Articles

Incorporation Glossary

Acquisition — Obtaining control of another corporation by purchasing all or a majority of its outstanding shares, or by purchasing its assets.

Administrative Dissolution — Involuntary dissolution of a corporation by an act of the state department in charge of corporations, caused by the corporation’s failure to comply with certain statutory requirements, especially the failure to file an annual report or pay franchise taxes.

Agent for Service of Process — An agent, required to be appointed by a corporation, whose authority is limited to receiving process issued against the corporation. Also known as a registered agent or a resident agent.

Amendment — An addition to, deletion from, or a change of existing provisions of the articles of incorporation of a domestic corporation.

Annual Meeting — A yearly meeting of shareholders at which directors are elected and other general business of the corporation is conducted.

Annual Report — A required annual filing in a state, usually listing directors, officers and financial information. Also, an annual statement of business and affairs furnished by a corporation to its shareholders.

Application for Certificate of Authority — The form filed in many states to qualify a corporation to transact business as a foreign corporation.

Articles of Incorporation — The title of the document filed in many states to create a corporation. Also known as the Certificate of Incorporation or Charter.

Assumed Name — A name other than the true name, under which a corporation or other business organization conducts business. Also referred to as a fictitious name or a trade name.

Authorized Shares — The maximum number of shares that a corporation may issue pursuant to its articles of incorporation.

Blue Sky Law — A term used to describe state laws and regulations governing the issuance and sale of securities to residents of the state and the licensing and regulation of securities brokers and dealers.

Board of Directors — The governing body of a corporation, consisting of individuals elected by the shareholders, that manages the business and affairs of a corporation.

Bond — A long-term debt security secured by a mortgage on real property or a lien on other fixed assets.

Bylaws — The regulations of a corporation, that, subject to statutory law and the articles of incorporation, provide the basic rules for the conduct of the corporation’s business and affairs.

Certificate of Good Standing — Certificate issued by a state official as conclusive evidence that a corporation is in existence or authorized to transact business in the state. Also known as a certificate of existence or certificate of authorization.

Common Shares — A class of shares having no special features and giving no greater rights than any other shares.

Consolidation — The statutory combination of two or more corporations to create a new corporation.

Constituent — A party to a transaction; a corporation involved in a merger, consolidation, or share exchange.

Conversion — A statutory transaction in which one type of business entity becomes another type of business entity.

Convertible Security — A security that may be exchanged by the holder for another type of security.

Corporate Indicator — A word or an abbreviation of a word that must be included in a corporation’s name to indicate that the named entity is a corporation.

Corporation — An artificial entity created under and governed by the laws of its state of incorporation.

Corporation Law — The statutory provisions of a state relating to domestic and foreign corporations.

Cross-Entity Merger — A merger in which the constituents are different types of entities, such as a merger involving a corporation and a limited liability company.

Cumulative Voting — A procedure used for electing directors in which shareholders are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two or more candidates.

Debenture — A long-term debt security issued mainly to evidence an unsecured corporate debt.

Debt Financing — A method of raising capital in which a corporation borrows money.

Derivative Suit — A lawsuit brought by a shareholder on behalf of a corporation to protect the corporation from wrongs committed against it.

Directors — The individuals who, acting as a group known as the board of directors, manage the business and affairs of a corporation.

Dissenter’s Rights — A right granted to shareholders that entitles them to have their shares appraised and purchased by the corporation if the corporation enters into certain transactions that the shareholders do not approve of.

Distribution — A transfer of money or other property made by a corporation to a shareholder in respect of the corporation’s shares.

Dividend — A distribution of a corporation’s earnings to its shareholders.

Domestication — A statutory transaction in which a corporation changes its state of incorporation.

Equity Financing — A method of raising capital in which a corporation sells shares of stock.

Equity Interest — An ownership interest; the interest of a shareholder as distinguished from that of a creditor.

Fictitious Name — A name a foreign corporation must qualify under if its true corporate name is unavailable for use in a foreign state. See also Assumed Name.

Fiduciary Relationship — 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.

Foreign Corporation — A term applied to a corporation doing business in a state other than its state of incorporation.

Fractional Share — Ownership in a corporation in an amount less than a full share.

Franchise Tax — A privilege tax levied upon a corporation’s right to exist or do business as a corporation in a particular state.

Going Public — The process by which a corporation first sells its shares to the public.

Hostile Takeover — A takeover that occurs without the approval of the target corporation’s board of directors.

Incorporation The act of creating or organizing a corporation.

Incorporators — The persons who perform the act of incorporation and who sign the articles of incorporation and deliver them for filing.

Indemnification — Financial protection provided by a corporation to its directors, officers, and employees against expenses and liabilities incurred by them in lawsuits alleging that they breached some duty in their service to or on behalf of the corporation.

Involuntary Dissolution — The dissolution of a corporation pursuant to an administrative or judicial proceeding; a dissolution forced upon a corporation rather than decided upon by the corporation.

Judicial Dissolution — Involuntary dissolution of a corporation by a court at the request of the state attorney general, a shareholder, or a creditor.

Limited Liability Company — A statutory entity containing some of the features of a corporation and some of the features of a partnership, consisting of members who have limited liability and the right to manage the business, and which may be treated like a partnership for tax purposes.

Limited Liability Limited Partnership — A limited partnership in which the general partners do not have unlimited liability for the limited partnership’s debts and liabilities.

Limited Liability Partnership — A general partnership that registers with the state and whose partners do not have unlimited liability for the partnership’s debts and liabilities. Also known as a Registered Limited Liability Partnership.

Limited Partnership — A statutory form of partnership consisting of general partners who manage the business and are liable for its debts, and limited partners who invest in the business and have limited liability.

Majority — 50% plus 1; commonly used as the percentage of votes required to approve corporate actions.

Management — The board of directors and executive officers of a corporation.

Merger — The statutory combination of two or more corporations or other business entities in which one of the corporations or other business entities survives and the others cease to exist.

Model Business Corporation Act — A model corporation statute compiled by the American Bar Association that has been adopted in whole or in part by, or has influenced the statutes of many states.

No Par Value Shares — Shares for which the articles of incorporation do not fix a par value and that may be issued for any consideration determined by the board of directors.

Officers Individuals appointed by the board of directors who are responsible for carrying out the board’s policies and for making day-to-day decisions.

Organizational Meetings — Meetings of incorporators or initial directors, held after the filing of the articles of incorporation in order to complete the organization of the corporation.

Parent Corporation — A corporation owning all or substantially all of the shares of another corporation.

Partnership — A non-statutory form of business organization in which two or more persons agree to do business together. Also known as a General Partnership.

Par Value — A minimum price of a share below which the share can-not be issued, as designated in the articles of incorporation.

Perpetual Existence — Unlimited term of existence; one of the characteristics of the corporate form of business organization.

Preemptive Rights — The right of a shareholder to subscribe ratably for his or her proportion of any additional shares issued by the corporation.

Preferred Shares — A class of shares entitling the holders to preferences over the holders of common shares, usually with regard to dividends and distributions of assets upon dissolution or liquidation.

Proxy — An authorization by a shareholder to another party directing the other party to vote his or her shares at a shareholders’ meeting.

Qualification — The filing of required documents by a foreign corporation to secure a certificate of authority to conduct its business in a state other than the one in which it was incorporated.

Quorum — The percentage or proportion of voting shares required to be represented in person or by proxy to constitute a valid shareholders’ meeting, or the number of directors required to be pre-sent for a valid meeting of the board.

Record Date — The date for determining the shareholders entitled to vote at a meeting, receive dividends or participate in any corporate action.

Redeemable Shares — Shares subject to purchase by the corporation on terms set forth in the articles of incorporation.

Registered Office — The statutory address of a corporation. In states requiring the appointment of a registered agent it is also the address of the registered agent.

Registration of Name — The filing of a document in a foreign state to protect the corporate name, often in anticipation of qualification in the state.

Reinstatement — Returning a corporation that has been administratively dissolved or had its certificate of authority revoked, to good standing on a state’s records.

Reservation of Name A procedure that allows a corporation to obtain exclusive use of a corporate name for a specified period of time.

Restated Articles of Incorporation — A document that combines all currently operative provisions of the corporation’s articles of incorporation and amendments thereto.

Scrip — A form used to represent ownership of fractional shares in lieu of issuing share certificates.

Security — A contract between a business and an investor whereby the investor supplies money and expects to profit from his or her investment.

Securities Laws — State and federal laws governing the issuance, sale, and transfer of stocks and bonds.

Share — The unit into which the ownership interest in a corporation is divided.

Share Certificate — Evidence of ownership of shares in a corporation.

Share Exchange — A statutory form of business combination in which one corporation acquires some or all of the shares of another corporation and neither corporation ceases to exist.

Shareholder — An owner of shares in a corporation.

Short-Form Merger — A merger between a subsidiary and its parent corporation in which shareholder approval is not required.

Sole Proprietorship — An unincorporated business with a sole owner.

Special Meeting — A shareholders’ meeting called so that the share-holders may act on the specific matters stated in the notice of the meeting.

Subscribers — Persons agreeing under specific conditions to purchase shares in a corporation.

Subscription — The agreement executed by a subscriber.

Subsidiary — A corporation either wholly owned, or controlled through ownership of a majority of its voting shares, by another corporation.

Target — A corporation that is the focus of a takeover attempt.

Takeover — Merger, acquisition, or other change in the controlling interest of a corporation.

Treasury Shares — Shares of a corporation reacquired by the corporation.

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

Voluntary Dissolution — Action by shareholders, incorporators or initial directors to dissolve a corporation.

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

Watered Shares — Shares that have been issued for a consideration less than the par or stated value of the shares.

Winding Up — The discharging of a corporation’s liabilities and the distributing of its remaining assets to its shareholders in connection with its dissolution.

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

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