This page defines and explains some of the terms used throughout the incorporation
process. We hope you find our corporate definitions a useful resource during the
formation of your business.
Articles of Incorporation: This is
the formation document for any corporation, whether for-profit or non-profit. The
information contained in the Articles of Incorporation can vary by state, but typical
Articles will include the name of your corporation, the principle office address,
the registered agent, a business purpose statement, and an incorporator’s signature.
Articles of Organization: The Articles
of Organization are to an LLC what the Articles of Incorporation are to a corporation:
the formation document containing basic important information about the business.
(Notice that while a corporation is incorporated, a limited liability company is
Assumed Name: An Assumed Name is another term
for a DBA—the business name under which you are doing business. Depending on your
location, this entity type may be known as an Assumed Name, DBA, Trade Name, Fictitious
Name, Fictitious Firm Name, or Business Certificate. A DBA can be held by an individual,
an unincorporated partnership, or an incorporated business entity (such as a corporation
Business License: This is a very general term
that refers to any of the various licenses or permits your business may be required
to hold. The requirements vary based on your entity type, your business purpose,
and the specific rules and procedures at your state, county, and local level. In
order to determine your business license requirements, you should contact each level
of your local government to determine what licenses and permits you’ll need in order
to remain in compliance. You may also wish to review our
business license service, which can make those determinations for you.
Bylaws: Also known as
corporate bylaws, the bylaws detail the day-to-day operations of your corporation.
(This document parallels an LLC’s Operating Agreement.) While your bylaws will not
be submitted to a government agency for filing, as with your Articles of Incorporation,
it’s important that you formally adopt corporate bylaws so that you have agreed-on,
written procedures to reference in the future so that you always know how to deal
with financial interactions, how business affairs are conducted, and how shareholders
and offers are removed or replaced.
C Corporation: A C corporation is the default
type of for-profit corporation; if you incorporate, you’re automatically a C corporation
(unless you take steps to become an S corporation). A C corporation can have any
number of shareholders, and it experiences what is known as “double taxation.”
Corporate Kit: Business documents should all
be kept in one location so that they’re available for reference. (Some states’ formation
documents even require that you provide the address at which they are to be kept.)
A corporate kit is simply a ringed binder that keeps your Articles of Incorporation,
bylaws, stock certificates, corporate minutes, and other documentation in order.
The corporate seals and kits
that we provide come customized with your business name embossed on the spine and
designated tabs for all of your documents. Of course, a simple file folder or binder
would be sufficient—however you choose to organize your documents, take care that
you keep them somewhere that you can retrieve them easily.
Corporate Minutes: Corporate minutes are
simply recaps of the actions that a corporation’s board of directors or shareholders
have taken. Typical information that may be included in the corporate minutes (sometimes
called corporate meeting minutes) is information about major purchases by the corporation,
hirings or firings, acquisitions, financial transactions, and so on.
While corporate minutes are not filed with any government office—they remain internal
documents to your business, kept by your corporate officers—it’s absolutely essential
that you keep consistent and accurate meetings. If you fail to do so, it’s possible
that a court could decide to pierce the corporate veil
and hold the individual owners completely liable for the company.
Corporate Seal: In the past, businesses used
corporate seals as a mark of authenticity, certifying that any given document was
a reflection of the will of the company (as opposed to simply the will of the individual
signing it). No longer are corporate seals a requirement, nor does their presence
add some special legal status to the documents. However, corporate seals remain
a tradition among business owners, many feeling that they lend a touch of class
to corporate documents.
Corporation: A corporation is a type of business
that exists as a legal entity in itself; it is not considered simply an extension
of its owners. It is able to enter into contracts, open bank accounts, and take
out loans. It is capable of suing or being sued. Owners of a corporation are not
personally liable for the corporation.
A corporation can be formed as a for-profit or a non-profit corporation. For-profit
corporations automatically have C corporation tax classification; further paperwork
can change this status to an S corporation, which has a different sort of tax structure.
DBA: A DBA, which stands for Doing Business As, is a very
simple type of business structure that enables a person or business to operate under
a name other than their own legal name. DBAs, depending on the state you’re in,
may be referred to as Trade Names, Assumed Names, Fictitious Names, Fictitious Firm
Names, or other variations on this terminology, but the definition remains the same.
For an individual, this means that Mary Smith could do business as “Mary’s Cake
Shop”—but Mary’s Cake Shop is, for all intents and purposes, simply an extension
of Mary Smith herself. There is no legal separation between the two entities; in
fact, technically they are not two entities at all. She is simply doing business
under a different name. In the case of already-existing corporations or LLCs, the
idea is much the same: a corporation that has added a new service or moved to a
new location may decide to run that part of their business under a different name
that more accurately reflects the new product, service, or location, but in essence,
the DBA is the owning corporation—it’s simply an extension of the corporation
itself. For more information and examples, you may wish to visit our
Director: The Board of Directors is responsible for
supervising day-to-day business affairs and activities, as well as any other responsibilities
laid out in the corporate bylaws (such as approving budgets, reporting to shareholders,
establishing company policies, and so on). Directors are typically voted into office
by the shareholders.
Double Taxation: Double taxation is the term
used to refer to the way a C corporation is taxed—corporate income is taxed once
at the corporate level, and then again at the individual level once it is passed
on to the owners. For further explanation on this concept, you may wish to visit
our page on C corporations.
EIN (or FEIN): Called an Employment Identification
Number (or a Federal Employment Identification Number), this is a number that your
corporation or LLC will obtain from the IRS; it is to be used for filing your entity’s
taxes and other transactions with the IRS. EINs are only required of incorporated
entities, but if a sole proprietor (individual DBA) does not wish to use his or
her social security number along with their business, he or she can obtain an EIN
Entity Type: An entity type is the specific category
of business we’re talking about; corporations, LLCs, partnerships, and DBAs are
examples of different entity types. There are incorporated entities, such as LLCs,
corporations, and limited partnerships; and there are unincorporated entities, such
as sole proprietorships and general partnerships.
Foreign Corporation: Also available for
LLCs, a foreign filing is for entities who have already registered in one state—their
domestic state—and wish to expand to do business in another state—the foreign state.
Foreign corporation filing is a process similar to filing new formation paperwork,
but information about the business’s presence in both states will be included.
Some, but not all, states require foreign corporation or LLC filings to be accompanied
by a certificate of good standing (also called a certificate of existence). Other
states require a certified copy of the original Articles of Incorporation; others
require only a statement that your business is in good standing with your domestic
Franchise Tax: This is simply the tax that a
state imposes on businesses incorporated there. As franchise taxes are based on
the specifics of your business and are calculated differently from state to state,
it’s best to contact your state’s Department of Revenue for the most relevant information.
Incorporate: To incorporate a business is to form
a corporation; the suffix “Inc.,” a common ending to corporation names, stands for
“incorporated.” (Compare incorporate with organize.)
Incorporator: Articles of Incorporation must typically
be signed by an incorporator—the person responsible for drafting the Articles of
Incorporation. The incorporator can be someone associated with the company, but
it is not required to be, and there can be multiple incorporators.
Limited Liability Company (LLC):
Limited liability companies came into existence as an attempt to bridge the tax
gap between partnerships and corporations. While common state entities, the IRS
does not recognize LLCs as a federal tax classification. Therefore, LLCs will elect
how they should be taxed federally; LLCs will file either a corporation, partnership,
or sole proprietorship tax return. An LLC will be either member-managed, or manager-managed.
Manager: While an LLC is typically member-managed by
default, the members can also elect to be manager-managed. This is typically done
in situations where there are members who have contributed capital to the business
but are not actively engaged in the business operations.
Member: Members are to an LLC what shareholders are
to a corporation—the owners. An LLC may have an unlimited amount of members, and
most states allow single-member LLCs. (Single-member LLCs will have a slightly different
structure.) In a member-managed LLC, all of the members have some measure
of authority over the business.
Name Availability: This simply means determining
whether you’ll be able to file using your selected business name, or whether there’s
already a business using that name in your state. When we check name availability,
we search the appropriate state or county databases to ensure there are no businesses
already in existence using that same name, as a conflict would result in your application’s
Note that when we return your name search results, we do so based on the state or
county’s records only. If there is another business by the same name operating in
a neighboring state, our name search results will not reflect that—our results reflect
the availability in the specific jurisdiction that you have chosen in which to do
Nonprofit: A nonprofit corporation is simply a corporation
that has been formed under that state’s nonprofit corporation law—the corporation
does not operate in order to generate a profit for the owners. In many states, incorporation
fees are lower than other for-profit incorporation fees. After formation, nonprofit
corporations formed for eligible purposes, such as scientific, educational, charitable,
or religious purposes, can elect to form a
501c3 Non Profit Corporation.
Notarized Signature: When a document requires
a notarized signature, it’s important not to sign the document until directed to
by the notary public. The notary public will certify that your signature is your
own by witnessing you sign the document, looking at your government-issued identification,
and signing the document him- or herself. The notary will also add his or her stamp
or seal; this practice of legally certifying a signature is called notarization.
Essentially, it’s a way for the government to be sure that you’re you without requiring
you to appear in person.
Officer: An officer of a corporation is someone who
was appointed by the board of directors to manage the day-to-day operations of the
business. The president, vice president, secretary, treasurer, chief executive officer,
and chief financial officer are all considered officers of the corporation. Officers
are typically appointed by the board of directors, and their duties and responsibilities
are typically laid out in the corporate bylaws.
Operating Agreement: Just as in corporate
bylaws, the LLC operating
agreement is the document that dictates the processes and procedures about
the various aspects of the business—replacing or appointing officers and directors,
how ownership interests are transferred, how often the members should meet and when,
and so on.
Organize: This term is the LLC equivalent of incorporating
a corporation—to organize a limited liability company is to form a new legal entity,
capable of entering into legal contracts and taking out loans. The person who creates
the LLC is called the Organizer.
President: The president of a corporation holds the
highest title of the corporate officers, but his or her responsibilities can vary
depending on the amount of other officers involved in the corporation. For example,
the president may double as CEO, but the CEO might also be a separate individual.
Purpose Statement: Your purpose statement
is simply the reason you’re forming your business. Most for-profit corporations
or LLCs, unless there are special requirements from other businesses or government
entities you’ll be dealing with, can have a general business purpose: “Any lawful
business purpose” usually does the trick. Nonprofit corporations, on the other hand,
are typically required to explain a little more specifically. And more specialized
nonprofits, such as those that go on to obtain 501c3 nonprofit status from the IRS,
must include an even more involved purpose statement. It is always best to determine
the requirements of all agencies you anticipate dealing with so that you don't have
to amend your Articles later to include a more appropriate purpose statement.
Quorum: A quorum is the amount of people required in
order to conduct corporate business. The corporation should specify the number or
percentage of shareholders that constitutes a quorum.
Registered Agent: A registered agent, the
person (or business entity) that acts as the contact person for a corporation or
LLC, is necessary in nearly all states. This person must have a physical address
in the state of incorporation—though sometimes a PO box is accepted in conjunction
with a physical address.
S Corporation: An S corporation is a type of
for-profit corporation whose tax structure is closer to that of an LLC than that
of a C corporation—corporate income is taxed only when it’s passed on to the individual
owners. (Compare this with the “double taxation” of a C corporation.) While an S
corporation has a clear tax advantage over a C corporation, its structure is comparatively
limited, allowing no more than 100 shareholders and limiting those shareholders
to US citizens.
Secretary: A secretary is a senior corporate officer
with many responsibilities and skills, chief among them being compliance issues
and business affairs. The corporate secretary keeps board minutes and ensures that
the written record of meetings accurately reflects those meetings; he or she organizes
the details of directors and shareholders meetings and serves as a point person
between the two groups and the rest of the corporate officers. The secretary acts
as liaison in many respects; while he or she may not have exclusive responsibility
in one area, he or she typically is involved in some way, whether by keeping reports
or coordinating various activities.
Shareholder: A shareholder is an owner of a for-profit
corporation. Depending on the type of corporation, there can be any number of shareholders,
but there must be at least one.
Stock: Shares of stock are sold to raise capital for
the business. In return, shareholders receive portions of the company profit in
the form of dividends. Corporations typically keep a majority of the shares, since
shareholders’ voting rights, and therefore amount of control of the company, are
typically dictated by the amount of shares owned.
Trade Name: A “Trade Name” is a term used in some
jurisdictions as a substitute for “DBA” or “Assumed Name.” The business structure
is identical to a DBA and simply means that an entity, whether an individual or
a corporation, is doing business under a different name—the Trade Name.
Treasurer: The treasurer of a corporation has a complex
role, but their focus, obviously, circles around corporate finances and financial
transactions. They may be responsible for risk management, insurance and pension,
and taxes, though in larger corporations there is often a significant amount of
overlap of responsibility and authority with other corporate officers.
Vice President: A vice president of a corporation
has a very different role than a government vice president—there can be multiple
corporate vice presidents, and there can be different tiers of responsibility. The
role of a vice president is comparatively loosely defined; while the vice president
is involved in day-to-day company affairs and long-term planning, the rest of his
or her job can be variable and will depend significantly on the roles and responsibilities
of the other corporate officers.
Workers Compensation: Workers compensation
is the area of law dealing with the employer’s responsibility toward their employees—providing
time off, managing employee injuries, and so on. Each state has its own
workers compensation laws.