State regulators, the IRS and business advisors frequently use terms and phrases that may not be intuitive. IRS forms, partnership agreements, state statutes and other legal documents can be a hassle if you don’t understand the terminology. Here is a short list of common business terms that you should know.
Articles of Incorporation: Your main corporate documents. Your company officially becomes a corporation when your Articles of Incorporation are filed by the Secretary of State. Often referred to only as “Articles”, this document contain basic information such as your business’s name, the registered agent’s contact information, issued shares and the name of the person responsible for the business’s formation.
Board of Directors: A group of individuals selected by the shareholders of a corporation. Often referred to only as “the Board”, this group is responsible for the general direction of the company. The Board appoints the officers of the company who are responsible for its day-to-day management.
Certificate of Assumed Name, Trade Name, or Fictitious Name: A certificate issued by the Secretary of State granting your company the right to conduct business under a different name. This is often referred to as a “DBA” (doing business as).
Certificate of Authority: An official document granted by the Secretary of State that allows foreign corporations to conduct business in that state.
Certificate of Incorporation: An official document that confirms the Articles of Incorporation have been filed and accepted by the Secretary of State.
Close Corporation: A smaller corporation (often family-owned). Some states allow close corporations to operate less formally than a conventional corporation.
Corporation: A business entity that is treated as a separate legal person. Because it stands on its own as a legal individual, its shareholders and members are protected from its debts and liabilities. When running a corporation, corporate formalities must be followed to maintain the owners’ liability protection. To learn more about corporations, see “Business Entities”.
Goodwill: An intangible asset of a company regarding its good reputation and regular patronage.
Guaranty: An agreement to pay for another’s debt or other obligations in the event of a default.
Indemnity: Similar to a guaranty, indemnity is an agreement to take responsibility for another party’s legal obligations.
Intellectual Property: Ownership interests protected under copyrights, patents, trademarks, and other legal rights.
Joint Venture: An enterprise similar to a partnership where two or more businesses share responsibility, management and division of profits and losses for a particular purpose. After the specific purpose of the venture is completed, the union is terminated.
Limited Liability Company (LLC): A business entity with limited liability protection of a corporation but flexibility and favorable tax treatment of a partnership. To learn more about LLCs, see “Business Entities”.
Merger: The joining of two entities into one entity.
Nonprofit Corporation: A corporation with no shareholders that operates for charitable, societal, religious, educational or humanitarian purposes. While the purpose of the company is not profit driven, directors and officers may receive salaries.
Partnership: A profit-driven business enterprise involving two or more partners. To learn more about partnerships, see “Business Formation: Starting a New Business”.
Partnership Agreement: An official document stating the terms and conditions of a partnership and each party’s duties and obligations.
Piercing the Corporate Veil: The act of invalidating or avoiding limited liability protection normally afforded shareholders, often due to the corporation’s failure to act as a separate entity or to follow other corporate formalities. See “Operating Business for Maximum Liability Protection” for more information.
Professional Corporation: A corporation that is formed around the requirement of a license such as law, medicine, certified public accounting, real estate brokering and other professions. Generally there is no liability protection for professional negligence.
S Corporation: A corporation that meets certain IRS regulations to obtain pass-through entity tax treatment. See “Business Entities” for more information.
Secured Transaction: A transaction founded on a security agreement in which the creditor has rights to collateral the debtor owns, to be seized and sold if the debtor fails to honor the terms of the transaction.
Shareholders: An owner of one or more shares of stock in a corporation.
Sole Proprietorship: Doing business as an individual and not as a partnership or separate legal entity. See “Business Formation: Starting a New Business” for more information.
Voluntary Dissolution: The willing termination of a corporation (as opposed to an administrative or court-ordered dissolution).
Warranty: A statement that ensures a particular quality or character of merchandise or services. Warranties may be express or implied, limited or disclaimed.
Winding Up: The process of liquidating assets in a business, paying creditors, settling all unfinished business, distributing remaining assets and closing the business entirely.