A method of reporting income when earned and expenses when incurred, as opposed to reporting income when received and expenses when paid. Obligations payable to or by a taxpayer are treated as if they are discharged when they are incurred.

Obtaining control of another corporation called a target by purchasing or exchanging all or a majority of its outstanding shares, or by purchasing its assets, either hostile or friendly. Also called Takeover.

The involuntary dissolution of a corporation by the Secretary of State, or other equivalent state authority, due to the corporation’s failure to follow certain statutory requirements, such as annual report filing, tax paying or a valid registered Agent maintaining requirements.

This is a contract principle whereby a person agrees to assume a contract previously made for his or her benefit. This concept is applied when a newly formed corporation accepts a pre-incorporation contract made for its benefit by a promoter.

A less formal alternative to a board of directors, appointed to advise an elected board of directors and management of a corporation. A company’s advisory board usually consists of 3 to 7 members, and meets periodically but doesn’t have authority to vote on corporation matters or legal responsibility for operations.

A corporation that is related to another corporation by share management, ownership or other means of control (such as parent/subsidiaries or corporations under common control).

An individual or firm authorized to represent and act on behalf of another person or business (called the principal) in transactions involving a third party. Unlike an employee who merely works for the principal, an agent works in place of the principal. Agent is subject to control and orders of the principal, but he does not have a title to the principal’s property and does not assume any financial risk in the transaction.

The par value multiplied by the number of authorized shares. This amount is important in determining initial fees and annual franchise taxes in many states.

A document issued by a state to a foreign corporation attesting that the corporation has amended its original certificate of authority.

A change or addition to legal documents which, when properly signed, have the same legal power as the original documents.

The gradual elimination of a liability (a loan), such as a mortgage through installed regular payments over a period of the estimated life of the asset on which the loan is made or secured. Such payments must be sufficient to cover both principal and interest. For fixed assets, depreciation is the allowance for wear-out. For natural resources, depletion is the allowance for the wasting away of the asset.

A meeting held each year to elect officers of a corporation, and to address other corporate matters. Usually follows immediately after an Annual Meeting of Shareholders.

A once-a-year meeting of stockholders (usually held at the end of each fiscal year) where the managers of a company report the year’s results, the board of directors stand for election for the next year, and those present provide a forum for discussion or voting on pivotal issues of the company. Usually presided by the Chairman of the Board of Directors or the Chief Executive Officer.

Audited document required by the Securities and Exchange Commission (SEC) and sent to a public company or mutual fund’s shareholder(s) at the end of each fiscal year, detailing the company’s preceding year’s financial results and plans for the upcoming year. The report contains financial information about a company’s assets, liabilities, earnings, profits, an auditor’s statement and other year-end statistics. It is also the most widely read shareholder communication. The term sometimes refers to the glossy, colorful brochure and sometimes to Form 10-K, which is sent along with the brochure and contains more detailed financial information.

A document required to be filed in the jurisdiction of incorporation once a year, which confirms certain basic information about the structure of a Corporation, such as the increase in value of an investment, expressed as a percentage per year and taking into consideration the effects of compounding.

A method of certifying a document for use in another country pursuant to the 1961 Hague Convention. When legalized by apostille, a document is recognized in the country of intended use. No certification or legalization by the embassy or consulate of the foreign country where the document is to be used is required.

The form issued by a state corporation authority (e.g. Secretary of State) and filed in many states to qualify a corporation to transact business as a foreign corporation.

A document filed with a state of the United States by the founders of a corporation. Upon approval of the articles, the state issues a Certificate of Incorporation that legally establishes the corporation as a business entity. The two documents together (Articles of Incorporation and Certificate of Incorporation) are sometimes called the Charter of the corporation, embodying such information as the corporation’s name, officers’ names, the incorporator, purpose, amount of authorized shares, number of directors and place of business. The charter and the laws of the state give rise to the powers of the corporation. This is a legal document establishing the corporation, its structure, and purpose.

The articles, required to file with the proper state authorities to begin existence of a limited liability company (LLC). The articles of organization are very similar to a corporation’s articles of incorporation. Also known as articles of formation.

Anything of value that is owned by a business or an individual. Assets are financial, such as cash; physical, such as real property; tangible, such as a patent or stock; or intangible, such as bonds or goodwill. On a balance sheet, assets always equal the sum of liabilities, common stock, preferred stock, and retained earnings.

A name other than the name shown in its articles of incorporation, under which a corporation or other business organization conducts business. Also referred to as a fictitious name, a trade name or “doing business as” (d/b/a). Many states require the filing of a registration in order to conduct business under an assumed name in their territories.

The number of shares of each class of stock that is allowed by the articles of incorporation, and that represents the maximum capital investment in the corporation as permitted by the charter. It can be changed with shareholder approval. The books of the corporation show the number of shares issued and outstanding, the number of shares of treasury stock and the number of shares of not issued comprising the total authorized shares. Also called authorized stock or shares authorized.

In most countries one of the terms of the relationship between banker and customer is that the banker will keep the customer’s affairs secret. Staff members are normally required to sign a declaration of secrecy as regards the business of the banks. Where numbered accounts are used their purpose is to limit the number of persons who know the identity of the client. In certain countries (e.g. Switzerland and the Cayman Islands) specific legislation makes breaches of bank secrecy subject to criminal law sanctions. However, in all legal systems (including Switzerland) there are specific cases where the duty of secrecy of a banker is discharged, e.g. where fraud, money laundering and narcotics are involved. The exchange of information clause contained in most tax treaties may enable the tax administration of one treaty country to obtain information concerning bank accounts which its residents have in the other country.

An negotiable instrument which is payable to a bearer or the order of a bearer; a specified person or bearer; or “cash” or the order “cash,” or any other indication that does not purport to designate a specific payee.

A share certificate filled out in the name of “bearer” and not to a particular person or organization. The name of the owner is not registered in the books of the company. Bearer shares grant ownership rights to any individual who is in actual physical possession of the certificates. It may be transferred in complete privacy.

A natural person or a legal entity enjoying the right to receive benefits of a trust or IBC upon conditions established by the settlor in a trust deed.

State laws and regulations governing the issuance and sale of securities and mutual funds, designed to protect investors from being lured into fraudulent or unscrupulous deals, offering nothing more than “blue sky.”

Individuals elected by a corporation’s shareholders to oversee the management of the corporation. The members of a Board of Directors are paid in cash and/or stock, meet several times each year, and assume legal responsibility for corporate activities. A board of directors decides, among other issues, if and when dividends will be paid to stockholders. Also called Directorate.

A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. A bond is generally a written promise to repay loan at a specified interest rate. Bonds are considered less risky investments than stocks. A bond’s rating is like a person’s credit rating. It gives you an idea of whether the company that issued the bond will be able to make its loan payments. When interest rates rise, bond prices fall; when rates are falling, bond prices raise.

A company’s common stock equity or net asset value as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. Book value often differs substantially from market price, especially in highly skilled industries such as technology.

A business corporation act is the collection of laws in each state that governs corporations.

A rule of law, which prevents directors of a corporation from being held personally liable for unwise business decisions if the decision was informed and not tainted by self-interest.

The name used by a business to identify itself to the general public. A corporation’s Business Name may differ from its registered corporate name if the required government registrations are completed.

Articles of Association of a company (in certain jurisdictions).

Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. They are usually adopted at the first shareholders’ meeting. Bylaws are a private document not filed with any state authority. Bylaws are more flexible than the articles of incorporation because they are easier to amend.

Unlike a partnership, it is a business, which is a completely separate entity from its owners. C Corporation is a corporation that is subject to federal income tax at the corporate level. In other words, it is any corporation that has not elected S Corporation status. The taxable income of a C corporation is subject to tax at the corporate level while the dividends continue to be taxed at the shareholder level.

The amount by which an asset’s selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn’t been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.

The loss incurred when a capital asset is sold or exchanged for a lower price than the purchase price. It is an opposite of capital gain.

The number of shares authorized for issuance by a company’s charter, including both common stock and preferred stock.

The sum of a corporation’s long-term debt, stock, surpluses and retained earnings. Also called invested capital.

Such a company is a specialized subsidiary of a non-insurance “parent”: a parent company, holding or association. Its primary goal is to improve risk management of the parent’s business while optimizing cash flows and tax-planning issues.

An accounting method under which income is subject to tax when actually received and deductions are allowed when actually paid.

A document issued by the secretary or state or equivalent department on application of a foreign corporation granting it the right to operate in a state other than its state of incorporation.

The document of a Delaware LLC corresponding to the Certificate of Incorporation for a corporation.

The official attestation by the authorities of a jurisdiction of incorporation, which states that the company actually exists and is in compliance with the requirements of the local laws (timely payment of annual fees and local taxes; filing the company’s annual statements and returns where applicable).

A certificate issued by a state official as conclusive evidence that a corporation is in existence or authorized to transact business in the state. The certificate generally sets forth the corporation’s name; that it is duly incorporated or authorized to transact business; that all fees, taxes and penalties owed to the state have been paid; that its most recent annual report has been filed; and, that articles of dissolution have not been filed. Also known as a certificate of existence or certificate of authorization.

The evidence of incorporation and registration of the legal entity with the authorities of the jurisdiction. It includes basic information about the company including the name, date and place of registration, entry number in the register, etc.

The document filed in many states to create a corporation. It is given when the Registrar of Companies is satisfied that all the required documents have been submitted. The certificate means that the company has a separate legal identity, and in the case of a private limited company, can begin trading. See also the articles of incorporation or corporate charter.

The official attestation issued by its registered agent or the authorities of the jurisdiction of incorporation, which states that the persons listed are actually directors of the company.

A Certificate of Incumbency (CI) of a company (e.g., an International Business Company) is issued by its registered agent or authorities of the jurisdiction of incorporation. The document attests that the person(s) listed is (are) actually director(s) of the company.

The CI is often requested by local authorities when a foreign legal entity is forming a subsidiary as well as by banks and brokerages when opening an account with them.

A document, filed with a U.S. state by a corporation’s founders, describing the purpose, place of business, powers under state law, authorized classes of securities to be issued and the rights and liabilities of shareholders and directors and other details of a corporation. Also called articles of incorporation.

A corporation owned by a small number of individuals. Corporations must elect to be close corporations by inserting a statement in their articles of incorporation. Some state close corporation statutes provide for a maximum number of shareholders. In addition, close corporation statutes may eliminate or limit the powers of the board of directors, prescribe preemptive rights to the shareholders or relax the corporate formalities. Exact specifications vary by jurisdiction. Not all state statutes provide for a close corporation provision.

The system of law that is widely used in England, USA, and in the most of the British Commonwealth countries. As opposed to the civil law system based on statutes and codes, common law court decisions are derived from precedents, i.e. past court decisions. Most Offshore Financial Centers have used common law as the basis for their International Business Company and trust legislation.

The holders of common shares, the ultimate owners of the residual interest of a corporation.

Common shareholders select the directors to manage the corporation, are entitled to dividends out of the earnings of the corporation declared by the directors, and are entitled to a per share distribution of whatever assets remain upon dissolution of the corporation after satisfying creditors and holders of senior securities.

Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company’s success through dividends and/or capital appreciation. In the event of liquidation, common stock holders have rights to a company’s assets only after bondholders, other debt holders, and preferred stock holders have been satisfied. Also called junior equity.

Legislation enacted by a tax haven to provide for the incorporation, registration and operation of international business companies (IBCs). Commonly found in Caribbean tax havens.

A company in which members’ liability is limited to the amount they have agreed to contribute to the company’s assets if it is wound up.

Such company members’ liability is limited to the amount unpaid on shares they hold.

The statutory combination of two or more separate corporations to create a new corporation. Differs from a merger in that a new entity is created in the consolidation.

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

Bond, preferred stock, or debenture that is exchangeable for another type of security at the option of the holder for common stock of the issuing corporation.

The exclusive right to make and dispose of copies of original work. Copyright only permits certain individuals the right to reproduce an original work.

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. Valid corporate indicators include: incorporated, corporation, limited, company, inc., corp., ltd. and co. The list of acceptable corporate indicators will vary depending upon the jurisdiction in which the corporation is registered.

A binder usually containing essential items for the routine maintenance and administration of a corporation or limited liability company. Corporate kits usually include sample minutes and bylaws, stock certificates, a corporate seal, stock ledger, etc.

The registered name under which the corporation must conduct business. The corporation must do all legal acts, including litigation, under its exact registered corporate name. The corporation may also have a Business Name.

Corporate records usually take the form of a corporate record book. Carefully maintaining records is very important to assure limited liability to the corporate shareholders. The records should include a copy of the articles of incorporation, bylaws, initial and subsequent minutes of all shareholder and director meetings, and a stock register for keeping track of stock transactions.

It is the process by which a company moves its domicile from one jurisdiction to another by changing the country under whose laws it is registered or incorporated, while maintaining the same legal identity. Some offshore jurisdictions allow corporations incorporated in other jurisdictions to reincorporate in their own at will.

The most common form of business organization. Corporation is a legal entity created through the laws of its state of incorporation and given many legal rights as an entity, separate from its owners. Characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and perpetual existence.

The law treats a corporation as a legal “person” that has standing to sue and be sued, distinct from its stockholders. The legal independence of a corporation prevents shareholders from being personally liable for corporate debts.

Although corporations have a double taxation problem (both corporate profits and shareholder dividends are taxed), corporate profits are taxed at a lower rate than rates for individuals.

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

A plastic card with a magnetic strip on its reverse side. A credit card holder is entitled to purchase goods or services on credit provided by the card issuer (a bank or business) as well as make cash withdrawals via ATMs.

Dividends on preferred shares, which carry over from one year to the next if a preference dividend is omitted. Provisions require that unpaid accumulated preferred stock dividends must be paid before any common stock dividends are.

A system of voting shares of stock used in some states in which shareholder’s total number of votes is equal to the number of shares held times the number of candidates. This gives minority shareholders more power, by allowing them to cast all of their board of director votes for a single candidate, as opposed to regular or statutory voting, in which shareholders must vote for a different candidate for each available seat.

A bank, financial institution or other entity that has the responsibility to manage or administer the custody or other safekeeping of assets for other persons or institutions.

A corporation treated as standard or official, even if not explicitly stated. At common law it is a partially formed corporation that provides a shield against personal liability of shareholders for corporate obligations.

A corporation that has earned its state charter by fulfilling the requirements for formation and is legally entitled to do business in the state.

Debt instrument evidencing the borrower’s right to receive interest and principal installments from the named obligor. Unsecured debt is backed only by the integrity of the borrower, not by collateral (security). Applies to all forms of unsecured, long-term debt and evidenced by an agreement called an indenture.

A plastic card with a magnetic strip on its reverse side. A Debit Card (DC) holder is entitled to purchase goods or services when accepted technically by a Seller. A DC doesn’t provide any credit to the holder and it’s a “mirror” of the underlying account with the DC’s issuer (a bank or business). Most often DCs are used for cash withdrawals via ATMs.

The provision of bonds, bills or notes to business concerns in exchange for debt securities or a note.

A lawsuit brought by a shareholder on behalf of a corporation to protect the corporation from injustice committed against it.

The directors of a corporation are its governing board, individuals elected by shareholders. They have the authority to run the company on behalf of the shareholders and are responsible to the shareholders for the results of their decisions. Directors vote on major corporate matters such as the issuing of shares of stock, election of officers, payment of dividends and approval of mergers and acquisitions.

The termination of a corporation’s legal existence. Dissolution may be involuntary – caused by failure to file annual reports, failure to pay certain taxes, bankruptcy; or voluntary dissolution based on the vote of the shareholders and directors of the corporation.

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

Or the sale of a large amount of stock by a single entity over a period of time rather than all at once, to avoid adversely affecting its market price. Opposite to accumulation.

The part of a company’s post-tax profits distributed to shareholders, usually expressed as an amount per share.

A formal notice that a company is conducting business under a different name. Often used in contracts. Also see Assumed name.

In general, a corporation whose articles of incorporation are filed in the state in which it operates and maintains its principal office, as opposed to a foreign corporation.

The place where an individual has his permanent home, or to which he intends to return, or in some cases the country of origin. In other jurisdictions the place where an individual has a long established residence or in relation to a company, where it is incorporated.

A person who is domiciled in a particular jurisdiction (as a country).

A company that is not currently trading. It has a registered name, directors, articles of association, and so on. But it has no turnover.

Government taxation of the same earnings twice; specifically, taxation of earnings at the corporate level and dividends at the stockholder level if the previously taxed income is distributed to the shareholders as dividends. S corporations and Limited Liability Companies are not subject to double taxation.

Agreement between two countries intended to relieve persons who would otherwise be subject to tax in both countries from being taxed twice in respect of the same transactions or events.

A signed, written order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight or at a specific date.

Research and analysis of a company or organization done in preparation for a business transaction (including an analysis of the business’s structure, an examination of the business’s financial health, the credibility of the business’s owners, directors, the future potential, an assessment of the risk involved in a company’s business, a company’s business plan etc).

The amount of net income attributed to each share of stock; it is determined by dividing net income by the number of outstanding shares in a given period. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term. The one-year (historical) EPS growth rate is calculated as the percentage change in earnings per share. The prospective EPS growth rate is calculated as the percentage change in this year’s earnings and the consensus forecast earnings for next year.

An accounting term used to describe the ownership interest in a corporation in the form of common stock, preferred stock or net investment of owners or stockholders in a business. Under the accounting equation, equity also represents the result of assets less liabilities.

A method of raising capital in which a corporation sells shares of stock. Investors provide funds for capital or operating expenses in exchange for capital stock, stock purchase warrants and options in the business financed, without any guaranteed return, but with the opportunity to share in the company’s profits.

A company exempted from tax or from compliance with specified regulations of the country in which it is established.

The Social Security number of an individual or the Employer Identification Number (EIN) of a business, fiduciary or other organization. The federal government gives an EIN for tax purposes. Banks generally require a tax identification number to open bank accounts.

See assumed name.

An individual, corporation or association holding assets for another party, often with the legal authority and duty to make decisions regarding financial matters on behalf of the other party.

A relationship in which an individual, corporation or association (fiduciary) manage assets for another person (principal) beneficial to his/her interests.

The intergovernmental organization established by the G-7 Paris Summit in 1989. The principal aim of FATF is to identify the technology of money laundering, suggest the ways of its elimination, and monitor the anti-money laundering actions of the concerned countries.

The FSF was convened on 14 April 1999 in Washington. Its members are the G-7 countries, Australia, Singapore, Hong Kong, Netherlands, and some international financial and regulatory institutions. It’s an international watchdog identifying the crucial flaws in the international financial system, which may lead to regional or worldwide crises. Another tasks of the organization are to develop financial crises prevention policy and oversee its implementation.

A corporation’s accounting year. 12 consecutive months ending on the last day of any month and chosen by a business as the accounting period for annual reports. The fiscal year serves as a period of reference for the company and does not necessarily correspond to the calendar year.

A corporation that operates in a state other than its state of incorporation; the state in which it operates refers out-of-state corporations as “foreign.” In order to conduct business in another state, it must register for a certificate of authority to conduct business in the other state or possibly lose access to that state’s courts and face fines. The term also refers to corporations chartered in foreign nations. Opposite of Domestic Corporation.

Stocks amounting to less than one full share, usually resulting from splits, acquisitions, exchanges, or dividend reinvestment programs.

A tax or fee on the privilege, imposed by a state government on a corporation, limited liability company or similar business entity for the right to exist or do business in a state. The value of the franchise tax may be measured by amount of earnings, assets, total value of capital or stock, or by amount of business done. Failure to pay the franchise tax or similar fees may result in the administration dissolution of the company and forfeiture of the charter.

Free zones are designated areas which receive special treatment through their exclusion from the area to which the country’s normal customs rules apply. A free port is one at which imports may be landed without paying customs duties. The system of free zones or free ports favors export processing, transshipment and the entrepot trade since there is no need to pay and then reclaim customs duties. Though free zones are often part of a tax incentive package in what would otherwise be a high tax jurisdiction, they may also be found in tax havens, e.g. Freeport in the Bahamas.

A Swiss, German and Austrian form of a limited liability corporation.

It is when a private group replaces publicly owned stock in a firm with complete equity ownership. The firm is delisted on stock exchanges and can no longer be purchased in the open markets.

When a private company first offers shares to the public market and investors. Also called Initial public offering (IPO). Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. IPOs by investment companies (closed-end funds) usually include underwriting fees that represent a load to buyers. Opposite of going private.

A legally enforceable promise to become liable for the debt of another if the liable party fails to perform to expectations. Most bank loans to corporations are backed by the personal guarantee of the shareholder’s of the corporation. If the corporation defaults on the debt, the shareholders are then personally liable to pay the debt on behalf of the corporation.

Speculative funds managing investments for private investors (in the US, such funds are unregulated if the number of investors does not exceed one hundred).

A company whose activity is limited to holding and managing investments or property but not having ordinary commercial or trading activities. A company that owns enough voting stock of one or more corporations to control management and operations by influencing or electing its board of directors. A holding company is not engaged in any business other than the ownership of shares. Also called Parent Company. The requirements to achieve holding company status vary in different countries (in particular Liechtenstein, Luxembourg, Nauru and the Netherlands).

An unsolicited takeover, which goes without the approval of the target corporation’s management and board of directors. Opposite of Friendly Takeover.

The act of forming, creating, or organizing a corporation under the laws of a specific jurisdiction by filing the required documents and allowing it to become a corporation.

A person who joins with others to form a corporation. Or the person(s) or entity that perform the act of incorporation and who sign the articles of incorporation and deliver them for filing. The incorporator can take corporate actions before directors and officers are appointed.

An expressed or implied contract by which corporation pay expenses of its directors, officers, and employees who are named as defendants in lawsuits alleging that they offended some duty in their service to or on behalf of the corporation. Note that directors and officers may also be paid for the expenses they incurred in the process of forming the corporation.

Partial or total ownership of a Limited Liability Company. Analogous to the shares in a corporation.

The federal agency responsible for administering and enforcing the Treasury Department’s revenue laws, through the assessment and collection of taxes, determination of pension plan qualification, and related activities.

A company providing a maximum of privacy, combined with a comprehensive freedom from local taxation. A typical IBC’s can carry on business outside its jurisdiction, have meetings of its Directors and/or Members anywhere in the world, keep any number of bank accounts in various currencies, and issue bearer shares under certain conditions in the separate countries.

An individual or institution, which acts as an underwriter or agent for corporations issuing securities, but does not accept deposits or make loans. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. Also called investment bank.

The dissolution forced upon a corporation by a court or administrative action.

Shares of corporation that have been actually issued and are not canceled.

A type of business partnership involving joint management and the sharing of risks and profits as between two or more enterprises based in different countries. Then the capital of the partnership is known as a joint venture.

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

The specific geographical area over which a particular court or government body has the power and right to exercise authority.

A legal entity (LE) exists independently from its members, founders or shareholders. Generally, the liability is limited to the assets a LE owns, and the personal property of the members, founders or shareholders may not be seized by the creditors. A LE has many features of a natural person, e.g. it may hold property, suit other legal and natural persons, and be responsible in a court for its acts and deeds.

Refers to the advantages that may accrue to a business through the use of debt obtained from third persons instead of contributed capital. For example, an option has high leverage compared to the underlying stock because a given price change in the stock may result in a greater increase or decrease in the value of the option.

The purchase of a business, with financing provided largely by borrowed money, often in the form of junk bonds.

Consists of member owners and a manager, at a minimum. Similar to a corporation that is taxed as a partnership or as an S-corporation. More specifically, it combines the more favourable characteristics of a corporation and a partnership. The LLC structure permits the complete pass-through of tax advantages and operational flexibility found in a partnership, operating in a corporate-style structure, with limited liability as provided by the state’s laws.

A form of the LLC favored and used for professional associations, such as accountants and attorneys.

The protection generally afforded a corporate shareholder, limited partner or a member of a limited liability company from the debts of and claims against the company.

With respect to shareholder and director voting, more than 50 percent, commonly used as the percentage of votes required to approve certain corporate actions.

The board of directors and executive officers of a corporation, limited liability company or similar business entity.

The individuals who are responsible for the maintenance, administration and management of the affairs of a limited liability company (LLC). The actions of the managers are very similar to the board of directors of a corporation. In order for an LLC to be controlled by managers, this fact must be noted in the articles of organization. In most states, the managers serve a particular term and report to and serve at the discretion of the members. In some states, the members of an LLC may also serve as the managers.

The owner(s) of a limited liability company (LLC). Management of an LLC is conceded to the members in proportion to their ownership interest in the company, unless the articles of organization or operating agreement provide that a manager or managers will control the LLC.

The first constitutional document of a company, which must be submitted to the Registrar of Companies together with its Articles of Association, and which contains company name, address of its registered office, objects and powers, authorised share capital, and statement of limited liability.

The statutory combining of two or more entities into one, through a purchase acquisition or a pooling of interests. Differs from a consolidation in that no new entity is created from a merger: the dominant unit absorbs the passive ones and continues operation usually under the same name. The firm’s activity in this respect is sometimes called M&A (Merger and Acquisition).

A binder or book containing corporate records, documents, registers and resolutions of the corporation. All corporations must maintain an up-to-date minute book pursuant to statute.

Brief summary of proceedings of a meeting/assembly/committee.

Official record of the events of a corporation, typically including all the events taking place at both shareholders’ meetings and board of directors’ meetings. Organizational minutes allow for the issuance of shares to shareholders, appoint directors and officers and approve the by-laws of the corporation. These records are usually kept in the corporations’ record book. Also called Organizational minutes or Corporate Minutes.

Money-laundering occurs when criminals seek to make illegally obtained funds look legitimate by funneling them through a string of banks and businesses until the money’s origin is obscured.

Investment company usually formed in a low tax jurisdiction and issuing shares to the public.

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

A procedure that allows a corporation or Limited Liability Company to obtain exclusive use of its business name for a specified period of time. The name of a corporation or LLC must be different from previous names on record at the state government. If the name is not unique, the state will reject the articles of incorporation or articles of organization (for LLC). A name can be reserved, usually for 120 days, by applying with the proper state authorities and paying a fee.

Total assets (common stock, surplus, and retained earnings) minus total liabilities of an individual or company. Also called Owner’s Equity or Shareholders’ Equity or Net Assets.

A share that no par value given in the charter or stock certificate and that may be issued for consideration designated by the board of directors. Note that the value of no par shares is determined by the state for franchise tax purposes and may result in higher franchise taxes in comparison with low par-value stock.

A company formed for the express purpose of holding securities and other assets in its name or to provide nominee directors and/or officers on behalf of clients of its parent bank or trust company.

A company treated by the jurisdiction in which it is incorporated as non-resident for tax purposes or exchange control purposes or both.

An organization incorporated for educational, humanitarian or charitable reasons that is exempt from some taxes, and in which its shareholders or trustees do not benefit financially. Also called Non Profit Organization.

A corporation, which uses a number rather than a distinct corporate name. A numbered company’s corporate number is assigned to it by the jurisdiction of incorporation. Many corporations have numbered names where using a distinct corporate name is not important.

An individual appointed by the director(s) of a corporation who are responsible for carrying out the board’s policies and for making day-to-day decisions. Usually consist of President, Vice-President, Treasurer, Secretary, CEO, CFO, etc. Although officer positions are distinct from that of director, officers can also hold the position of director. In most states, one person can hold all of these posts.

Offshore is an international term meaning not only out of your country (jurisdiction) but out of the tax reach of your country of residence or citizenship; synonymous with foreign, transnational, global, international, transworld and multi-national.

Countries and jurisdictions, most commonly small islands with little to no resources for revenue, specializing in the provision of financial services. These centers specialize and focus on offering to non-residents more favorable tax environments than that enjoyed in their home territory on international trading activities and/or investments via that country. Other beneficial features of offshore centres may include banking secrecy, privacy, various types of discretionary services and other favorable aspects of the legal environment.

A company organized in a foreign country, almost always in a tax haven country, which handles such financing services as arranging foreign loans in Eurocurrency markets and floating bonds or other forms of indebtedness abroad in United States dollars or other hard currencies. Generally the offshore finance company is created to handle the financing requirements of its parent or related companies but is used occasionally to handle the financing needs of the parent company’s distributors or agents overseas.

A jurisdiction, providing some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.

A mutual fund offering its shares to persons resident outside the country in which it is incorporated.

A company organized in a foreign country which controls one or more affiliate companies and which manages, administers or services its affiliate companies usually located outside the country in which the parent company is incorporated.

A company organized in a foreign country to buy goods from an exporter in one or more other foreign countries and to sell these same goods to importers in other foreign countries. The documents are processed by the offshore trading company and all managerial, administrative and day-to-day financial transactions are handled by it. The goods are shipped from the seller in one country to the buyer in the other country without ever being shipped or landed in the country where the offshore trading company is located.

Onshore is defined as the country in which a private person, a company or any other legal entity is resident for tax purposes.

A contract among the members of a limited liability company, which governs the membership, management, operation and distribution of income of the company. It is analogous to corporate bylaws.

The most common form of shares. Each ordinary share gives its holder an identical volume of the rights. Holders have the right to vote at the meetings and receive dividends which vary in accordance with the profitability of the company. The holders of the ordinary shares are the owners of the company.

At the present time there are 29 countries in the OECD. They share the principles of the market economy, pluralist democracy and respect for human rights. The original 20 members of the OECD are located in Western countries of Europe and North America. Next came Japan, Australia, New Zealand and Finland. More recently, Mexico, the Czech Republic, Hungary, Poland and Korea have joined. The official goals of the organization are to help “member countries promote economic growth, employment and improved standards of living through the coordination of policy” and to encourage “the sound and harmonious development of the world economy and improve the lot of developing countries, particularly the poorest.”

The initial meeting of incorporators or initial directors that are held after the filing of the articles of incorporation to complete the organization of the corporation. At the organizational meeting a number of initial tasks such as: ratification of the articles of incorporation, issuance of the initial shares, election of officers, approval of bylaws, and authorization of the opening of bank accounts is passed.

Capital received from investors in exchange for stock, but not stock from capital generated from earnings or donated. This account includes capital stock and contributions of stockholders credited to accounts other than capital stock. It would also include surplus resulting from re-capitalization. Also called Contributed Capital or Paid in Surplus.

Some states require corporations to have a specified amount of paid-in capital prior to the commencement of business. CT, DC, SD, and TX are among these states, and require a company to have $1,000 paid in capital before starting business.

A minimum value of a share below which the share cannot be issued, as designated in the articles of incorporation. For an equity security, par is usually a very small amount that bears no relationship to its market price, except for preferred stock, in which case par is used to calculate dividend payments. For a debt security, par is the amount repaid to the investor when the bond matures (usually, corporate bonds have a par value of $1000, municipal bonds $5000, and federal bonds $10,000). Also called maturity value, face value or par.

A corporation that either owns outright or controls a subsidiary. See Holding Company.

A business organization formed when two or more persons or entities come together to conduct business for mutual benefit. Partnerships do not enjoy limited liability, except in the case of limited partnerships.

A partnership often offers useful features for the purposes of an overall tax plan. In certain jurisdictions, a partnership may have corporate attributes and resemble a company. However, even where a partnership does not have corporate attributes, requirements relating to formations and registration the nationality and/or residence of partners, limited liability, restrictions on activities, should be examined in the context of the general law governing local partnerships.

A taxation situation where the income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is “passed through” the business entity to the individual shareholders or interest holders, and is reported on their individual tax returns. S corporation and LLC are both pass-through tax entities.

The exclusive right to make use of an invention or process for a specific period of time, usually 14 years. It is granted by the government (U.S. Department of Commerce Patent Office) and gives the right to exclude others from making, using or selling one’s invention, which includes the right to license others to make, use or sell the invention.

Legal concept applied by a country in order to tax commercial activities realised in its territory by a company or person incorporated or resident outside the jurisdiction. The expression is commonly used in double taxation agreements and is defined in the O.E.C.D. model agreement, although in practice there is no consistent definition adopted either in double taxation agreements or in jurisdictions which recognise the concept under their general tax laws.

It is a characteristic of most business corporation(s) of having no expiration date, unending, unlimited term of existence.

If corporate formalities are not followed, it is possible that the corporate entity will not protect shareholders from corporate debt. Keeping proper records and holding regular meetings help solve this possible problem.

A document which authorises a person to act on behalf of another.

Rights delineated in the articles of incorporation granting shareholders the first opportunity to buy any additional shares issued by a corporation in proportion to their current equity. The shareholder has the right to buy the new issue of stock, but is not required to make the purchase. If the shareholder elects not to exercise this right, the shares can be sold on the open market. The purpose of these rights is to protect shareholders from dilution of value and control when new shares are issued. These rights may be limited or denied. Most states consider preemptive rights valid only if made explicit in a corporation’s charter. Also called subscription privilege or subscription right.

Capital stock, which entitles the holders to preferences over the holders of common shares, usually with regard to dividends and distributions of assets upon dissolution or liquidation. Preferred stock typically has limited or no voting rights. Also called preference shares.

The most common measure of how expensive a stock is. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher multiple means investors have higher expectations for future growth, and have bid up the stock’s price. The value is the same whether the calculation is done for the whole company or on a per-share basis. Also called Earnings Multiple.

A company whose shares are not traded on the open market. The transfer of shares in such a company is usually restricted in some way, such as by the requirement that the directors or shareholders of the corporation must approve any transfer of shares in advance of the sale. Opposite of public company.

Private Foundation is an entity combining the features of a trust and an International Business company. Similarly to a Trust, the purpose of a Private Foundation is to preserve the assets, donated by the Founder and some third persons, for the benefit of and distribution among the Beneficiaries. Akin to an International Business Company, a Private Foundation has a distinctive legal personality and tax-exempt status. PF is an effectual offshore asset protection tool.

A corporation organized for the purpose of engaging in a profession such as law, medicine, accountancy or engineering. A professional corporation is formed under special state laws that stipulate exactly which professionals are required to incorporate under this status.

Persons who develop or take the initiative in founding or organizing a business venture. Where more than one promoter is involved in a venture, they are called CO-promoters.

Authorization, whether written or electronic, given by a shareholder for someone else, usually the company’s management, to cast his/her vote at a shareholder meeting or at another time. Proxy also refers to the document granting such authority.

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. Limited liability companies or similar business entities may also conduct this process.

The minimum number of people who must be present or must provide a proxy to vote at a meeting in order for a vote to be legally effective. A quorum is achieved through a meeting of the majority of the directors or with the majority of outstanding shares represented. Note that the percentage needed for quorum may be modified in the bylaws.

The date for determining the shareholders entitled to vote at a meeting, receive declared dividends, capital gains distribution dividends, or participate in any corporate action. Also called date of record.

Shares that may be redeemed at the option of the issuer and/or the shareholder. They are subject to purchase by the corporation on terms set forth in the articles of incorporation.

A person or entity designated in the articles of incorporation to represent a company in the jurisdiction of incorporation. A Registered Agent normally provides a Registered Office address, provides liaison with local authorities and receives all legal and tax papers and/or notices addressed to the company.

The official address of a company to which authorities, courts, and suitors send their notices, letters and reminders. It must always be an effective address for delivering documents to the company, and is usually provided by a Registered Agent.

Share which is transferred by an instrument of transfer. The name of the holder is registered in the books of the company and the shareholder’s name is displayed on the actual share certificate.

The Registrar of Companies, a governmental body controlling the formation and renewal of companies created under their company act.

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

A company treated by the jurisdiction in which it is incorporated or in which it conducts commercial activities as resident for tax purposes or exchange control purposes or both.

A formal statement of a decision of any item of business that has been voted upon, reached by either the shareholders or directors of a corporation. A resolution may be written if all parties agree and sign it, or it may be made orally in a meeting on the basis of a number of votes cast and then recorded in the meeting’s minutes. An ordinary resolution is one passes by a majority of votes, and a special resolution is one passed by a majority of a minimum two thirds of the votes cast.

Resolution can also describe an official document representing an action on the part of the board of directors of a corporation.

Net profits kept in the company that accumulates as additional equity in the business after dividends are paid to stockholders. They can be reinvested in the core business or used to pay off debt. Also called Earned Surplus, Undistributed Earnings or Accumulated earnings.

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.

All amounts received for the privilege of using intangibles such as patents, copyrights, secret processes and formulae, as well as amounts received for the privilege of exploiting mineral, oil and gas deposits.

An S corporation is a form of corporation, allowed by the Internal Revenue Code (IRS). The code is very explicit on how and when this election is made and the number of shareholders this type of corporation can have. Since this type of corporation pays no income tax, all gains and losses of the corporation pass through to the individual shareholders in proportion to their holdings. Thus S Corporation enables the company to enjoy the benefits of incorporation but be taxed as if it were a partnership. Also called Subchapter S Corporation.

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

A seal adopted and used by a corporation for authenticating its corporate acts and executing legal documents. Corporate seals are no longer required by many corporate statutes but are still a useful tool for authenticating corporate documents.

A document evidencing collateral for money loaned. Also, an investment instrument, other than an insurance policy or fixed annuity, issued by a corporation, government, or other organization which offers evidence of debt or equity. Securities are usually negotiable and therefore are regulated by both state and federal law. To prevent fraud, illegal acts and unsubstantial schemes, transactions in which promoters go to the public for risk capital are monitored. Personal security is the guarantee by one person to repay another person’s debt.

State and federal laws that govern the issuance, sale and transfer of stocks and bonds.

The person who actually creates a trust by donating property to be managed and administered by a trustee but from which all benefits and profits would go to a beneficiary.

A person who actually creates a trust by donating property to be managed and administered by a trustee but from which all benefits and profits would go to a beneficiary.

A unit of stock representing ownership of a corporation and sometimes a limited partnership. A share certificate issued by the corporation in the name of the person owning the share represents the number of shares owned by a particular shareholder. Two types are used: common stock and preferred stock. Par value represents the equivalent dollar amount equal to one share’s value. See Stock, Common stock.

A statutory form of business combination in which some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation and neither corporation ceases to exist.

A person or entity that owns one or more shares of stock in a corporation. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the board of directors. Shareholders own an interest in the corporation rather than specific corporate property. Their rights are defined in the articles of incorporation and the bylaws. Also called stockholder.

A company that previously has been organized with designated capital and registration cost paid and is placed on an inactive basis, with annual registration, capital and stamp duty fees currently paid but shares held in bearer form and the directors and officers substituted at the time the company is taken off the shelf and becomes active.

A limited liability corporation established under French Law. Requires a minimum of seven shareholders. In Spanish speaking countries, it is known as the Sociedad Anonima. Important characteristic of both is that the liability of the shareholder is limited up to the amount of their capital contribution.

A business in which a single individual owns all assets. A sole proprietor pays no corporate income tax but has unlimited liability for business debts and obligations thus, personal property could be taken to pay business debts. Also called proprietorship.

A meeting of directors or shareholders, but not an annual meeting, called so that the shareholders may act on the specific matters stated in the notice of the meeting.

The basic capital of a corporation. It consists of the sum of the par value of all issued shares plus the consideration for no par value shares to the extent not transferred to capital surplus plus other amounts that may be transferred from other accounts. The amount of stated capital may effect the ability to pay dividends.

Stock signifies an ownership or equity, in a corporation, indicated by shares, which represent a piece of the corporation’s assets and earnings. It may be represented by a certificate and can be common or preferred, voting or non-voting, redeemable, convertible, etc. The classifications and special designations of the stock must be stated in the articles of incorporation. Also called Equities or Equity Securities or Corporate Stock.

The document issued by a corporation, and sometimes a limited partnership, representing legal ownership of a specific number of shares of a corporation owned by a shareholder. The document identifies the name of the corporation, the name of the owner (stockholder), the class of stock, par value (if any), number of shares contained in the certificate and attendant voting rights. May also be referred to as a share certificate.

A person or organization that owns one or more shares of stock in a corporation. Same as shareholder.

A subsidiary company is a company under the control of another company through stock ownership.

The name/abbreviation of letters after the company name to denote limited liability, for example: Limited, Corporation, Incorporated, Société Anonyme (France), Société par actions (France), Sociedad Anonima, Sociedade Anonima, Stiftung (Liechtenstein), Limitada, Aktiengesellschaft (Germany), Naamloze Vennootschap (The Netherlands), Aktieselskab (Denmark), Sociedad Berhad Anonima (Western Samoa), Berhad (Labuan), Sociedad Anónima de Inversión (Uruguay), AG (Germany), ApS, A/S (Denmark), BV (The Netherlands), Corp., Est. (Liechtenstein), GmbH (Germany), Inc., KFT (Hungary), LDA, LLC, Ltd., PLC (United Kingdom), RT (Hungary), S.A., S.A.R.L. (France), S.A.F.I. (Uruguay).

Acquiring control of a corporation, called a target, by stock purchase or exchange, it can be either a friendly acquisition or an unfriendly, hostile situation, caused by a large creditor at the objection of the current owner.

A company that is the object of a takeover by another firm.

An international banking and financial centre providing privacy and tax benefits.

Any organization that is determined by the Internal Revenue Service to be exempt from federal taxation of income. A tax-exempt may be required to operate exclusively for charitable, religious, literary, educational or similar types of purposes.

It was enacted in 1576 by the Queen Elizabeth I. The Statute voids a transfer to a trust if the transfer could be interpreted as intention to hinder, delay, or defraud creditors, including potential future creditors. Some Offshore Financial Centers (i.e. Nevis) declared The Statute of Elizabeth null and void in their trust legislation.

A distinctive name, symbol, motto, or design that legally identifies a company or its products and services, or a certificate issued for such identification by the federal government for a specified period of time, granting the right to prevent competitors from using similar marks in selling or advertising. Trademarks may be registered with the US Patent and Trademark Office.

Common stock that was once issued and outstanding, but have been reacquired by the company and held in the company’s treasury to be retired or resold to the public.

An entity created for the purpose of protecting and conserving assets for the benefit of a third party, the beneficiary. A contract affecting three parties, the settlor, the trustee and the beneficiary. A trust protector is optional but recommended, as well. In the trust, the settlor transfers asset ownership to the trustee on behalf of the beneficiaries.

The document that creates a trust and lays down the ways of how the trustees should conduct administration and management of the trust, and how they are to distribute trust assets among the beneficiaries.

A person appointed by the settlor to oversee the trust on behalf of the beneficiaries. In many jurisdictions, local trust laws define the concept of the trust protector. Has veto power over the trustee with respect to discretionary matters but no say with respect to issues unequivocally covered in the trust deed. Trust decisions are the trustee’s alone. Protector has the power to remove the trustee and appoint trustees. Consults with the settlor, but the final decisions must be the protector’s. The extent of protector’s powers in each separate case is defined by the settlor.

A person who administers and manages the property transferred in a Trust. Trustee becomes a legal owner of the property, and has a fiduciary responsibility to act in accordance with a trust deed and for the benefit of the beneficiary.

The common law doctrine relating to the effect of corporate acts that exceed the powers or the stated purposes of a corporation. Traditionally, if a corporation acted beyond its stated purposes, the actions were unenforceable against the corporation. However, most modern statutes allow corporate purposes to be any lawful activity.

Nearly in all states it is allowed for directors and shareholders to act without a meeting if they each give their consent to specific corporate actions in writing.

A company, usually an investment bank that purchases shares of a corporation and resells it to investors. In general, an intermediary that guarantees the proceeds to the firm from a security sale, thereby in effect taking ownership of the securities.

The intentional dissolution of a corporation by its own shareholders, incorporators or initial directors.

The right of a common stock shareholder to vote, in person or by proxy, for members of the board of directors and other matters of corporate policy, such as the issuance of senior securities, stock splits and substantial changes in operations.

A stock representing ownership in a corporation whose total worth is less than the actual invested capital. It may result in problems of low liquidity, inadequate return on investment, and low market value.

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

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

Tax required to be deducted at source by companies paying interest, dividends or royalties, but which may in certain circumstances be reclaimed by the recipient or be reduced under a double taxation agreement/tax treaties.