Secretary of State: A state official charged with responsibility for the filing of legal documents, including corporation papers. In some states, and the District of Columbia, this responsibility falls upon another department, such as Hawaii’ s Department of Commerce and Consumer Affairs, or Arizona’ s Corporation Commission.

Securities: The broad term that refers to shares of stock, bonds, and some debt instruments.

Shareholder: An owner of a corporation and one who holds shares of stock in a corporation

Shareholder’ s Agreement: An agreement between the shareholders of a corporation that can cover various matters such as a commitment to vote particular persons as directors and

Shelf Corporation: A fully formed corporation without operations, assets, or liabilities that remains in inventory, or on a ‘shelf,’ waiting for a buyer. The advantages: a shelf corporation can be operating within hours, and uses its original formation date.

Simple Majority: With respect to shareholder and director voting, more than 50%.

Sole Proprietorship: Simply, a business owned and managed by one person. Sole proprietorships do not enjoy liability protection.

Special Meeting of Directors: A meeting of directors, but not an annual meeting, called for a specific purpose.

Special Meeting of Shareholders: A meeting of shareholders, but not an annual meeting, called for a specific purpose.

Stockholder: An owner of a corporation and one who holds shares of stock in a corporation.

Subscriber: A person who contracts to purchase the shares of a corporation.

Subscription Agreement: A contract to purchase the shares of a corporation.

Subsidiary: A corporation that is owned outright or controlled by a parent corporation.

Supermajority: With respect to shareholder and director voting, any required percentage higher than 50 percent.

Undercapitalization: The condition that exists when a company does not have enough cash to carry on its business and pay its creditors.

Voluntary Dissolution: The intentional dissolution of a corporation by its own management.

Voting Right: The right enjoyed by shareholders to vote their shares.

Warrant: An instrument which grants its holder the option or right to purchase shares of stock at a future date at a specific price. Warrants are tradeable.

Winding Up: The process of paying creditors and distributing assets that occurs before the dissolution of a corporation.

Written Consent: A document executed by either the shareholders or directors of a corporation in lieu of a formal meeting.