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Forms of Business Organizations
Key Words and Phrases
71
Law
Professional
05/17/2013

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Term
alter ego theory
Definition
when piercing the corporate veil, the legal theory used when the owners of a corporation have so mingled their own affairs with those of the corporation that the corporation does not exist as a distinct entity -- instead, it is an alter ego of its owners. page776
Term
appraisal rights
Definition
the rights of shareholders (who object to certain corporate actions that may diminish the value of their stock) to compel the corporation to purchase their stock for its appraisal value; sometimes called "dissenter rights". Barron's Businss Law
Term
articles of incorporation
Definition
a formal document that creates a corporation, a charter. Barron's Businss Law
Term
articles of organization
Definition
a formal document that creates a limitied liability company. Barron's Business Law
Term
bidder
Definition
party that is ready to buy at a specified price in a two-sided market or dutch auction. Barron's Business Law
Term
board of directors
Definition
the managers/trustees of a corporation, elected by the shareholders. Barron's Business Law
Term
bylaws
Definition
a comprehensive set of rules providing for the organization and operation of a corporation. Barron's Businss Law
Term
C corporation
Definition
Any corporation that has not elected to be an S corporation is automatically a C corporation. page 761
Term
certificate of incorporation
Definition
the state's official authorization for a corporation to commence to do business. Barron's Business Law
Term
classified board
Definition
a board on which directors serve for specified terms, usually three years, with only a fraction of them up for reelection at any one time; also called a staggered board. Barron's Business Law
Term
cliff vesting
Definition
a common vesting schedule that provides that if a person granted stock options leaves in the first year of employment, then he/she forfeits all rights to any stock. Barrons Business Law
Term
close corporation
Definition
a stock corporation the shares of which are held be a relatively few persons, frequently members of a single family. Barron's Business Law
Term
closely held corporation
Definition
a corporation the stock of which is not freely circulated. Barron's Business Law
Term
corporate charter
Definition
a formal document that creates a corporation, a charter. Barron's Businss Law
Term
corporate domicile
Definition
The state under whose laws a corporation is formed. page 774
Term
corporation
Definition
1. an artificial being created by operation of law, with an existence distinct from the individuals (shareholders) who are its "owners." 2. a word that indicates a business is incorporated. Barron's Business Law
Term
corporation by estoppel
Definition
when a third party, in all its transactions with an enterprise, acts as if it were doing business with a corporation, the third party may be prevented from claiming that the enterprise is not a corporation. Barron's Business Law
Term
cumulative voting
Definition
in the election of directors, a voting procedure whereby a shareholder may accumulate his/her votes and distribute them among the candidates as he/she wishes. Barron's Business Law
Term
de facto corporation
Definition
a corporation that has not been properly formed, even though the incorporators may have made a good-faith effort to do so. Barron's Business Law
Term
de jure corporation
Definition
a corporation formed in accordance with all the requirements of the law. Barron's Business Law
Term
dissenting shareholder
Definition
one who opposes a fundamental change and has the right to receive the fair value of his/her shares. Barron's Business Law
Term
dissolution
Definition
1. the termiantion of a corporation's existence. 2. a change in partners' relationship when one partner ceases, generally because of death or voluntary or involuntary withdrawal, to be associated with the partnership business. Barron's Business Law
Term
encroachment
Definition
1. unlawful use or possession of another's property. 2. a franchisor's sale of an outlet to a franchisee and then later (a) selling naother outlet nearby to another franchisee or (b) establishing nearby his/her own franchisor-owned outlet. Barron's Business Law.
Term
equity capital
Definition
capital earned by a corporation through its sale of stock interests; the cash or property contributed to an enterprise in exchange for an ownership interest. Barron's Business Law
Term
estopped
Definition
to be blocked by one's previous actions from asserting certain legal claims or defenses. Barron's Business Law
Term
fictitious business name
Definition
a name other than the name of the owner. page 759
Term
foreign corporation
Definition
a corporation carrying on business in any state other than the state of its creation; in all such states, it is "foreign." Barron's Business Law
Term
franchise
Definition
a contractual arrangement in which the owner (franchisor) of a trademark, trade name, copyright, patent, trade secret, or some form of business operation, process, or system permits others (franchisees) t use that property, operation, process, or system in furnishing goods or services. Barron's Business Law
Term
franchising
Definition
an arrangement whereby the franchisor receives cash up front, followed by monthly payments based on a resller's gross reciepts in exchange for granting the franchisee the right to use the franchisor's trademarks and marketing plan. page 791
Term
freeze-out merger
Definition
In a cash merger, some shareholders (usually public shareholders) are required to surrender their shares in the disappearing corporation for cash. They retain no interest in the surviving corporation. page 785
Term
general partners
Definition
partners who have power to manage partnership business and have unlimited liability for partnership debts. Barron's Business Law
Term
general partnership
Definition
a partnership in which there are not limited partners, and each partner has managerial power and unlimited liability for partnership debts. Barron's Business Law
Term
going private
Definition
movement from public ownership to private ownership of a company's shres either by the company's repurchase of shares or through purchases by an outside investor. A company usually goes private when the market price of its shares is substantially below their book value and the opportunity thus exists to buy the assets cheaply. Another motive for going private it to ensure the tenure of existing management by removing the company as a takeover prospect. Barron's Business Law
Term
incorporation
Definition
the process by which a corporation is formed. Barron's Business Law
Term
inside director
Definition
member of the board of directors also employed by the corporation as an officer and/or employee. Barron's Business Law
Term
joint venture
Definition
an association of two or more entities to carry on a single business enterprise for profit. Barron's Business Law
Term
leveraged buyout (LBO)
Definition
a method to gain control over a corporation by buying its stock and financing its purchase with a loan based on the to-be-acquired corporation's assets. Barron's Business Law
Term
limited liability company (LLC)
Definition
a form of business that is a partnership-corporation hybrid, with certain advantages of each form. Barron's Business Law
Term
limited liability partnership (LLP)
Definition
type of partnership in which the liability of all the partners, including general partners, is limited to the amount of their investments. Barron's Business Law
Term
limited partners
Definition
partners without power to manage partnerhsip business and with liability for partnerhsip debts only up to the amount of their contribution to the business. Barron's Business Law
Term
limited partnership
Definition
a partnership conforming to state statutory requirements and having one or more general partners and one or more limited partners. Barron's Business Law
Term
majority voting
Definition
when voting for directors, a director must receive a majority of the shares voted in order to be elected. page 783
Term
malpractice
Definition
professional misconduct or unreasonable lack of skill; the failure of a professional to use the skills and learning common to the average reputable members of the profession or those the professional claims to possess, resulting in injury, loss, or damage to those relying on the professional. Barron's Business Law
Term
managers
Definition
natural persons elected by members of a limited liability company, authorized to manage and operate the business of the limited liability company. Barron's Business Law
Term
members
Definition
persons who joins a nonprofit corproation or a limited liability company; the equivalent of a shareholder in a business corporation. Barron's Business Law
Term
merger
Definition
concerning businesses and antitrust law, the combination of two or more business entities. Specifically, in corporate law, the combining of two corporations by a procedure under which one acquires the stock of another. Barron's Business Law
Term
operating agreement
Definition
in most states, the term for a document setting forth the terms and conditions for managing a limited liability company. Barron's Business Law
Term
outside director
Definition
1. members of the board of directors who are not officers or employees of the corporation. 2. one not employed by the company but invited to be on the board of directors because of his or her business expertise (often serving on the committee determining compensation for the corporation's executives). Barron's Business Law
Term
pass-through entity
Definition
a business organization that is not a separate taxpayer; all its income and losses are passed through and taxed to its owners; S corporations, partnerships, and limited liability companies are pass through entities. Barron's Business Law
Term
pierce the corporate veil
Definition
to disregard the corporate entity, and thus hold the shareholders liable for corporate actions; this is possible under circumstances involving fraud. Barron's Business Law
Term
plurality standard
Definition
when voting for directors, a director could be elected as long as he or she received a plurality of the votes cast for any nominee, without regard to the number of votes withheld. page 783
Term
proxy
Definition
a limited power of attorney whereby a shareholder names a proxy (agent or representative) to vote his/her shares. Barron's Business Law
Term
proxy contest
Definition
a battle for corporate control whereby an individual, group, or entity seeking to replace the board of directors with its own candidates tries to acquire a sufficient number of shareholder votes to do so. Barron's Business Law
Term
quorum
Definition
for corporations: a majority of the outstanding shares of a corporation; the number of shareholders required to be present to conduct business at a shareholders' meeting. Barron's Business Law
Term
raider
Definition
in a hostile takeover, a third party who seeks to obtain control of a corporation, called the target, over the objects of its management. Barron's Business Law
Term
reverse piercing
Definition
when a corporation is held liable for the debts of a shareholder. page 779
Term
S corporation
Definition
a corporation organized to meet certain Internal Revenue Code requirements and thus qualified for special federal income tax treatment; the income of an S corporation, whether or not distributed, is taxed to its shareholders, but the S corporation itself is not subject to federal income tax (in essence, the S corporation is taxed the same as a general partnerhsip). Barron's Business Law
Term
second-step back-end merger
Definition
a merger in which the bidder first acquires more than 50% of the shares of a company through a tender offer and replaces the target company's board of directors with its own people. The new board then approves the merger of the target company into a company owned by the bidder, with the shareholders of the target company receiving cash or securities for thier stock. As the majority shareholder of the target company, the bidder can outvote any dissenters and provide the required shareholder approval. The remaining shareholders are thus frozen out of the new company, and the bidder ends up with all the equity. page 786
Term
shareholders (stockholders)
Definition
owners of shares of a corporation through the ownership of its stock. Barron's Business Law
Term
shareholders of record
Definition
a person whose name appears on a corporation's shareholder list, as of a specified date, and thus is entitled to vote. Barron's Business Law
Term
sole proprietorship
Definition
the simplest form of business, in which a sole owner and his/her business are not legally distinct entities, the owner being personally liable for business debts. Barron's Business Law
Term
staggered board
Definition
a board on which the directors serve for specified terms, usually three years, with only a fraction of them up for reelection at any one time. Barron's Business Law
Term
straight voting
Definition
the usual manner of election of directors in which each share of stock entitles its holders to cast one vote for as many different directors as there are vacancies being filled. Thus, if there are seven vacancies, the owner of 100 shares may vote 100 shares for each seven persons. Barron's Business Law
Term
surviving corporation
Definition
in a merger of two corporations, the corporation that maintains its corporate existence is the surviving corporation. Barron's Business Law
Term
takeover
Definition
acquiring control of a corporation through a merger, consolidation, or purchase of a substantial number of voting shares or the assets of a corporation. Barron's Business Law
Term
target corporation
Definition
a corporation to whose shareholders a tender offer is submitted or that otherwise is the target of a corporate takeoever. Barron's Business Law
Term
tender offer
Definition
a corporate takeover bid; a general invitation from the bidding party to all shareholders of the targeted corporation that they sell their shares to the bidding party at a specified price. Barron's Business Law
Term
termination
Definition
In partnership law, termination occurs when all the partners affairs are wound up and the partners' authority to act for the partnership is completely extinguished. page 773
Term
undercapitalization theory
Definition
A legal theory used to pierce the corporate veil when the corporation is a separate entity, but its deliberate lack of adequate capital allows it to skirt potential liabilities. page 776
Term
vicarious liability
Definition
responsibility for another party's actions because of the relationship between the two parties (the acting party and the vicariously liable party). Respondeat superior is the most important type of vicarious liability. Barron's Business Law
Term
winding up
Definition
1. action by the corporation, after dissolution, to liquidate assets and distribute the proceeds--law, the liquidation and termination process for a dissolved parnerhsip. Barron's Business Law
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