Incorporation Glossary

Acquisition: Obtaining control of another corporation by purchasing all or a majority of its outstanding shares, or by purchasing its assets.

Administrative dissolution: An involuntary dissolution of a corporation by an act of the Secretary of State or similar state authority, caused by the corporation's failure to comply with certain statutory requirements; especially the failure to file an annual report, to pay franchise taxes or maintain a valid Registered Agent.

Advisory board of directors: An advisory board of directors are individuals appointed to advise an elected board of directors. This board is not bound by the duties imposed upon elected board members, and the corporation is not required to follow their recommendations.

Agent: Anyone who is authorized to act on the behalf of another. A corporation acts only through its agents; therefore, it is important to define what actions an agent is authorized to perform.

Agent for service of process: An agent, required to be appointed by a corporation, whose authority is limited to receiving process issued against the corporation. Also known as a Registered Agent or a Resident Agent.

Amended certificate of authority: A document issued by a state to a foreign corporation evidencing that the corporation has amended its original certificate of authority.

Amendment: An addition to, deletion from, or a change of existing provisions of the articles of incorporation of a domestic corporation.

Annual meeting: A yearly meeting of shareholders at which directors are elected and other general business of the corporation is conducted.

Annual report: A required annual filing in a state, usually listing directors, officers and financial information. Also, an annual statement of business and affairs furnished by a corporation to its shareholders.

Application for certificate of authority: The form filed in many states to qualify a corporation to transact business as a foreign corporation.

Articles of incorporation: The title of the document filed in many states to create a corporation. Also known as the certificate of incorporation or corporate charter.

Articles of organization: The title of the document filed in many states to register a limited liability company (LLC) with the state. Also known as articles of formation.

Assumed name: A name other than the true name, under which a corporation or other business organization conducts business. Also referred to as a fictitious name, a trade name or "doing business as" (d/b/a).

Authorized shares: The maximum number of shares that a corporation may issue pursuant to its articles of incorporation.

Bearer instrument: An instrument is payable to its bearer when by its terms it is payable to 1) a bearer or the order of a bearer; 2) a specified person or bearer; or 3) "cash" or the order "cash," or any other indication that does not purport to designate a specific payee. Bearer shares are a common example of a bearer instrument.

Blue sky law: A term used to describe state laws and regulations governing the issuance and sale of securities to residents of a state and the licensing and regulation of securities brokers and dealers.

Board of directors: The governing body of a corporation who is elected by shareholders. The directors are responsible for selecting the officers and the supervision and general control of the corporation.

Bond: A long-term debt secured by a mortgage on real property or a lien on other fixed assets.

Business corporation act: A business corporation act is the collection of laws in each state that governs corporations.

Bylaws: The regulations of a corporation that, subject to statutory law and the articles of incorporation, provide the basic rules for the conduct of the corporation's business and affairs.

Certificate of authority: Formal evidence of qualification issued by a state to a foreign corporation.

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.

Certificate of incorporation: The title of the document filed in many states to create a corporation. Also known as the articles of incorporation or corporate charter.

Close corporation: A corporation that elects in its articles of incorporation to be registered under the close corporation statutes of their state of incorporation. Some state close corporation statutes provide for a maximum number of shareholders. In addition, close corporation statutes may eliminate or limit the powers of the board of directors, prescribe preemptive rights to the shareholders or relax the corporate formalities. Exact specifications vary by jurisdiction. Not all state statutes provide for a close corporation provision.

Common shares: A class of shares that has no special features and possesses no greater rights than any other shares.

Consolidation: The statutory combination of two or more corporations to create a new corporation.

Constituent: A party to a transaction; a corporation involved in a merger, consolidation or share exchange.

Convertible security: A security that may be exchanged by the holder for another type of security.

Corporate indicator: A word or an abbreviation of a word that must be included in a corporation's name to indicate that the named entity is a corporation. Valid corporate indicators include: incorporated, corporation, limited, company, inc., corp., ltd. and co. The list of acceptable corporate indicators will vary depending upon the jurisdiction in which the corporation is registered.

Corporate kit: a binder usually containing essential items for the routine maintenance and administration of a corporation or limited liability company. Corporate kits provided by The Company Corporation, Inc. include sample minutes and bylaws, stock certificates, a corporate seal and stock ledger.

Corporate Organizer: A Corporate Organizer is a custom-made corporate kit made and distributed exclusively by The Company Corporation All Corporate Organizers include sample minutes and bylaws, custom stock certificates, an embossing corporate seal, stock ledger and custom imprinted corporate binder.

Corporate seal: A corporate seal is a device made to either emboss or imprint certain company information onto documents. This information usually includes the company's name and date and state of formation. Corporate seals are often required when opening corporate or LLC bank accounts, distributing stock or membership certificates or conducting other corporate business. Apelles includes custom-made corporate seals as part of the Corporate Organizer & trade;.

Corporation: An artificial entity created under and governed by the laws of the state of incorporation.

Corporation law: The statutory provisions of a state relating to domestic and foreign corporations.

Cumulative voting: A procedure used for electing directors in which shareholders are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two or more candidates.

Debenture: A long-term debt issued mainly to evidence an unsecured corporate debt.

Debt financing: A method of raising capital in which a corporation borrows money.

Derivative suit: A lawsuit brought by a shareholder on behalf of a corporation to protect the corporation from wrongs committed against it.

Directors: The individuals who, acting as a group known as the board of directors, manage the business and affairs of a corporation.

Dissenters right: A right granted to shareholders that entitles them to have their shares appraised and purchased by the corporation if the corporation enters into certain transactions that the shareholders do not approve of.

Dissolution: The statutory procedure that terminates the existence of a domestic corporation.

Distribution: A transfer of money or other property made by a corporation to a shareholder in respect of the corporation's shares.

Dividend: A distribution of a corporation's earnings to its shareholders.

Equity financing: A method of raising capital in which a corporation sells shares of stock.

Equity interest: An ownership interest; the interest of a shareholder as distinguished from that of a creditor.

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" (d/b/a).

Fiduciary relationship: 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.

Foreign corporation: A term applied to a corporation doing business in a state other than its state of incorporation.

Fractional share: Ownership in a corporation in an amount less than a full share.

Franchise tax: A tax or fee usually levied annually upon a corporation, limited liability company or similar business entity for the right to exist or do business in a particular state. Failure to pay the franchise tax or similar fees may result in the administration dissolution of the company and forfeiture of the charter.

Going public: The process by which a corporation first sells its shares to the public.

Hostile takeover: A takeover that occurs without the approval of the target corporation's board of directors.

Incorporation: The act of creating or organizing a corporation under the laws of a specific jurisdiction.

Incorporator: The person(s) who perform the act of incorporation and who sign the articles of incorporation and deliver them for filing.

Indemnification: Financial protection provided by a corporation to its directors, officers, and employees against expenses and liabilities incurred by them in lawsuits alleging that they breached some duty in their service to or on behalf of the corporation.

Involuntary dissolution: The termination of a corporation's legal existence pursuant to an administrative or judicial proceeding; dissolution forced upon a corporation rather than decided upon by the corporation.

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

Limited Liability Company (LLC): An artificial entity created under and governed by the laws of the jurisdiction in which it was formed. Limited liability companies are generally able to provide the limited personal liability of corporations and the pass-through taxation of partnerships or S corporations.

Limited partnership: A statutory form of partnership consisting of one or more general partners who manage the business and are liable for its debts, and one or more limited partners who invest in the business and have limited personal liability.

Limited personal liability: The protection generally afforded a corporate shareholder, limited partner or a member of a limited liability company from the debts of and claims against the company.

Majority: More than 50 percent; commonly used as the percentage of votes required to approve certain corporate actions.

Management: The board of directors and executive officers of a corporation, limited liability company or similar business entity.

Managers: The individuals who are responsible for the maintenance, administration and management of the affairs of a limited liability company (LLC). In most states, the managers serve a particular term and report to and serve at the discretion of the members. Specific duties of the managers may be detailed in the articles of organization or the operating agreement of the LLC. In some states, the members of an LLC may also serve as the managers.

Members: The owner(s) of a limited liability company (LLC). Unless the articles of organization or operating agreement provide otherwise, management of an LLC is vested in the members in proportion to their ownership interest in the company.

Membership certificates: Evidence of ownership of and membership in a limited liability company.

Merger: The statutory combination of two or more corporations in which one of the corporations survives and the other corporations cease to exist.

Minutes: The corporate minutes are the written record of transactions taken or authorized by the board of directors or shareholders. These are usually kept in the corporate minute book in diary fashion.

Name registration: The filing of a document in a foreign state to protect the corporate name, often in anticipation of qualification in the state.

Name reservation: A procedure that allows a corporation to obtain exclusive use of a corporate name for a specified period of time

No par value shares: Shares for which the articles of incorporation do not fix a par value and that may be issued for any consideration determined by the board of directors.

Not-for-profit corporation: A not-for-profit corporation is generally organized for some socially beneficial purpose, rather than for the direct monetary benefit of the directors or members. Not all not-for-profit corporations are tax exempt and some make a profit. However, the profit is not distributed to the members or directors. Also known as a non-profit corporation.

Officers: Individuals appointed by the board of directors who are responsible for carrying out the board's policies and for making day-to-day decisions.

Operating Agreement: A contract among the members of a limited liability company governing the membership, management, operation and distribution of income of the company.

Organizational meetings: Meetings of incorporators or initial directors that are held after the filing of the articles of incorporation to complete the organization of the corporation.

Organizer: The person(s) who perform the act of forming a limited liability company.

Parent corporation: A corporation that owns a controlling interest in another corporation.

Partnership: A business organization in which two or more persons agree to do business together.

Par value: A minimum price of a share below which the share cannot be issued, as designated in the articles of incorporation.

Perpetual existence: Unlimited term of existence; characteristics of most business corporations.

Preemptive rights: The right of a shareholder to subscribe ratably for his or her proportion of any additional shares issued by a corporation.

Preferred shares: A class of shares that entitles the holders to preferences over the holders of common shares, usually with regard to dividends and distributions of assets upon dissolution or liquidation.

Professional corporation: A corporation whose purposes are limited to professional services, such as those performed by doctors, dentists and attorneys. A professional corporation is formed under special state laws that stipulate exactly which professionals are required to incorporate under this status.

Proxy: A written authorization given by a person to another party directing the party to vote on behalf of him/her.

Qualification: The filing of required documents by a foreign corporation to secure a certificate of authority to conduct its business in a state other than the one in which it was incorporated. Limited liability companies or similar business entities may also conduct this process.

Quorum: The percentage or proportion of voting shares required to be represented in person or by proxy to constitute a valid shareholders meeting, or the number of directors required to be present for a valid meeting of the board.

Record date: The date for determining the shareholders entitled to vote at a meeting, receive dividends, or participate in any corporate action.

Redeemable shares: Shares subject to purchase by the corporation on terms set forth in the articles of incorporation.

Registered Agent: A person or entity designated to receive important tax and legal documents on behalf of the corporation. The Registered Agent must be located and available at a legal address within the specified jurisdiction at all times. Failure to maintain a Registered Agent in the jurisdiction in which the corporation is registered, may result in the forfeiture of the corporate status. Also known as a Resident Agent.

Registered Office: The statutory address of a corporation. In states requiring the appointment of a Registered Agent, it is usually the address of the Registered Agent.

Reinstatement: Returning a corporation that has been administratively dissolved or had its certificate of authority revoked, to good standing on a state's records.

Resolution: A formal statement of any item of business that has been voted upon.

Restated articles of incorporation: A document that combines all currently operative provisions of a corporation's articles of incorporation and amendments thereto.

Revised Model Business Corporation Act: A model corporation statute compiled by the American Bar Association that has been adopted in whole or in part by, or has influenced the statutes of many states.

S Corporation: A corporation granted a special tax status as specified under the Internal Revenue Code. The code is very explicit on how and when this election is made and the number of shareholders this type of corporation can have. Since this type of corporation pays no income tax, all gains and losses of the corporation pass through to the individual shareholders in proportion to their holdings.

Scrip: A form used to represent ownership of fractional shares in lieu of issuing share certificates.

Security: A contract between a business and an investor whereby the investor supplies money and experts to profit from his or her investment.

Securities laws: State and federal laws that govern the issuance, sale and transfer of stocks and bonds.

Share: The unit into which the ownership interest in a corporation is divided.

Share exchange: A statutory form of business combination in which some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation and neither corporation ceases to exist.

Shareholders: Shareholders are the owners of a corporation based on their holdings. They own an interest in the corporation rather than specific corporate property. Also known as stockholders.

Short-form merger: The statutory merger of a subsidiary into its parent corporation in which shareholder approval is not required.

Sole proprietorship: An unincorporated business with a sole owner in which the owner may be personally liable for business debts and claims against the business.

Special meeting: A shareholder meeting called so that the shareholders may act on the specific matters stated in the notice of the meeting.

Stock: Stock represents ownership in a corporation. It may be represented by a certificate and can be common or preferred, voting or non-voting, redeemable, convertible, etc.. The classifications and special designations, if any, of the stock are set forth in the articles of incorporation.

Stock certificate: Evidence of ownership of shares in a corporation. May also be referred to as a share certificate.

Stockholders: Stockholders are the owners of a corporation based on their holdings. They own an interest in the corporation rather than specific corporate property. Also known as shareholders.

Subscribers: Persons who agree under specific conditions to purchase shares in a corporation.

Subscription: The agreement executed by a subscriber.

Subsidiary: A corporation that is either wholly owned or controlled through ownership of a majority of its voting shares, by another corporation or business entity.

Takeover: A merger, acquisition or other change in the controlling interest of a corporation.

Target: A corporation that is the focus of a takeover attempt.

Tax-exempt organization: Any organization that is determined by the Internal Revenue Service to be exempt from federal taxation of income. A tax-exempt may be required to operate exclusively for charitable, religious, literary, educational or similar types of purposes.

Treasury shares: Shares of a corporation reacquired by a corporation.

Underwriter: A company that purchases shares of a corporation and arranges for their sale to the general public.

Voluntary dissolution: Action by shareholders, incorporators or initial directors to dissolve a corporation.

Voting rights: Rights of shareholders to vote their shares pursuant to provisions of statutes, the articles of incorporation and the bylaws.

Watered shares: Shares that have been issued for a consideration less than the par or stated value of the shares.

Winding up: The discharging of a corporation's liabilities and the distributing of its remaining assets to its shareholders in connection with its dissolution.

Withdrawal: The statutory procedure whereby a foreign corporation obtains the consent of a state to terminate its authority to transact business there.