Vocabulary words have meaning both in life and in the law. Below I have listed the most frequent terms used in this website and what each word means. The terms are listed in alphabetical order. I am certain this glossary will be of assistance to you in your reading.
Agent – Person authorized by another to act on their behalf. This, an agent can enter into contracts and other such legal binding functions on behalf of another. Usually, the corporation’s officers act as corporate agents.
Amended Certificate of Authority – A document issued to a foreign corporation evidencing that the corporation has amended its original certificate of authority.
Annual Meeting of Shareholders – Nearly all states require a corporation to hold annual meetings of shareholders at which time directors are elected and other corporate issues are voted on.
Articles of Incorporation – While different states may refer to this as a charter or a certificate, the articles of incorporation, which conform to state law, must be filed with the proper state authorities and must convey the purpose of your corporation, the name, the primary place of business, names of directors, and amounts and types of stock it is authorized to issue.
Asset – Anything owned that has monetary value.
Authorized Shares/Stock – The total number of shares a corporation is authorized to issue. This number is specified in the articles of incorporation. All the shares authorized need not be issued to shareholders; the corporation can have unissued shares that can be distributed later.
Business Entity – An organization that processes a separate existence for tax purposes. Some types of business entities include corporations and foreign corporations, business trusts, limited companies, and limited partnerships.
Business Judgment – The rule states that directors of corporations will not be held personally liable for unwise business decisions providing that the directors made an informed decision and that decision was not tainted by self-interest.
Bylaws – Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. At the corporation’s initial meeting the bylaws are adopted. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend.
Capital Stock – See Authorized stock.
Carry Forward – To offset for tax purposes one period’s loss against a subsequent period’s net income. Losses which are unused may generally carry over to another year. Such tax benefits may enhance the value of a target to a buyer burdened with high taxes.
C Corporation – A C Corporation is simply a standard business corporation. It is called a C corporation because it is taxed under subsection C of the IRS code.
Certificate of Authority – A document issued by the proper state authority to a foreign corporation granting the corporation the right to do business in that state.
Certificate of Good Standing – A certificate issued by a state official as conclusive evidence that a corporation is in existence or authorized to transact business in the state. The certificate generally sets forth the corporation’s name; that it is duly incorporated or authorized to transact business; that all fees, taxes, and penalties owed the state have been paid; that its most recent annual report has been filed; and, that articles of dissolution have not been filed. Also known as a certificate of existence or certificate of authorization.
Close Corporations – A close corporation that possesses the following traits; a small number of shareholders; no ready market for the corporation’s stock; and substantial participation by the majority shareholders in the management of the corporation. Some states have close corporation statutes. This kind of corporation typically has 30 to 50 stockholders and is a good match for business in which the majority of stockholders is actively involved in the management of the company.
Common Stock – The primary stock of a corporation. This stock gives shareholders the right to participate in management of the corporation and give the shareholders a proportionate share of the dividends.
Corporate Record Book – Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book which contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.
Directors – Directors are elected by the shareholders. They manage or direct the affairs of corporation. Typically, the directors make only major business decisions, major policy changes and monitor the activities of the officer. They are the people who primarily manage the corporation.
Dissolution – Is the termination of a corporate’s legal existence. Dissolution may be caused many ways including, failure to file annual reports, failure to pay certain taxes, bankruptcy, or voluntary dissolution of the corporation by the shareholders and directors.
Doing Business as (DBA) – A “DBA”, also known as an “assumed name”, is typically completed by making a filing at the county level where the business is located. This filing does not change the official name of the corporation; however, it allows the company to use additional names.
Domestic Corporation – A corporation is a domestic corporation in the state where it has incorporated.
EIN or Employer Identification Number – This form is used to apply for a federal tax ID number. You will receive this form in your corporation kit.
Federal Tax Identification Number – This is a number assigned to a corporation or other business entity by the government for tax purposes. Banks generally require a tax identification number to open bank accounts. The federal tax identification number is also known as the Employer Identification Number (EIN).
Fictitious Name – A name other than the true name, under which a corporation or other business organization conducts business. Also referred to as an assumed name, a trade name or “doing business as” (“DBA”).
Fiduciary Corporation – A relationship in which one party (the fiduciary) must act in good faith and with due regard to the best interests of the other party or parties.
Fiscal Year – Any twelve-month period used by a business as its fiscal accounting period.
Foreign Corporation – A corporation is referred to as a foreign corporation in all states except for the state for the state where it is incorporated. If a corporation is “transacting business” in a state other than where it is incorporated, it must register for a certificate of authority to transact business in the other state or possibly lose access to that state’s courts and face fines.
Incorporator – The person or entity that prepares files and signs the articles of incorporation; everything necessary for incorporation. This could entail raising funds and bringing in the people who will be investing. This preparatory work also includes preparing and filing the required documents.
Indemnify – To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred during the incorporation process.
Majority – More than 50 Percent; commonly used as the percentage of votes required to approve certain corporate actions.
Merger – A merger occurs when two corporations join together into one, with one corporation surviving and the other corporation disappearing. The assets and liabilities of the disappearing entity are absorbed into the surviving entity.
Minutes – A written record which details the events of the corporation. These records should be kept in the corporation’s or LLC’s record book.
Name Reservation – The name of a corporation or LLC must be distinguishable on the records of the state government. If the name is not unique, the state will reject the articles of incorporation or article of organization (for LLCs). A name can be reserved, usually for 120 days, by which applying with the proper state authorities and paying fee.
No-Par-Value Stock – Stock with no minimum value. Most states allow no-par stock. If the stock is no-par stock then the amount of stated capital is an arbitrary amount assigned by the board of directors. Further, the value of capital for franchise tax purposes is determined by the state and this may result in higher franchise taxes in corporation with low par-value stock.
Officers – The directors appoint officers. They manage the daily affairs of the corporation. A corporation’s officers usually consist of a president, Vice-president, treasurer and secretary. In most states, one person can hold all these posts.
Organizational Meeting – The initial meeting where the formation of the corporation is completed. At the organizational meeting several initial tasks are completed such as; the articles of incorporation are ratified, the initial shares are issued, officers ae elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed. If the initial directors are named in the articles of incorporation, they can hold the organizational meeting. If they are not named then the organizational meeting is held by the incorporator.
Piercing the Corporate Veil – If corporate formalities are not followed, it is possible that the corporate entity will not protect shareholders from corporate debt. Keeping proper records and holding regular meetings help solve this possible problem.
Proxy – If a shareholder cannot attend a meeting, the shareholder can vote by proxy. A proxy grants another individual the power to vote on their behalf.
Quorum – The minimum attendance required to conduct business at a meeting. Usually, a quorum is achieved if most directors are present (for directors meeting) or outstanding shares are represented (for shareholder meeting). The percentage needed for a quorum may be modified in the bylaws.
Registered/Resident Agent – According to state laws, corporations and LLCs located out of state must have a registered agent. This agent must be named in the articles of incorporation and be in the state of incorporation or organization in order to receive legal notifications. The registered agent will receive important legal and tax documents, such as franchise tax forms and annual report forms. Also known as a Statutory Agent.
Registered Office – The office in the articles of incorporation. The registered office must be where the registered agent is located and need not be the principal office or place of business of the corporation.
Resolution – A resolution is a formal decision of the corporation which has been adopted by either the shareholders or the board of directors.
Share – An interest in a corporation. The total ownership of a corporation is divided into shares of stock.
Shareholder – Any holder of one or more shares in a corporation. A shareholder usually has evidence that they are a shareholder; this evidence is represented by a stock certificate.
Sole Proprietorship – A business owned and managed by one person, who is personally liable for all business debts and obligations. For tax purposes, the owner and his or her business are one entity, meaning that business profits are reported and taxed on the owner’s personal tax return.
Stock – An entity or ownership interest in a corporation, measured in shares. Ownership of shares is demonstrated by stock certificates.
Stock Certificate – A written instrument that shows ownership of shares in a corporation.
Stock Purchase Agreement – A stock purchase agreement is an agreement between the shareholders and the corporation. It provides a mechanism to regulate the transfer and sale of corporate stock. Often, a stock purchase agreement will provide a right refusal in favor of the corporation or remaining shareholders in the event of a proposed sale of stock by a shareholder. A stock purchase agreement can also provide for a purchase upon death, disability, retirement, discharge, resignation, or bankruptcy of a shareholder.
Stock Transfer Book – A record book which lists the owners of share of stock in a corporation.
Ultra Vires – Traditionally, the purpose of a corporation was closely spelled out in its articles of incorporation. If the corporation acted beyond its described purpose these actions were unenforceable against the corporation or by the corporation. However, most modern statutes allow corporate purposes to be any lawful activity.
Unanimous Written Consent – Nearly all states allow directors and shareholders to act without a meeting if they each give their consent to specific corporate actions in writing.
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