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Business glossary · 326 terms
Glossary · Index

Business formation & operations glossary

Definitive reference covering business entity types, taxes, contracts, IP, employment, fundraising, and compliance. Each term includes a clear definition, common context, and related terms.

Limited Liability CompanyA US business structure that combines pass-through taxation with personal liabil CorporationA US business structure that is legally separate from its owners, issues stock, S-CorporationA federal tax election (not an entity type) for LLCs or C-Corps that creates pas C-CorporationThe default corporation type that pays corporate income tax separately from shar NonprofitA tax-exempt organization formed for charitable, educational, religious, or publ 501(c)(3) OrganizationA US tax-exempt organization recognized by the IRS for charitable, religious, ed Employer Identification NumberA 9-digit federal tax ID issued by the IRS to businesses. Individual Taxpayer Identification NumberAn IRS-issued tax ID for individuals who need a US tax number but cannot get a S Beneficial Ownership InformationA required federal report identifying who owns or controls a business entity. Financial Crimes Enforcement NetworkThe US Treasury bureau that collects and analyzes financial information to comba Registered AgentThe person or business designated to receive legal documents on behalf of a busi Articles of OrganizationThe state-filed document that legally creates an LLC. Articles of IncorporationThe state-filed document that legally creates a corporation. Operating AgreementThe internal LLC governance document defining ownership, management, and operati Corporate BylawsThe internal corporation governance document defining how the corporation is run Foreign QualificationRegistering an out-of-state business entity to legally operate in another state. Annual ReportA yearly state filing that updates business entity information and confirms good Certificate of Good StandingA state-issued document confirming a business entity is current on filings and a DBA · Doing Business AsA registered alternative business name, also called fictitious or trade name. TrademarkA word, symbol, or design that identifies and distinguishes the source of goods CopyrightLegal protection for original works of authorship: text, art, music, software co PatentLegal protection for new useful inventions: processes, machines, compositions of Trade SecretConfidential business information that provides competitive advantage. Fair UseA copyright doctrine permitting limited use of copyrighted material without perm DMCA · Digital Millennium Copyright ActUS law providing safe harbor for online service providers and a takedown notice USPTO · US Patent and Trademark OfficeThe federal agency that issues patents and registers trademarks. ® SymbolSymbol indicating federally registered trademark. ™ SymbolSymbol indicating unregistered trademark claim. Self-Employment TaxSocial Security plus Medicare tax owed by self-employed individuals. Payroll TaxFederal and state taxes withheld from employee wages and matched by employer. FICAFederal Insurance Contributions Act tax for Social Security and Medicare. FUTAFederal Unemployment Tax Act tax paid by employers to fund unemployment benefits SUTAState Unemployment Tax Act tax paid by employers to state unemployment funds. Tax WithholdingTax amounts subtracted from employee wages and remitted to government. Quarterly Estimated TaxRequired quarterly tax payments by self-employed and pass-through entity owners. Schedule CIRS form attached to Form 1040 reporting sole proprietorship or single-member LL Schedule K-1IRS form reporting a partner's or S-Corp shareholder's share of business income. Form 1040US Individual Income Tax Return filed annually by individuals. Form 1120US Corporate Income Tax Return for C-Corporations. Form 1120-SUS Income Tax Return for an S-Corporation. Form 1065US Return of Partnership Income for multi-member LLCs and partnerships. Form 2553IRS election to be taxed as an S-Corporation. Form 8832IRS Entity Classification Election form. Form SS-4Application for an EIN. Form W-9Request for Taxpayer Identification Number and Certification. Form 1099-NECIRS form reporting nonemployee compensation paid to contractors. Form 1099-MISCIRS form reporting miscellaneous payments: rent, royalties, prizes. Form W-2Annual report of wages paid to and taxes withheld from employees. Form 941Quarterly federal employer payroll tax return. Form 940Annual federal unemployment (FUTA) tax return. Form 5472Information return required of foreign-owned US single-member LLCs. Form 1042Annual Withholding Tax Return for US-source income paid to foreign persons. Form W-8BENCertificate of Foreign Status for individuals. Form W-8BEN-ECertificate of Foreign Status for entities. Pass-Through TaxationTax treatment where business income passes to owners' personal returns. Double TaxationTax structure where business income is taxed at the entity level and again when Franchise TaxState tax on the privilege of operating a business, separate from income tax. Disregarded EntityAn entity ignored for federal tax purposes; income reported on owner's return. Flow-Through EntitySynonym for pass-through entity; income flows to owners. Effectively Connected IncomeIncome from a US trade or business connected to ongoing US activities. FDAP IncomeFixed, Determinable, Annual, or Periodical income paid to foreign persons. Tax TreatyBilateral agreement between two countries to prevent double taxation. Foreign Tax CreditUS credit for income taxes paid to foreign countries. FBARForeign Bank Account Report · Form 114 reporting foreign accounts. FATCAForeign Account Tax Compliance Act reporting of specified foreign financial asse Piercing the Corporate VeilCourt action holding LLC/corp owners personally liable for business debts. ComminglingMixing personal and business funds in the same accounts. Operating StateThe state where a business primarily conducts operations. State of FormationThe state where a business entity was originally created. Domestic EntityAn entity formed under the laws of a particular state. Foreign EntityAn entity formed in another state or country. NexusLegal connection between a business and a state that creates tax obligations. Sales Tax NexusConnection requiring sales tax collection in a state. Economic NexusSales tax nexus created by economic activity in a state without physical presenc Physical NexusSales tax nexus created by physical presence: office, warehouse, employees. Series LLCA parent LLC with multiple sub-LLCs, each with separate assets and liability. PLLC · Professional LLCAn LLC for licensed professionals (doctors, lawyers, accountants). Benefit CorporationFor-profit entity with legally defined public benefit purpose. Close CorporationCorporation with stock transfer restrictions, typically for family/closely-held Holding CompanyAn entity (usually LLC or corp) that owns other entities as subsidiaries. Anonymous LLCAn LLC where owners' names are not in public state records. LLC MemberAn owner of an LLC. LLC ManagerPerson(s) authorized to manage an LLC's day-to-day operations. Membership InterestAn ownership share in an LLC. Authorized SharesMaximum number of shares a corporation can issue per its Articles. Issued SharesShares actually distributed to shareholders. Par ValueNominal value assigned to shares; often $0.0001 for startups. Common StockStandard equity ownership in a corporation. Preferred StockEquity with priority rights over common stock. Liquidation PreferenceRight of preferred shareholders to receive payment before common in liquidation. Anti-DilutionAdjustment protecting investors from share dilution in future down rounds. Conversion RightsRight to convert preferred shares to common (e.g., before IPO). VestingProcess of earning equity over time, typically 4 years with 1-year cliff. Vesting ScheduleThe specific timeline and milestones for equity vesting. Vesting CliffInitial period before any vesting; commonly 1 year. 83(b) ElectionTax election to be taxed on restricted stock at grant rather than vesting. 409A ValuationIndependent appraisal of common stock value for option pricing. Capitalization TableList of all equity holders, their ownership %, and grant details. DilutionReduction in ownership % when new shares are issued. Pre-Money ValuationCompany valuation before a new investment round. Post-Money ValuationCompany valuation after a new investment round. SAFESimple Agreement for Future Equity · investment instrument by Y Combinator. Convertible NoteDebt instrument that converts to equity in a future round. Valuation CapMaximum valuation for SAFE/note conversion to equity. Discount RateDiscount applied to SAFE/note conversion price. Priced Equity RoundInvestment round at specific per-share price. Term SheetNon-binding summary of proposed investment terms. Due DiligenceInvestor review of company before investing. Data RoomSecure document repository for due diligence. Definitive AgreementFinal binding investment contract following term sheet. Stock Purchase AgreementContract documenting the sale of shares. Investor Rights AgreementInvestor protections: information rights, board rights, registration rights. Right of First Refusal · ROFRInvestor right to match third-party offer for company shares. Drag-Along RightMajor shareholders' right to force minority shareholders to sell. Tag-Along RightMinority shareholder right to participate in major shareholder sales. Preemptive RightsExisting shareholders' right to maintain ownership % in new issuances. Registration RightsInvestor right to require company registration of shares with SEC. Series AFirst significant institutional funding round. Series BSecond institutional round, typically focused on scaling. Series CLater-stage growth funding round. Initial Public OfferingSale of shares to the public for the first time. M&A · Mergers and AcquisitionsBuying, selling, or combining companies. Non-Disclosure AgreementContract requiring parties to keep specified information confidential. Noncompete AgreementContract restricting an individual from competing with the business. Nonsolicitation AgreementContract restricting solicitation of employees or customers. IP AssignmentContract transferring intellectual property rights. Work for HireDoctrine where employer/client owns IP created by employee/contractor. IndemnificationContractual promise to compensate another for losses or damages. Contract WarrantyPromise about facts or quality, breach of which gives remedy. Contract RepresentationStatement of fact in a contract that, if false, may void or trigger damages. Force MajeureContract clause excusing performance due to extraordinary events. Severability ClauseContract provision keeping the rest enforceable if one part is invalid. Entire Agreement ClauseContract provision stating the document represents the complete agreement. Governing LawContract clause specifying which state's law applies. Jurisdiction ClauseContract clause specifying which courts have authority. ArbitrationPrivate dispute resolution outside courts. MediationNon-binding dispute resolution with neutral third party. Liquidated DamagesPre-agreed contract amount payable for specified breach. Specific PerformanceCourt order requiring contract performance instead of damages. Breach of ContractFailure to perform contractual obligations. Quantum MeruitDoctrine compensating for value of services rendered without contract. Statute of LimitationsLegal deadline for filing a lawsuit. Statute of FraudsLaw requiring certain contracts to be in writing. UCC · Uniform Commercial CodeStandardized commercial law adopted by US states. Bill of SaleDocument transferring ownership of personal property. Promissory NoteWritten promise to pay a specified amount on demand or at fixed date. Personal GuarantyPersonal promise to pay business debts if entity defaults. CollateralAsset pledged to secure a debt. LienLegal claim against property as security for debt. UCC-1 Financing StatementPublic filing notifying world of security interest in collateral. Default · Contract TermFailure to meet contractual obligations triggering remedies. Acceleration ClauseLoan provision making full balance due upon default. Subordination AgreementContract setting priority among creditors. Intercreditor AgreementContract among multiple lenders defining rights and priorities. Balance SheetFinancial statement showing assets, liabilities, equity at a point in time. Income StatementFinancial statement showing revenue, expenses, profit over period. Cash Flow StatementFinancial statement tracking cash movements over period. Retained EarningsAccumulated profits not distributed to owners. Working CapitalCurrent assets minus current liabilities. EBITDAEarnings Before Interest, Taxes, Depreciation, Amortization. ARR · Annual Recurring RevenueYearly value of subscription contracts. MRR · Monthly Recurring RevenueMonthly value of subscription contracts. LTV · Customer Lifetime ValueTotal revenue expected from a customer relationship. CAC · Customer Acquisition CostCost to acquire a new customer. Burn RateMonthly net cash outflow. RunwayMonths until cash runs out at current burn rate. Churn RatePercentage of customers lost in a period. Gross MarginRevenue minus cost of goods sold, as % of revenue. Net MarginNet income as % of revenue. Operating MarginOperating income as % of revenue. Debt-to-Equity RatioTotal debt divided by total equity. Current RatioCurrent assets divided by current liabilities. Quick RatioLiquid current assets divided by current liabilities. Accounts Receivable · ARMoney owed by customers. Accounts Payable · APMoney owed to vendors. DepreciationAccounting for the decreasing value of long-term assets. AmortizationSpreading costs of intangible assets over time. GoodwillExcess paid in acquisition above fair value of net assets. Intangible AssetsNon-physical assets: IP, brand, software, customer lists. CapEx · Capital ExpenditureSpending on long-term assets. OpEx · Operating ExpenseDay-to-day business expenses. COGS · Cost of Goods SoldDirect costs of producing goods or services. InventoryGoods held for sale. FIFO · First In, First OutInventory accounting method: first acquired sold first. LIFO · Last In, First OutInventory accounting method: last acquired sold first. Accrual AccountingRecording transactions when earned/incurred, not when cash exchanged. Cash AccountingRecording transactions when cash is exchanged. GAAP · Generally Accepted Accounting PrinciplesUS standard accounting framework. IFRS · International Financial Reporting StandardsInternational accounting framework. Financial AuditIndependent CPA examination of financial statements. Financial ReviewCPA examination less comprehensive than audit. Financial CompilationCPA service organizing financial statements without assurance. CPA · Certified Public AccountantLicensed accountant who can provide audit and tax services. EA · Enrolled AgentIRS-licensed tax professional with unlimited representation rights. Attorney-Client PrivilegeLegal protection of confidential communications between client and lawyer. Conflict of InterestSituation where personal interests conflict with professional duty. Fiduciary DutyHighest legal duty owed to another party. Duty of CareDuty to exercise reasonable care in performing duties. Duty of LoyaltyDuty to act in best interests of beneficiary. Business Judgment RuleLegal protection for directors making informed business decisions. Derivative LawsuitLawsuit brought by shareholders on behalf of corporation. Class ActionLawsuit on behalf of a group with similar claims. Punitive DamagesDamages awarded to punish wrongful conduct. Compensatory DamagesDamages to make plaintiff whole. InjunctionCourt order requiring or prohibiting action. Declaratory JudgmentCourt declaration of parties' rights. Summary JudgmentCourt ruling without trial when facts undisputed. Motion to DismissPre-trial motion to terminate case based on legal grounds. DiscoveryPre-trial information exchange between parties. DepositionSworn out-of-court testimony recorded for evidence. InterrogatoriesWritten questions answered under oath. Contract FormationProcess of creating a binding agreement. Offer · ContractProposal to enter into agreement under specific terms. Acceptance · ContractManifestation of assent to offer terms. ConsiderationSomething of value exchanged in contract. Contract CapacityLegal ability to enter contracts. Voidable ContractContract that one party can choose to enforce or cancel. Void ContractContract with no legal effect. Unenforceable ContractValid contract that courts will not enforce. Oral ContractVerbal agreement without written documentation. Written ContractSigned agreement on paper or electronic format. Counter-OfferModified version of original offer. RevocationWithdrawal of offer before acceptance. RatificationApproval of unauthorized act after the fact. Agency RelationshipRelationship where one person acts on behalf of another. Principal · AgencyPerson on whose behalf agent acts. Agent · LegalPerson authorized to act on behalf of principal. Actual AuthorityAuthority expressly or impliedly given to agent. Apparent AuthorityAuthority that reasonably appears to exist. Ratification · AgencyPrincipal's approval of agent's unauthorized act. Respondeat SuperiorDoctrine making employer liable for employee acts in scope of employment. Scope of EmploymentRange of acts for which employer is liable. Independent ContractorSelf-employed individual hired for specific work. Worker MisclassificationTreating employee as independent contractor improperly. At-Will EmploymentEmployment relationship terminable by either party without cause. Employment ContractWritten agreement defining employment terms. SeveranceCompensation paid upon employment termination. Non-Disparagement ClauseContract provision prohibiting negative statements about other party. Noncompete AgreementContract restricting post-employment competition. At-Will DisclaimerStatement preserving at-will status in employee handbook. EEOC · Equal Employment Opportunity CommissionFederal agency enforcing anti-discrimination laws. Title VIIFederal law prohibiting employment discrimination based on race, color, religion ADA · Americans with Disabilities ActFederal law prohibiting disability discrimination and requiring reasonable accom FMLA · Family and Medical Leave ActFederal law requiring unpaid leave for qualifying events. FLSA · Fair Labor Standards ActFederal law setting minimum wage, overtime, child labor standards. Overtime · FLSATime-and-a-half pay for hours over 40/week (non-exempt employees). Exempt EmployeeEmployee not entitled to overtime under FLSA. Non-Exempt EmployeeEmployee entitled to overtime under FLSA. W-2 EmployeeWorker classified as employee receiving W-2 form. 1099 ContractorSelf-employed worker receiving 1099 form for payments. Workers CompensationState-mandated insurance for work-related injuries. Unemployment InsuranceState program providing temporary benefits to laid-off workers. ERISA · Employee Retirement Income Security ActFederal law governing employee benefit plans. 401(k) PlanRetirement savings plan offered by employers. IRA · Individual Retirement AccountPersonal retirement account. SEP-IRA · Simplified Employee PensionRetirement plan for self-employed and small business. Solo 401(k)401(k) plan for self-employed without employees. HSA · Health Savings AccountTax-advantaged account for medical expenses. FSA · Flexible Spending AccountEmployer-sponsored account for pre-tax medical/dependent care. PTO · Paid Time OffCompensated time away from work. HR · Human ResourcesDepartment managing employees, benefits, compliance. Background CheckInvestigation of applicant history. FCRA · Fair Credit Reporting ActFederal law governing consumer reports and credit reporting. Non-DisclosurePromise to keep information confidential. Trade DressVisual appearance of product or packaging. IP InfringementUnauthorized use of protected intellectual property. Cease and Desist LetterDemand to stop allegedly wrongful activity. Licensing AgreementContract permitting use of IP for fee. RoyaltyPayment for use of IP. IP AssignmentTransfer of ownership of intellectual property. Invention DisclosureWritten description of invention. Provisional Patent Application12-month placeholder with USPTO. Utility PatentPatent for new useful processes, machines, compositions. Design PatentPatent for ornamental design of functional item. PPA · Provisional Patent ApplicationSame as provisional patent application. Non-ObviousnessPatent requirement that invention not be obvious to skilled person. Prior ArtExisting public information relevant to patent novelty. Freedom to Operate · FTOAnalysis of whether activity infringes others' IP. IPO · Initial Public OfferingFirst public sale of company shares. SEC · Securities and Exchange CommissionFederal agency regulating securities markets. Form S-1SEC registration statement for IPO. Rule 506(b)SEC exemption for private offerings to accredited investors. Rule 506(c)SEC exemption permitting general solicitation to accredited investors. Accredited InvestorInvestor meeting SEC financial sophistication thresholds. Blue Sky LawsState securities laws regulating offerings within state. MergerCombination of two entities into one. AcquisitionOne company buying another. Asset PurchaseAcquisition of specific assets rather than entity. Stock Purchase · M&AAcquisition of entire entity through stock purchase. EarnoutAcquisition price contingent on future performance. EscrowFunds or property held by third party pending conditions. Indemnity CapMaximum amount payable under indemnification. Indemnity BasketThreshold below which no indemnification claims allowed. Representations and WarrantiesStatements of fact in transaction documents. R&W InsuranceInsurance covering breaches of M&A representations. Disclosure ScheduleDocument listing exceptions to M&A representations. Transaction ClosingFinal consummation of M&A or financing. MAC · Material Adverse ChangeSignificant negative change between signing and closing. Contract BreachFailure to perform contractual obligations. Contract DamagesMoney awarded for contract breach. Specific PerformanceCourt order requiring contract performance. Duty to MitigatePlaintiff's duty to minimize damages after breach. Expectation DamagesDamages putting injured party where they would have been with performance. Reliance DamagesDamages for losses caused by reliance on contract. RestitutionReturn of benefit conferred to defendant. Uniform Trade Secrets ActModel state law on trade secret protection. Defend Trade Secrets Act · DTSAFederal trade secrets law. Contributory InfringementLiability for contributing to others' IP infringement. Vicarious InfringementLiability for others' infringement when supervising and benefiting. Trademark DilutionWeakening of famous mark's distinctiveness. Trademark TarnishmentDamage to mark's reputation through association. DMCA TakedownNotice procedure for removing online infringing content. DMCA Safe HarborLiability protection for online platforms hosting user content. Section 230Federal law protecting online platforms from user content liability. GDPR · General Data Protection RegulationEU privacy regulation effective 2018. CCPA · California Consumer Privacy ActCalifornia privacy law granting consumer rights over personal data. CPRA · California Privacy Rights Act2020 amendments expanding CCPA. Privacy PolicyDocument disclosing data collection and use practices. Terms of ServiceContract governing online service use. Cookie PolicyDisclosure about website cookies and tracking technologies. Data BreachUnauthorized access to personal information. PHI · Protected Health InformationHealth information protected under HIPAA. HIPAA · Health Insurance Portability and Accountability ActFederal health privacy law. PCI-DSSPayment Card Industry Data Security Standard. SOC 2System and Organization Controls audit covering security, availability, etc. ISO 27001International standard for information security management.
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