When forming a new business, you may hear terms not normally used on a daily basis. This can make business startup and formation seem more complicated than it actually is. We have compiled a list of commonly misunderstood terms and their definitions below to demystify the process.
| Term | Definition |
|---|---|
| Annual Report | An Annual Report contains information about the business and its' owners/managers. This report is required each year (in most states). |
| Apostilles | An Apostille is a documentary device by which a government department authenticates a document as genuine. Commonly used to certify corporate documents, birth certificates, passports, and wills for use internationally. |
| Articles of Amendment | The procedure by which one or more changes is made to a corporation's articles of incorporation (or an LLCs articles of organization). |
| Articles of Incorporation | Formal documents filed with the authorities in the state in which the corporation wishes to operate. |
| Articles of Organization | Formal documents filed with the authorities in the state in which the limited liability company (LLC) wishes to operate. |
| Asset | Something of value. Examples include land, houses, cars, furniture, cash, bank deposits, and securities. |
| Bylaws | Bylaws are self-imposed rules that constitute an agreement or contract between a corporation and its members to conduct the corporate business in a particular way. |
| Certificate of Formation | A Certificate of Formation is a document that allows you to register a limited liability company (LLC) in the state in which it has been filed. This is another common name for the Articles of Incorporation. |
| Certificate of Organization | Also commonly referred to as the Articles of Organization, a limited liability company (LLC) is legally formed by filing a Certificate of Formation in the state in which it will be formed. |
| Certificate of Good Standing | A Certificate of Good Standing, also known as a "Certificate of Existence" or "Certificate of Status", is a certificate issued by a state official as evidence that your corporation or LLC is in existence, and is authorized to transact business within that state. |
| Certified Copies | Certified Copies are an official state-issued certificate verifying that the document referenced is a true and correct copy of the original document that was filed. |
| Chief Executive Officer | An owner of a limited liability company. |
| Common Stock | A corporation's primary class of stock. Common stock holders typically have voting rights. |
| Copyright | legal protection given to authors of literary, musical, and artistic works and similar intellectual property . A copyright conveys the exclusive right to print, reprint, and copy the work; to sell, assign, and distribute copies; and to perform the work. |
| Corporate Resolutions | Corporate Resolutions record the major decisions taken by a corporation's Shareholders or Board of Directors during a meeting. |
| Corporate Seal | A corporate seal is an official imprint (usually containing a raised mark with company name and formation date) used to authenticate documents "signed" by the corporation or limited liability company (LLC). |
| Corporation | A corporation is an independent legal and tax entity, separate from the people who own, control and manage it. The corporation pays taxes on corporate profits, and the corporation's owners pay taxes on money they draw from the corporation. |
| DBA | DBA stands for "doing business as" and is an official and public registration of a business name. DBAs are also known as Fictitious Names, Fictitious Business Names, Assumed Names, and Trade Names. |
| Dissolution | To end the existence of a corporation or LLC, an entity must file Articles of Dissolution (or other forms of dissolution or cancellation documents) with the Secretary of State. |
| EIN | An EIN (or Employer Identification Number) is issued by the IRS to identify a business entity. It is similar to a social security number being issued to identify an individual, except that an EIN is used to identify a business entity instead of a person. |
| Entity | An individual, partnership, corporation, and so on, permitted by law to own property and engage in business. |
| Foreign Qualification | A process by which an existing corporation or LLC registers to do business in a new state. For example, a corporation originally formed in California that wants to have a presence in Nevada needs to "foreign qualify" with Nevada. |
| Incorporate | To obtain an official charter or articles of incorporation from the state for an organization. Some options include for-profit corporations, a professional business, such as a law office or medical office, or a non-profit entity which operates for charity. |
| Initial Report | An Initial Report contains general information about the business and its' owners/managers. In some states, this required report is due shortly after a corporation or LLC is formed. |
| Limited Liability | The maximum amount a person participating in a business can lose or be charged in case of claims against the company or its bankruptcy. A stockholder in a corporation can only lose his/her investment. |
| Limited Liability Company (LLC) | A limited liability company (LLC) is formed by members who also run the company (unless Managers are hired to run it). The LLC can choose to be taxed as a regular corporation or as a pass through entity (i.e. members can claim profits/losses on their personal tax returns). Profits/losses can be split among members any way they choose. LLC rules vary by state. |
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| Member | An owner of a limited liability company. |
| Membership Certificates | Membership certificates are issued to members of a limited liability company (like shares of stock in a corporation) to validate ownership or membership in a limited liability company ( LLC). |
| Name Availability Check | A process by which someone contacts the Secretary of State to check the availability of a business name, ensuring the name is not already registered . |
| Nonprofit Corporation | Organization in which no stockholder or trustee shares in profits or losses; usually exists to accomplish some charitable, humanitarian, or educational purpose. Some examples are hospitals, colleges and universities, and foundations. |
| Officer | The managers of a corporation such as the President, CFO, and Secretary. The officers are appointed by the board of directors. |
| Operating Agreement | An Operating Agreement is an agreement among LLC members about its business and the rights and duties of its members. |
| Partnership | A partnership is a business operated by multiple people. Partners share the profits/losses, and have control of and liability for business operations. Taxes are paid by the partners on their personal tax returns, in proportion to their share of ownership. |
| Professional Corporation | A corporation formed for the purpose of engaging in one of the learned professions, such as law, medicine, or architecture. Most states allow professional persons to incorporate provided that all shareholders are members of the same profession. |
| Registered Agent | A registered agent is an individual or entity designated by a Corporation or Limited Liability Company to accept official documents on behalf of the corporation. |
| Reinstatement | To restore a corporation or limited liability to "good standing". For example, after an involuntary dissolution, a business may be required to pay all undue taxes, and update required filings (i.e. annual reports), before being returned to "active" status. |
| S-Corporation | An S-Corporation is a corporation that has elected S-Corporation tax status. In an S-Corporation, all profits "pass through" to the owners, who report them on their personal tax returns. The S-Corporation itself does not pay any income tax. |
| Shareholder | An owner of a corporation and one who holds shares of stock in a corporation. |
| Sole Proprietorship | A business run by an individual. The owner has all of the profits and losses of the business. The owner has unlimited control of and personal liability for the business. Business taxes are paid by the owner through his/her personal income tax return. |
| Stock Certificate | A document showing stockholder's ownership in the company. The certificate shows the number of shares, par value, class of stock (e.g., common stock), and voting rights. When endorsed, stock certificates are negotiable. |
| Tax ID Number | IRS identification number needed before most bank accounts can be opened. For businesses, it's the employer's identification number (EIN), required of corporations, nonprofit organizations, associations, partnerships, and some LLCs. |
| Withdrawal | A formal certification to cease business activities in a state. |
