Business Entities & Agreements PDF

pass-through entity A business entity that has no tax liability. The entity's income is passed through to the owners, and they pay taxes on the income. franchisor One licensing another (the franchisee) to use the owner's trademark, trade name, or copyright in the selling of goods or services. arti...

pass-through entity A business entity that has no tax liability. The entity's income is passed through to the owners, and they pay taxes on the income. franchisor One licensing another (the franchisee) to use the owner's trademark, trade name, or copyright in the selling of goods or services. articles of partnership A written agreement that sets forth each partner's rights and obligations with respect to the partnership. partnership by estoppel A partnership imposed by a court when nonpartners have held themselves out to be partners, or have allowed themselves to be held out as partners, and others have detrimentally relied on their misrepresentations. charging order In partnership law, an order granted by a court to a judgment creditor that entitles the creditor to attach a partner's interest in the partnership. Joint liability In partnership law, a doctrine under which a plaintiff must sue all of the partners as a group, but each partner can be held liable for the full amount. Joint and several liability In partnership law, a doctrine under which a plaintiff may sue all of the partners together (jointly) or one or more of the partners separately (severally, or individually). Dissociation The severance of the relationship between a partner and a partnership or between a member and a limited liability company. dissolution The formal disbanding of a partnership, corporation, or other business entity. For instance, partnerships can be dissolved by acts of the partners, by operation of law, or by judicial decree. buyout price The amount payable to a partner on his or her dissociation from a partnership, based on the amount distributable to that partner if the firm were wound up on that date, and offset by any damages for wrongful dissociation. Winding up The second of two stages in the termination of a partnership or corporation, in which the firm's assets are collected, liquidated, and distributed, and liabilities are discharged. buy-sell agreement In the context of partnerships, an express agreement made at the time of partnership formation for one or more of the partners to buy out the other or others should the situation warrant. articles of organization The document that is filed with the appropriate state official, usually the secretary of state, when a limited liability company is formed. limited liability company (LLC) A hybrid form of business enterprise that offers the limited liability of a corporation and the tax advantages of a partnership. members A person who has an ownership interest in a limited liability company. general partner In a limited partnership, a partner who assumes responsibility for the management of the partnership and has full liability for all partnership debts. operating agreement An agreement in which the members of a limited liability company set forth the details of how the business will be managed and operated. limited liability partnership (LLP) A hybrid form of business organization that is used mainly by professionals who normally do business in a partnership. An LLP is a pass-through entity for tax purposes, but a partner's personal liability for the malpractice of other partners is limited. limited partnership (LP) A partnership consisting of one or more general partners and one or more limited partners. family limited liability partnership (FLLP) A limited liability partnership (LLP) in which the majority of the partners are members of a family. limited partners In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in its management and has no liability for partnership debts beyond the amount of her or his investment. certificate of limited partnership The document that must be filed with a designated state official to form a limited partnership. limited liability limited partnership (LLLP) A type of limited partnership in which the liability of the general partner is the same as the liability of the limited partners—that is, the liability of all partners is limited to the amount of their investments in the firm. member A person who has an ownership interest in a limited liability company. limited partner In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in its management and has no liability for partnership debts beyond the amount of her or his investment. corporation A corporation is a firm that is authorized by statute to act as legal entity separate and distinct from its owners (shareholders). alien corporation A corporation formed in another country but doing business in the United States. domestic corporation In a given state, a corporation that is organized under the law of that state. foreign corporation In a given state, a corporation that does business in that state but is not incorporated there. holding company A company whose business activity is holding shares in another company. retained earnings The portion of a corporation's profits that has not been paid out as dividends to shareholders. public corporation A corporation owned by a federal, state, or municipal government—not to be confused with a publicly held corporation. S corporation A close business corporation that has most of the attributes of a corporation, including limited liability, but qualifies under the Internal Revenue Code to be taxed as a partnership. publicly held corporation A corporation whose shares are publicly traded in securities markets, such as the New York Stock Exchange or the NASDAQ. close corporation A corporation whose shareholders are limited to a small group of persons, often family members. benefit corporation A type of for-profit corporation, available by statute in a number of states, that seeks to have a material positive impact on society and the environment. shareholder agreement An agreement between shareholders that restricts the transferability of shares, often entered into for the purpose of maintaining proportionate control of a close corporation. bylaws The internal rules of management adopted by a corporation at its first organizational meeting. commingled To put funds or goods together into one mass so that they are mixed to such a degree that they no longer have separate identities. articles of incorporation The document that is filed with the appropriate state official, usually the secretary of state, when a business is incorporated and that contains basic information about the corporation. piercing the corporate veil The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations. Securities Generally, stocks, bonds, or other items that represent an ownership interest in a corporation or a promise of repayment of debt by a corporation. Bonds A security that evidences a corporate (or government) debt. Stocks An ownership (equity) interest in a corporation, measured in units of shares. common stock A security that evidences ownership in a corporation. A share of common stock gives the owner a proportionate interest in the corporation with regard to control, earnings, and net assets. Common stock is lowest in priority with respect to payment of dividends and distribution of the corporation's assets on dissolution. Preferred stock A security that entitles the holder to payment of fixed dividends and that has priority over common stock in the distribution of assets on the corporation's dissolution. Venture capital Financing provided to new business ventures by professional, outside investors—that is, venture capitalists, usually groups of wealthy investors and securities firms. private equity capital Capital funds invested by a private equity firm in an existing corporation, usually to purchase and reorganize it. outside director A person on a corporation's board of directors who does not hold a management position in the corporation. Crowdfunding A cooperative activity in which people network and pool funds and other resources via the Internet to assist a cause (such as disaster relief) or invest in a business venture (such as a startup). inside director A person on a corporation's board of directors who is also an officer of the corporation. quorum The number of members of a decision-making body that must be present before business may be transacted. stock certificates A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation. proxy Authorization to represent a corporate shareholder to serve as his or her agent and vote his or her shares in a certain manner. business judgment rule A rule under which courts will not hold corporate officers and directors liable for honest mistakes of judgment and bad business decisions that were made in good faith. voting trust An agreement (trust contract) under which legal title to shares of corporate stock is transferred to a trustee who is authorized by the shareholders to vote the shares on their behalf. preemptive rights The right of a shareholder in a corporation to have the first opportunity to purchase a new issue of that corporation's stock in proportion to the amount of stock already owned by the shareholder. dividend A distribution of corporate profits to the corporation's shareholders in proportion to the number of shares held. watered stock Shares of stock issued by a corporation for which the corporation receives, as payment, less than the fair market value of the shares. stock warrants A certificate that grants the owner the option to buy a given number of shares of stock, usually within a set time period. shareholder's derivative suit A suit brought by a shareholder to enforce a corporate cause of action against a third person. bond A security that evidences a corporate (or government) debt. stock certificate A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation. stock An ownership (equity) interest in a corporation, measured in units of shares. agency A relationship between two parties in which one party (the agent) agrees to represent or act for the other (the principal). fiduciary As a noun, a person having a duty created by his or her undertaking to act primarily for another's benefit in matters connected with the undertaking. As an adjective, a relationship founded on trust and confidence. independent contractor One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. An independent contractor is not an employee but may be an agent. equal dignity rule A rule requiring that an agent's authority be in writing if the contract to be made on behalf of the principal must be in writing. exclusive agency An agency in which a principal grants an agent an exclusive territory and does not allow another agent to compete in that territory. Express authority Authority expressly given by one party to another. In agency law, an agent has express authority to act for a principal if both parties agree, orally or in writing, that an agency relationship exists in which the agent has the power (authority) to act in the place of, and on behalf of, the principal. power of attorney Authorization to act as another's agent either in specified circumstances (special) or in all situations (general). notary public A public official authorized to attest to the authenticity of signatures. Ratification The act of accepting and giving legal force to an obligation that previously was not enforceable. apparent authority Authority that is only apparent, not real. An agent's apparent authority arises when the principal causes a third party to believe that the agent has authority, even though she or he does not. implied authority Authority that is created not by an explicit oral or written agreement but by implication or inference. In agency law, implied authority of the agent can arise from custom, from the position the agent occupies, or from being reasonably necessary to carry out express authority. disclosed principal A principal whose identity is known to a third party at the time the agent makes a contract with the third party. partially disclosed principal A principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract. respondeat superior A doctrine under which a principal-employer is liable for any harm caused to a third party by an agent-employee in the course or scope of employment. e-agent A semiautonomous computer program that is capable of executing specific tasks. vicarious liability Indirect liability imposed on a supervisory party (such as an employer) for the actions of a subordinate (such as an employee) because of the relationship between the two parties. undisclosed principal A principal whose identity is unknown by a third party, and that party has no knowledge that the agent is acting for a principal at the time the agent and the third party form a contract. sole proprietorship The simplest form of business organization, in which the owner is the business. The owner reports business income on his or her personal income tax return and is legally responsible for all debts and obligations incurred by the business. franchise Any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright in the selling of goods or services. entrepreneur One who initiates and assumes the financial risk of a new business enterprise and undertakes to provide or control its management. franchisee One receiving a license to use another's (the franchisor's) trademark, trade name, or copyright in the sale of goods and services. information return A tax return submitted by a partnership that reports the business's income and losses. The partnership itself does not pay taxes on the income, but each partner's share of the profit (whether distributed or not) is taxed as individual income to that partner. partnership An agreement by two or more persons to carry on, as co-owners, a business for profit.