Glossary

allocation (noun):
The amount of company income and deductible expenses assigned to each member and reported to them on their Schedule K-1.
alter ego (noun):
An entity fully controlled (as determined by the court) by an individual for the sole purpose of providing a legal shield for a person. Although it’s hard to prove an entity is an alter ego, the liability protection that the entity provides could be disregarded.
amendment (noun):
An approved and ratified change to the articles of organization or the operating agreement.
articles of organization (noun):
The document created and ratified by the LLC’s organizers. The articles define the name of the LLC, the initial managers and/or members, the organizers, the state of formation, the LLC’s purpose, the duration of the company, and other important information.
beneficiary (noun):
The future recipient of all or part of an estate, trust, or insurance policy.
blue sky laws (noun):
Securities laws that protect the public from fraudulent companies that don’t offer investments of substance.
board of directors (noun):
Elected by the entity’s shareholders or members, the directors set company policy and choose the corporation’s officers.
buy-sell agreement (noun):
An agreement that outlines the purchase terms of a shareholder’s interest in an entity.
bylaws (noun):
The document created and ratified by a corporation’s shareholders and/or board of directors outlining basic corporate policy.
C corporation (noun):
An entity, unlike a partnership, completely separate from its owners. Corporations have their own level of taxation, which varies greatly from personal income tax.
capital (noun):
The total amount of assets an individual or entity owns, which includes liquid cash, real estate, equipment, stocks and bonds, and so on.
capital assets (noun):
All entity-owned assets, including real estate, equipment, and cash.
capital gains (noun):
In real property, the sale price minus the purchase price, plus improvements.
case law (noun):
Interpretations of the law by the courts that can be used as precedents in future cases.
cell (noun):
A unit in a series LLC that acts like a separate LLC but is still under the same common umbrella.
charging order (noun):
A type of court order that restricts the claim of certain assets, such as property or securities, to their fiscal income only. Under charging order protections, assets can’t be liquidated or sold.
common law (noun):
The laws brought over from England that are still generally accepted.
company kit (noun):
An Internet dashboard or physical binder containing the items and information essential for running and maintaining a limited liability company. Items can include the company’s operating agreement and minutes, membership certificates, a company seal (if a physical binder), and membership transfer ledger.
consolidation (noun):
The act of two companies coming together to form a new entity they both operate under.
corporation (noun):
A separate entity that has been accepted by the government and does business or other activities, can offer ownership shares to raise capital (except in the case of a nonprofit) and can sue and be sued in a court of law.
deed: 1. (noun):
In the case of real property, the document that transfers the ownership from one party to another. 2. (verb) The act of transferring ownership of real property using a deed.
dissolution (noun):
The winding up of affairs and termination of an entity either voluntarily by the entity’s owners or by government action.
distribution (noun):
An actual distribution of the profits in the form of cash, usually proportionate to the number of shares in the corporation.
doing business (verb):
Normally a term connoting whether an entity is carrying out normal and regular business activities within a jurisdiction. If an entity is “doing business” in a foreign state, it may be subject to state taxes and must register with the Secretary of State in that jurisdiction.
domicile (noun):
The state where an entity is registered and headquartered — its home state.
double taxation (noun):
When a corporation pays taxes on the profits, then distributes those profits to shareholders in the form of dividends, which are taxed again on a personal level.
Employer identification number (EIN) (noun):
Used to differentiate entities, such as corporations or LLCs, from others; the company equivalent of a Social Security number.
entity (noun):
A general legal term for any company, corporation, LLC, partnership, institution, government agency, educational body, or any other form of organization that has a completely separate identity from that of the individuals behind it.
face value (noun):
The number of shares of stock, as shown on the certificate, multiplied by the stock’s par value, also shown on the certificate.
foreign corporation or LLC (noun):
An entity formed in a different state or nation from the one in which it is doing business. Foreign entities must register with all states in which they conduct regular business.
franchise tax or fees (noun):
A common state-level tax imposed on businesses.
fraudulent conveyance (noun):
The act of transferring assets to another party to make them inaccessible to a creditor or the party of a lawsuit or divorce. If the assets are transferred before the knowledge of any such lawsuit exists, the assets are not being fraudulently conveyed.
general partner (noun):
One of the managers of a limited partnership. All general partners share the business’s liability in a limited partnership.
general partnership (noun):
A business partnership that has two or more partners wherein each partner is equally liable for any of the business’s debts.
holding company (noun):
A company whose sole purpose is to own the stock or membership shares of other entities to simultaneously oversee the management and policies of all entities.
impute (verb):
The act of holding one person responsible for the acts of another. If someone in business has knowledge of another’s actions, such as an employee, then they are imputed to that person and held responsible for their acts.
incorporate (verb):
To obtain the Secretary of State’s approval of the articles of incorporation. When you incorporate, your company is now officially a corporation. When forming an LLC, this act is loosely termed organizing.
joint liability (noun):
When two or more parties (or entities) are held equally responsible for a debt or judgment.
joint venture (noun):
When two or more people (or entities) create an entity for a limited time and for a specific project, such as raising funds or a shorter-term real estate transaction. After the business is completed, the joint venture is terminated, and the entity is dissolved.
judgment creditor (noun):
When a person or organization sues you and wins (the court decides that you owe that party money), that party becomes a judgment creditor until you pay them what you owe.
judgment debt (noun):
When a lawsuit is lost, the judgment debt is the money owed to the winning party by the losing party.
liability (noun):
A legal term for responsibility and one of the most common words used in corporate and partnership law. When you have liability for yourself, your business, or even your partners, you are held personally responsible for the acts of those parties, meaning you can be subject to a lawsuit or criminal charges.
lien (noun):
A legal claim against an asset that is used to secure a loan or debt.
limited liability protection (noun):
An owner’s, manager’s, or business employee’s protection from responsibility for the business debts and/or obligations.
limited partner (noun):
One of the two kinds of partners in a limited partnership; a limited partner has no say in the day-to-day management of the company and isn’t personally responsible for the liabilities and debts of the company.
limited partnership (noun):
A type of partnership that consists of one or more limited partners, who are silent in the day-to-day management and aren’t personally liable for the LLC’s debts, and one or more general partners who manage the business but are personally responsible for the company’s debts.
living trust (noun):
A trust created by the trustor during that person’s lifetime, where the trustor receives profit distributions from their trust assets until their death; the trust continues on and instead gives those distributions to the new beneficiaries — typically the trustor’s children. (Note: This is not to be confused with a living will, which comes into effect only during a person’s lifetime if they become incapacitated in any way.)
member (noun):
An individual or entity with an ownership interest (with or without voting rights) in the LLC.
membership certificate (noun):
An official document issued by the LLC to a member stating the LLC’s name and state of formation. When issued, it is signed by the managers and/or members and lists the number of shares and the member’s name.
membership interest (noun):
A member’s percentage of ownership in the company.
membership or shareholder register (noun):
The record of members (in an LLC) or shareholders (in a corporation) listing current and past issuances and transfers.
merger (noun):
The instance in which two businesses decide to become one and transfer all assets into one of the entities (the surviving entity) and then dissolve the other.
minutes (noun):
The official record of the events at a company meeting.
nominee (noun):
1. The successor to one person’s rights and obligations on a contract; 2. The person or entity who acts on another’s behalf, either to protect the privacy of that individual or entity or to handle their affairs during an absence.
nonprofit corporation (noun):
Also called a not-for-profit corporation, an organization incorporated and ratified by the state that operates for purposes of charity or public benefit. A nonprofit corporation has no shareholders and can apply for federal and state tax-exempt status.
off-shore corporation or LLC (noun):
Any corporation or LLC created and domiciled in any country other than the United States.
operating agreement (noun):
A contract among the members of the LLC that governs the company’s operation, management, membership, and distribution of the company’s profits.
organize (verb):
See incorporate.
pass-through tax status (noun):
A type of taxation inherent in LLCs that passes the income or loss generated by the business to the partners to be reflected on their personal income tax returns.
phantom income (noun):
Income allocated to a partner on which they must pay tax but don’t actually receive in the form of cash.
piercing the veil (noun):
When a judge allows the plaintiff to hold the members of the LLC, otherwise immune, personally responsible for the damages caused by the LLC under their control.
provision (noun):
A clause or stipulation in a document or agreement.
quorum (noun):
During a corporation or LLC’s annual or special meetings, the number of people required to be present so voting can take place. Unless otherwise stated in the bylaws or operating agreement, a quorum is usually just a majority.
registered agent (noun):
A person or company designated in the articles of organization as authorized to receive service of process and other important documents from the state on behalf of the company. In most states, an LLC is required to have a registered agent.
regulatory law (noun):
Rules and regulations created by government agencies based on statutes.
resolution (noun):
An agreement of policy, rules, and guidelines that have been voted on by the corporation’s board of directors or the LLC’s managers and/or members.
S corporation (noun):
A designation made by a corporation that elects a pass-through tax status, thereby eliminating the double taxation that corporations are normally subject to.
series LLC (noun):
A unique type of LLC, available in only certain states, under which you can create numerous cells that act as separate entities and can own separate assets.
service of process (noun):
When sued, the initial delivery of a legal summons or the delivery of other legal documents such as a subpoena, complaint, and so on.
several liability (noun):
When multiple people are responsible for a debt; however, if they fail to pay and the burden falls on only one person, that person is severally liable (as in “joint and several”).
silent partner (noun):
An investor who puts in money but doesn’t deal with the business’s day-to-day operations or make operational decisions. In a limited partnership, this person is called a limited partner.
single-member LLC (noun):
An LLC wholly owned by one person or institution — typically also the manager.
sole proprietorship (noun):
An unincorporated business owned and managed by a single person (or a married couple in a community property state).
statutory law (noun):
Laws and statutes enacted by the legislative branches of state or federal governments.
stock certificate (noun):
An official document issued by the corporation that states the name of the corporation, the state of incorporation, the type of stock the certificate represents, as well as the number of shares of stock in the corporation and the par value of that stock. When issued, it’s normally signed by the president and secretary and lists the number of shares and the shareholder’s name.
trademark: 1. (noun):
A name, tagline, slogan, or symbol that identifies a product officially registered and legally restricted by the use of the registrant only. 2. (verb) To register a name, tagline, slogan, or symbol as a trademark.
trust (noun):
A legal arrangement in which an individual or enterprise (the trustor) gives economic control of assets to an individual or institution (the trustee) for the benefit of the beneficiaries.
trustor (noun):
An individual who creates a trust; also called a grantor.
winding up the affairs (verb):
Before dissolving, the process of liquidating the entity’s assets, paying the final bills, distributing remaining assets to the members/shareholders, and then filing a formal dissolution with the Secretary of State.
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