Vocabulary words have meaning both in life and in the law. Below, I have listed the most frequent business and corporate terms used on this website and their meanings. 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. An agent can enter into contracts and other legally binding agreements on behalf of his or her sponsor. For example, a corporation’s officers or upper-level management act as the corporation’s agent(s).
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 matters are voted on.
Articles of Incorporation – While different states may refer to Articles of Incorporation as a “charter” or a “certificate”, in NJ articles of incorporation must conform to NJ state law, must be filed with the proper state authorit,ies, and must disclose the business purposes of the corporation, the company/corporate name, the primary place of business, the names of directors, and amounts and types of stock the corporation 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 shares of stock that are authorized to be issued by the Board of Directors to not have to be issued to shareholders; the corporation can have unissued shares that can be distributed later.
Business Entity – An organization that exists to conduct a for-profit business. Examples of business entities include corporations, limited liability companies (LLC’s), business trusts, partnership(s), and limited partnerships. A sole proprietorship technically qualifies as a business entity.
Business Judgment – This term generally means that directors of corporations will not be held personally liable for unwise business decisions, provided that the directors made an informed decision and that decision was not tainted by self-interest.
Bylaws – 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 under state laws 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. Unused losses 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 Section C of the Internal Revenue 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 Authority to Do Business in NJ – A document issued to an out-of-state corporation evidencing that this corporation has the authority to do business in NJ.
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 type of corporation typically has 30 to 50 stockholders and is a good fit for a business in which the majority of stockholders are actively involved in the company’s management.
Common Stock – The primary stock of a corporation. This stock gives shareholders the right to participate in the management of the corporation and gives shareholders a proportionate share of the dividends.
Corporate Record Book – Maintaining the proper records is very important to ensure limited liability to corporate shareholders. The corporation should maintain a record book that 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 corporation’s affairs. Typically, the directors make only major business decisions and major policy changes, and monitor the officers’ activities. They are the people who primarily manage the corporation.
Dissolution – Is the termination of a corporation’s legal existence. Dissolution may be caused in many ways, including failure to file annual reports, failure to pay certain taxes, bankruptcy, or voluntary dissolution 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 corporation’s official name; 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 – A number assigned by the government to a corporation or other business entity 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 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 attracting investors. 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 expenses 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 to form one, with one corporation surviving and the other disappearing. The assets and liabilities of the disappearing entity are absorbed into the surviving entity.
Minutes – A written record that 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 state government’s records. If the name is not unique, the state will reject the articles of incorporation or articles of organization (for LLCs). A name can be reserved, usually for 120 days, by applying to the proper state authorities and paying a fee.
No-Par-Value Stock – Stock with no minimum value. Most states allow no-par stock. If the stock is no-par stock, the 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 for corporations with low par-value stock.
Officers – The directors appoint officers. They manage the corporation’s daily affairs. 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 at which the corporation is formed. At the organizational meeting, several initial tasks are completed, including ratifying the articles of incorporation, issuing the initial shares, electing officers, approving the bylaws, and passing a resolution authorizing the opening of bank accounts. 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, the corporate entity may not protect shareholders from corporate debt. Keeping proper records and holding regular meetings helps address this potential 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’ meetings) or outstanding shares are represented (for shareholder meetings). The percentage needed for a quorum may be modified in the bylaws.
Registered/Resident Agent – Under state law, corporations and LLCs located outside the 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 and annual report filings. 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 corporation’s principal office or place of business.
Resolution – A resolution is a formal decision of the corporation adopted by either the shareholders or the board of directors.
Share – An interest in a corporation. A corporation’s total ownership is divided into shares of stock.
Shareholder – Any holder of one or more shares in a corporation. A shareholder usually has evidence of their status; 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 of 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 that lists the owners of shares 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 corporations to pursue any lawful activity.
Unanimous Written Consent – Nearly all states allow directors and shareholders to act without a meeting if each gives written consent to specific corporate actions.
Fredrick P. Niemann Esq.
Have questions about NJ Business or Corporation Law? If so, call our office today. Ask for Mr. Niemann to personally discuss your questions and individual situation at (732) 863-9900 or e-mail him at fniemann@hnlawfirm.com.
Business Law attorney serving these New Jersey Counties:
Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County