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  1. Small-Business Glossary of Terms

Small-Business Glossary of Terms

Starting and managing a business shouldn’t feel like decoding a legal dictionary. Our glossary breaks down the essential terms you need to know, from the basics of forming an LLC to the finer points of compliance and asset protection. Whether you’re weighing your options between an S-Corp and a C-Corp or navigating tax jargon, this guide is your go-to resource for clear, jargon-free explanations that make business formation simple. Have a term that’s stumping you? Let us know, and we’ll add it to our list!

Administrative Dissolution: Dissolution of a limited liability company by an act of the state department in charge of business entities, caused by the LLC’s failure to comply with certain statutory requirements.

Amendment: An addition to, deletion from, or a change of existing provisions of the articles of organization or operating agreement of a limited liability company.

Annual Meeting: An annual meeting is the yearly meeting of shareholders, upper management, and directors (or managing members) of a company.

Annual Report: An annual report is a business document filed with the state that gives a short summary of the business’s structure.

Anonymous LLC: An anonymous LLC is a limited liability company (LLC) where the name and contact information of the members and managers are private.

Articles of Incorporation: Legal documents filed with the government to create a corporation.

Articles of Organization: Part of a formal legal document used to establish a limited liability company (LLC) at the state level.

Balance Sheet: A statement that shows the assets and financial obligations of your business.

Business License: A legal document that allows your business to operate in your state.

Business Plan: A written plan that outlines what your business will do, how it will do it, how you will market your product or service, the assets that you already have, any funding that you still need, how the business will be structured, and the financial outlook for your business.

Bylaws: Bylaws are self-imposed rules that constitute an agreement or contract between a corporation and its members to conduct the corporate business in a particular way.

C-Corporation: A business structure in which owners, or shareholders, are taxed separately from the entity.

Capital: Money used to run a business.

Cash Flow: The movement of money into and out of your business. Cash flow can be positive (meaning that you're making more than you spend) or negative (meaning that you're spending more than you make).

Certificate of Formation: A document that allows you to register a limited liability company (LLC) in the state in which it has been filed. This is another common name for the Articles of Incorporation.

Certificate of Insurance: A statement that shows that your business is insured.

Check the Box Rules: The IRS procedure that permits a taxpayer to elect whether the LLC will be taxed as a partnership (or a disregarded entity) or a corporation.

Compliance: The process of following specific rules to ensure a company is a separate entity from its owners and can operate legally and safely.

Compounding: The process of growing an amount of money by reinvesting profits.

Conversion: The process of changing a business entity from one form to another, such as from a sole proprietorship to an LLC.

Corporation: An independent legal and tax entity, separate from the people who own, control, and manage it. The corporation pays taxes on corporate profits, and the corporation's owners pay taxes on money they draw from the corporation.

Demographic: A group of people who share one or more characteristics, such as age, income level, gender identity, or location. Your target demographic is the segment of the market that you want to sell your product or service to.

Depreciation: A measure of how much value an asset has lost over time.

Disregarded Entity: A single-member LLC which, for federal tax purposes, is considered to be an undivided part of the person or entity who owns it.

Dissolution: The process of legally dissolving or terminating a business entity.

Doing Business As (DBA): The operating name of a company, as opposed to the legal name of the company. Some states require DBA or fictitious business name filings to be made for the protection of consumers conducting business with the entity.

Employer Identification Number (EIN): An EIN functions like a Social Security number for your business.

Equity: The total value of a business if you sold it today.

Federal Employer Identification Number (FEIN): A nine-digit federal employer identification number assigned by the IRS to the limited liability company. A single-member limited liability company without employees may use the member’s Social Security number in lieu of an FEIN.

FICO: A company that calculates credit scores for people and businesses.

Fictitious Business Name: A name used by a natural person or entity for conducting business under such a name, which is different from its legal name.

Fiduciary Duty: A legal obligation of one party to act in the best interest of another. In an LLC, members and managers have fiduciary duties to the company and each other.

Foreign Limited Liability Company: A limited liability company organized under the laws of a state other than the state in which it is seeking authority to conduct business and which is using the term in connection with the LLC. It is the opposite of a domestic limited liability company.

Franchise Tax: A tax levied by some states on certain business entities for the privilege of existing as a legal entity and doing business in that state.

HR: Human resources, the part of a business that handles tasks related to hiring, firing, and giving benefits to employees.

Income Statement: A financial statement showing how much your business earned and spent in a given time period.

Incorporate: To obtain an official charter or articles of incorporation from the state for an organization.

Indemnification: Compensating a person for damages or losses they have incurred or will incur related to a specified accident, incident, or event.

Independent Contractor: Someone hired by a business to provide a service who is not an employee of that business.

Joint Venture: A business arrangement where two or more parties agree to pool their resources for a specific task or business activity.

Liability Insurance: Insurance that protects your business if it causes harm to people or property.

Limited Liability Company (LLC): A business structure that separates the finances and liability of the people who own the business from those of the business itself. For instance, if an LLC goes into debt, only the assets of the business can be used to pay it back; the business owner's personal finances would remain separate.

Liquidity: The ability to turn non-cash assets into cash quickly.

Manager: A person, whether or not a member of a manager-managed company, who is vested with authority to manage the affairs of the limited liability company.

Manager-managed company: A limited liability company which is so designated in its articles of organization.

Meeting Minutes: The written record of the proceedings and decisions made during a meeting of the LLC's members or managers.

Member-managed company: A limited liability company other than a manager-managed company.

Members: The holders of ownership interests in a limited liability company.

Membership interest: A member’s rights in the limited liability company, including the member’s right to receive distributions of the limited liability company’s assets.

Operating Agreement: An operating agreement is a key document used by LLCs because it outlines the business' financial and functional decisions including rules, regulations and provisions.

Organizer: One of the signers of the original articles of organization. This person may, but need not be, a member or a manager of the LLC.

Outsourcing: Buying goods or services from another business instead of making these goods or performing these services with your own employees.

Piercing the Corporate Veil: Refers to a special instance where the court holds the shareholder or director of a corporation personally liable for the corporation’s debts.

Professional LLC (PLLC): An LLC structure designed for licensed professionals such as doctors, lawyers, and accountants.

Profit Center: A piece of a business that makes and spends money.

Registered Agent: A person who receives official communications from the government on behalf of a business.

Retained Earnings: The profit that's left over after a business pays all of its expenses.

S-Corporation: A corporation that passes its earnings and losses directly to its shareholders, who are then responsible for paying taxes or claiming tax credits accordingly.

SBA: The federal Small Business Administration, which is a government agency focused on helping entrepreneurs.

Secured Loan: A loan that's secured by collateral, which the lender can take if the loan isn't repaid.

Series LLC: A special form of LLC that allows for the creation of multiple series or cells within the same entity, each with its own assets, liabilities, and members.

Shrinkage: The loss of inventory due to theft, fraud, or clerical errors.

Single member LLC: Membership interest

Sole Proprietorship: A business run by one person that is not legally incorporated. This offers a lot of flexibility but also means that there's no separation of finances or liability between the person and their business.

Tax ID Number: An IRS identification number needed before most bank accounts can be opened. For businesses, it's the employer's identification number (EIN), required of corporations, nonprofit organizations, associations, partnerships, and some LLCs.

Unsecured Loan: A loan that doesn't require collateral.

Venture Capitalist: An investor who helps to fund a promising business in exchange for a share of the company's equity.

Virtual Office: A business address where the business isn't actually physically located. Virtual offices are commonly used by businesses that have entirely remote staffs but still need to be able to receive mail.

Voting Rights: Rights of members to vote their interests pursuant to provisions of the statute and operating agreement.

Winding Up: The discharging of a limited liability company’s liabilities and the distributing of its remaining assets to its members in connection with its dissolution.

Additional Small-Business Resources

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Written By

Brandi L. Joffrion, Esq.
Brandi L. Joffrion, Esq.

Brandi Joffrion is a skilled attorney with extensive experience in diverse areas including litigation, estate planning, and creating limited liability companies and corporations. She is also a professor and former offshore anti-money laundering compliance officer. Brandi can provide you with particular advice on your specific situation in the areas listed above. Brandi is licensed to practice law in Colorado.

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