Vocabulary words have meaning both in life and in the law. Below, I have listed the most frequently used terms 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 such legally 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 members at which time directors are elected, and other corporate issues are voted on.
Articles of Organization – Limited liability companies or LLCs must file articles of organization. This parallels the articles of incorporation in many ways.
Asset – Anything owned that has monetary value
Assumed Name – A name under which an LLC conducts business that is not the legal name of the LLC as shown in its articles of formation. Assumed names (also called fictitious names and Doing Business As) are typically filed at the county level with the county recorder’s office. An LLC can use multiple assumed names.
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 Judgement – The rule states that directors of an LLC 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 – The rules and regulations adopted by a company for its internal governance. It usually contains provisions relating to shareholders, directors, officers, and the company’s general business. At the company’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.
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.
Corporate Record Book – Maintaining the proper records is very important to ensure limited liability to LLC members. The corporation should maintain a record book containing copies of the articles of incorporation, bylaws, initial and subsequent minutes of directors’ and shareholders’ meetings, and a stock register.
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.
Equity – The ownership of a shareholder in a corporation.
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.
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.
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.
Limited Liability Company – A Limited Liability Company is a hybrid between a partnership and a Corporation. The advantage of a Limited Liability Company is that most States require fewer formalities than a corporation.
Majority – More than 50 Percent; commonly used as the percentage of votes required to approve certain corporate actions.
Manager – An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to be controlled by managers, this fact must be stated in the articles of incorporation.
Membership Interest – A member’s ownership of an LLC is represented by “interests” just as a partner has an interest in a partnership and shareholders own stock in a corporation.
Member – A Member is a person or entity who is an owner of some or all of a Limited Liability Company. The business decisions of an LLC are made by the members unless the articles of organization provide that the LLC will be controlled by a manager or managers.
Merger – A merger occurs when two corporations join into a single corporation, with one 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.
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.
Operating Agreement – An agreement among the LLC’s members that governs the LLC’s operations and the rights of its members. It is analogous to corporate bylaws.
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.
Pass-Through Taxation – The Income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is “passed through” the business entity to the individual shareholders or interest holders and is reported on their individual tax returns. S corporations and LLCs are both pass-through entities for tax purposes.
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 a majority of directors are present (for a directors’ meeting) or outstanding shares are represented (for a shareholder meeting). 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.
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 grant the corporation or remaining shareholders a right of refusal 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.
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 consents in writing to specific corporate actions.
Fredrick P. Niemann Esq.
Have questions about NJ LLC Law? If so, call our office today. Ask Mr. Niemann to personally discuss your questions and individual situation at (732) 863 -9900 or e-mail him at fniemann@hnlawfirm.com.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, New Jersey LLC Law Attorney
LLC 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