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Incorporation Glossary

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A

Accrual Method
An accounting method under which income is subject to tax after all events have occurred which fix the right to receive such income and deductions are allowed when all the events have occurred to fix the obligation to pay the debt.

Aggregate Par Value
Aggregate par value is the par value multiplied by the number of authorized shares. This amount is important in determining initial fees and annual franchise taxes in many states.

Annual Meeting of Shareholders
Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.

Annual Report
A required annual filing in a state, usually requiring names of the directors (for corporations), members (for LLCs) and financial information. This term can also refer to an annual statement of business and affairs furnished by a corporation to its shareholders.

Apostille
Is a method of certifying a document for use in another country pursuant to the 1961 Hague Convention. With this certification by apostille, a document is entitled to recognition in the country of intended use, and no additional certification or legalization by the embassy or consulate of the foreign country where the document is to be used is required. An apostillized copy of the articles of incorporation or articles of organization is often required to open a bank account in another country for a US-incorporated business. Note, certain countries require a certified copy of the articles of incorporation/organization with an appropriate gold seal instead of an apostillized copy.

Articles of Incorporation
(Certificate of Incorporation or charter). The articles are the primary legal document of a corporation; they serve as a corporation's constitution. The articles should be filed with the state government. For more information see Certificate of Incorporation page.

Articles of Organization
LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation's articles of incorporation. For more information see Certificate of Incorporation page.

Asset
Anything having commercial or exchange value that is owned by a business, government, institution, or individual. This can include stocks, bonds, real estate, equipment, a brand name, or the value of a company as an operating business, sometimes known as goodwill.

Assumed Name
A name under which a corporation conducts business that is not the legal name of the corporation as shown in its articles of incorporation. Assumed names (also called a fictitious name and Doing Business As or DBA) could be filed at the city, county or state level depending on state requirements. A corporation can use multiple assumed names.

Authorized Shares or Stock
The total number of shares a corporation is authorized to issue. This number is specified in the articles of incorporation. All of the shares authorized need not be issued to shareholders; the corporation can have unissued shares that can distributed at a latter time.

B

Board of Directors
The governing body of a corporation. Elected by shareholders, the directors are responsible for selecting the officers and their supervisory roles, and the general control of the corporation.

Business Entity
An organization that possesses a separate existence for tax purposes. Some types of business entities include corporations and limited liability companies.

Business Plan
A written document that details a proposed or existing venture. It will typically explain the vision, current status, expected needs, defined markets, and projected results of the business.

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. The bylaws are adopted at the corporation's initial meeting.

C

Capital Gains or Losses
Gains or losses realized from the sale or exchange of capital assets. The amount is determined by calculating the difference between an asset's purchase and sale price.

Capital Stock See Authorized stock.

Cash Method
An accounting method under which income is subject to tax when actually received and deductions are allowed when actually paid.

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 or Application for Authority
Is a document issued by the proper state authority to a foreign corporation granting the corporation the right to do business in that state upon filing an application of authority. See our Foreign Qualification service for more information.

Certificate of Good Standing
A certificate issued by a state official as conclusive evidence that a corporation or LLC is in existence or authorized to transact business in the state. The certificate generally sets forth the corporation's or LLC’s name; that it is duly incorporated or organized and 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.

Common Stock
The primary stock of a corporation. This stock gives shareholders the right to participate in management of the corporation and give the shareholder a proportionate share of the dividends.

Conversion
The process of converting a corporation to an LLC or converting an LLC to a corporation. Not all states allow this procedure, and the fees vary within the states that do.

Corporate Kit
A binder usually containing essential items for the routine maintenance and administration of a corporation. Corporate kits include sample minutes, resolutions and bylaws, stock certificates, a corporate seal, and stock ledger.

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.

Corporate Seal
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 bank accounts, distributing stock or conducting other corporate business.

D

Delayed Effective Date
Certain states allow for a business to choose an effective date for when the business will officially be formed as a corporation or LLC in that state. For instance, a business owner submitting a formation order in November of 2004 can choose an effective date of January 1, 2005, when his company will be officially recognized as a corporation or LLC in that state.

Directors
Directors are elected by the shareholders. They manage or direct the affairs of a corporation. Typically, the directors make only major business decisions and monitor the activities of the officers.

Dissolution
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 of the corporation by the shareholders and directors. Business Filings performs voluntary dissolution filings. See the dissolution product page for more information.

Dividend
A dividend is a distribution of money or property paid by the corporation out of the corporation's profits to shareholders. Dividend payments are subject to double taxation, the corporation pays tax on its profits and the dividend recipient must pay income taxes on the dividend payment, the same money is taxed twice. The directors of the corporation decide if a dividend payment is to be made.

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.

Double Taxation
Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities which are not subject to the double tax.

E

Equity
The ownership of a shareholder in a corporation.

F

Fictitous Name See "Doing Business As".

Fiscal Year
Any twelve-month period used by a business as its fiscal accounting period.

Federal Tax Identification Number
This is a number assigned to a corporation or other business entity by the federal 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).

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. See Foreign Qualification for more information.

Franchise Tax
Is a tax on the privilege of carrying on business as a corporation or LLC in a state. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock, or by amount of business done. In some states, like California, the franchise tax is simply an income tax.

G


H

Holding Company
A corporation that owns a large number of shares in other companies. Holding companies use the voting rights that come with their shares to exert influence over the companies under them.

I

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

Incorporator
The person or entity that prepares, files and signs the articles of incorporation. Business Filings Incorporated acts as an incorporator for many new companies.

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.

IRS Form 1023
This form is used to apply for tax-exempt status with the IRS.

IRS Form 1120
This form is used to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a corporation.

IRS Form 1120S
This form is used to report the income, deductions, gains, losses, etc. of a domestic corporation that has elected to be an S Corporation by filing Form 2553, and whose election is in effect for the tax year.

IRS Form 2553
This form is used to apply for S corporation status.

IRS Form 8822
This form is used to change your address on file with the IRS.

IRS Form SS-4
This form is used to apply for a federal tax ID number.

J

Judicial Dissolution
Involuntary dissolution of a corporation by a court at the request of the state’s Attorney General’s office, a shareholder or a creditor.

K


L

Limited Liability Company (LLC)
A business entity formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs provide the limited liability to their members, and are taxed like a partnership, preventing double taxation. LLCs can be formed in every state.

LLC Kit
A binder usually containing essential items for the routine maintenance and administration of a limited liability company. LLC kits include membership certificates, an LLC seal and sample operating agreements.

LLC Seal
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. LLC seals may be required when opening bank accounts, distributing membership certificates or conducting other company business.

M

Manager
An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to controlled by mangers this fact must be stated in the articles of organization.

Member
A member is a person or entity who is an owner of some or all of a LLC. The business decisions of an LLC are made by the members unless the articles of organization provide that the LLC will controlled by a manager or managers.

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.

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.

N

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 articles of organization (for LLCs). A name can be reserved, usually for 120 days, by applying with the proper state authorities and paying a fee. See "Other Filings" for more information.

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 typically an arbitrary amount assigned by the board of directors. Some states, though, assign a value of $1.00 to stock when filed as being no-par-value stock. Further, the value of capital for franchise tax purposes is determined by the state and this may result in higher franchise taxes in comparison with low par-value stock.

Not For Profit (or Nonprofit) Corporation
A corporation organized for some charitable, civil or other social purpose which does not entail the generation of profits for shareholders. These corporations can apply for tax-exempt status at both the federal and state level. Not-for-profit corporations, also often called nonprofit corporations, must file not-for-profit articles of incorporation with the state.

O

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 of these posts.

Operating Agreement
An agreement among the LLC's members which govern the LLC's operations and the rights of its members. It is analogous to corporate bylaws.

Organizational Meeting
The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed such as: the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed.

Organizer
The person who or the entity that prepares, files and signs the articles of organization. Business Filings Incorporated serves as an organizer for many new companies.

P

Paid in Capital
A few states require corporations to have a specified amount of paid in capital prior to starting business. Broadly defined it is all the money and other property belonging to a corporation.

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

Partnership
A partnership is an association of two or more persons. In contrast to a corporation, a general partnership can come into existence without the need to file any formal papers with any state official. The owners of a partnership are personally and fully liable for all business debts; thus, personal property could be taken to pay business debts.

Par-Value
The stated minimum value of a share of stock.

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 tax entities.

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 which is organized for the purpose of engaging in a learned profession such as law, medicine or architecture. Professional Corporations must file articles of incorporation with the state which meet the state's requirements for professional corporations.

Proxy
If a shareholder can not attend a meeting, the shareholder is allowed to vote by proxy.

Q

Quorum
The minimum attendance required to conduct business at a shareholder or board of directors meeting. Usually, a quorum is achieved if a majority of directors are present (for directors meetings) or outstanding shares are represented (for shareholder meetings).

R

Registered Agent
The agent named in the articles of incorporation. The agent will receive service of process on the corporation and other important documents. The agent must be named in the articles of incorporation, and must be located in the state of incorporation or organization.

Registered Office
The office named 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.

Reinstatement
Returning a corporation or LLC that has been administratively dissolved or had its certificate of authority revoked, to good standing with the state of formation or qualification.

Resolution
A resolution is a formal decision of the corporation, which has been adopted by either the shareholders or the board of directors.

S

S Corporation
A corporation which elects subchapter S tax treatment. This tax treatment allows the corporation to avoid entity level taxation.

Section 1244 Stock
An individual investor in a corporation which meets the Section 1244 requirements is entitled to treat up to $50,000 (or $100,000 if filing a joint return) of losses on the 1244 section stock as ordinary losses.

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.

Shelf Company
Companies (either corporations or LLCs) that are formed, but have never been used. Each shelf company created by Business Filings Incorporated was filed for the specific purpose of being a shelf company. Business Filings' shelf companies include a certificate of incorporation and franchise tax documents that have been filed with the Secretary of State.

Sole Proprietorship
A business carried on by the owner as an individual. The owner of a sole proprietorship is personally and fully liable for all business debts; thus, personal property could be taken to pay business debts.

Stated Capital
The par value of shares multiplied by the number of shares outstanding.

Stock
An equity 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.

Stockholder See shareholder. Stock Transfer Book
A record book, also called a stock transfer ledger, which lists the owners of shares of stock in a corporation.

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.

T

Tax-exempt Organization
Any organization that is determined by the IRS to be exempt from federal taxation of income. This determination is based off of IRS acceptance of Form 1023. A tax-exempt organization may be required to operate exclusively for charitable, religious, literary, educational or similar types of purposes.

Treasury Shares
Shares of stock which were issued and later acquired or bought back by the corporation.

U

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

V

Voluntary Dissolution
Action taken by shareholders, incorporators or initial directors to dissolve a corporation. Or action taken by members or organizers to dissolve an LLC. The process is completed by filing Articles of Dissolution with the Secretary of State.

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

W

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

X


Y


Z





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Incorporation Glossary