Business Glossary

Acquisition: A transaction where one company buys the other company.  This can be through an Asset Purchase or Stock Purchase.

Agent: A person who is authorized to act on behalf of another (the principal), and to legally bind the principal into contractual agreements.  The principal may be an individual, a partnership, a limited liability company, a corporation, or a trust.

Appraisal: The determination of the value of a company by a professional business appraiser.

Articles of Incorporation: The document that creates a corporation when it is filed with the Oregon Secretary of State.
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Articles of Organization: The document that legally creates a limited liability company (LLC) when it is filed with the Oregon Secretary of State.
Asset Purchase: An acquisition where the buyer acquires at least most of the assets from the seller.

Assumed Business Name (aka ABN, DBA, Doing Business As): The trade name by which a business presents itself to the public.  It is not the legal name of the entity who operates the business.

Bill of Sale: A contract for the sale of personal property.

Board of Directors: A body of individuals elected by shareholders to oversee the activities of a corporation.

Book Value: The net asset value of a company, calculated by the total assets less the intangible assets and liabilities.

Bylaws: The central governing document of a corporation adopted by its Board of Directors and consented to by its Secretary.

Capital Account: A figure representing a member’s share of the company’s capital.

Capital Contribution: An figure representing the total value of stock that a shareholder has purchased from a corporation or LLC.

C Corporation: A corporation that, under the Internal Revenue Code, is taxed separately from its owners.

Consent: The document memorializing resolutions by the members of an LLC, or stockholders or directors of a corporation.

Convertible Debt: A debt instrument that gives the holder the right to convert the money owed to the investor into ownership in the company based a specified formula.
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Distributions: A company’s payment of cash (typically profits) to its shareholders of a corporation or members of an LLC.
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Dividends: A distribution of a portion of a corporation‘s profits, as determined by the Board of Directors, to its shareholders.

Drag Along Rights: A right that ensures if a majority of ownership agrees to sell their equity to an outside third party, the minority shareholders or interest holders will be forced to join the deal by also selling their ownership interest.

Duty of Care: A legal duty by an agent of an entity to perform a certain standard of care, the violation of which subjects the actor to liability.

Duty of Loyalty: A legal duty by an agent of an entity not to use their position to further their personal interests over those of the entity.

Employer Identification Number (“EIN”): A nine-digit number that the IRS assigns to employers, sole proprietors, corporations, partnerships, non-profit associations, trusts, estates of decedents, and other business entities for tax identification purposes.

Equity: Ownership in a company.

Fair Market Value: Fair market value (FMV) is the price that a third party would pay for something in the open market.

Fiduciary Duty: A fiduciary duty is a legal and ethical duty that an individual may have to another entity.

Form 2553: A form to elect S corporation tax status on behalf of the electing entity, whether a corporation or an LLC.

Indemnification: When one party agrees to compensate another party for loss or damage that has or will occur in the future.

Joinder Agreement: A document where an third party is admitted as a member and becomes party to the terms of the LLC Operating Agreement.

Letter of Intent: Also known as an “LOI,” it is a term sheet for a commercial lease, merger, or acquisition.

Licensing Agreement: A legal contract between two parties, known as the licensor and the licensee, granting the licensee the right to produce and sell goods, apply a trademark, or use protected intellectual property owned by the licensor.

Limited Liability Company: A limited liability company (LLC) is a business entity that combines the pass-through taxation of a partnership with the limited liability of a corporation.

Limited Partnership: A form of partnership made up of one or more general partners who have the power to manage the limited partnership but retains unlimited liability, and limited partners who have limited liability but little control over the management of the partnership.

Manager-Managed LLC: A limited liability company (LLC) wherein management decisions are made by an appointed manager or managers who may or may not be an owner of the company.

Member-Managed LLC: A limited liability company (LLC) wherein management decisions are made jointly amongst the members of the LLC.

Minority Discount: A minority discount is the reduction applied to the valuation of a minority ownership in a company due to the absence of control.

Minutes: A company’s books and records.

Nondisclosure Agreement: A contract, commonly referred to an “NDA,” where one or more parties agree not to disclose certain information they have or will share with each other.

Officer: A manager of a company, hired by the Board of Directors of a corporation or the members of an LLC, to run certain day-to-day operations of a company.

Operating Agreement: The governing document of a limited liability company (“LLC”) that sets forth, at minimum, how the company will operate and the rights and obligations of the members (and managers if it is a manager-managed LLC).

Option Pool: The shares set aside by a corporation to provide stock options to employees.

Par Value: The minimal price at which stock can be sold in a corporation.

Partnership: A business organization in which two or more individuals manage and share in the profits (or losses) of the business.

Post-money: The stated value of a company after an investor has put money into the company.

Promissory Note: A signed document containing a written promise to pay a stated sum to another at a specified date or on demand.

Pre-money: The stated value of a company before an investment in the company.

Price Per Share: Price per share is the dollar amount assigned to purchase one share of stock.

Quorum: The minimum amount of ownership interest represented at a meeting necessary to conduct the business.

Resolution: A formal action by a corporate board, shareholders, or the members of an LLC authorizing a particular act or transaction.

Right of First Refusal: A contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party.

S Corporation: A corporation or LLC that elects to be taxed as a small business corporation under chapter “S” of the Internal Revenue Code.

Shareholders: Also referred to as “stockholders,” shareholders own the stock of corporations, vote their stock, elect directors, and share in the corporation’s profits.

Shareholder Agreement: An agreement among a corporation’s shareholders setting forth the shareholders’ respective rights and obligations, as between themselves.

Statement of Agreed Value: A predetermined price per share or unit agreed upon by the owners of the entity for use in the event of a future transfer of shares or units.

Stock Certificate: A legal document that certifies ownership of a specific number of shares of stock in a corporation.

Stock Ledger: A book or table kept by a corporation in which are entered the names of the stockholders, the amounts of their respective holdings, contributions made them for such stock, and a record of transfer of ownership.

Stock Option: A stock option is a right to purchase shares of stock in a company.

Stock Purchase Agreement: An acquisition where the buyer purchases at least most of the shares of a corporation.

Stock Redemption Agreement: An agreement allowing a corporation to repurchase a shareholder’s stock, effectively buying out the shareholder.

Strike Price: A strike price is the price at which a stock option may be exercised.

Subscription Agreement: An agreement to purchase shares of a company.

Tag Along Rights: Rights that assure a minority shareholder in a company that if a majority shareholder negotiates to sell his or her shares to an outside third party, that minority shareholder will be allowed to sell their shares on the same terms and conditions.

Term Sheet: A document summarizing the key terms in contemplation of a financing.

Trademark: A word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others.

Triggering Event: An event that gives the company or an owner in the company the right to buy an ownership interest at a specified price within a specific time period.
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Unit: A measure of ownership in a limited liability company (LLC), similar to a share for a corporation.
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Valuation: The value assigned to a company by an investor or a third party professional or firm.

Warrant: A right to buy or sell shares of stock in a company.