Incorporation Glossary In Easy To Understand Language.Please note: The incorporation glossary given here has been made easy to understand - and are not legal definitions! A Accrual Method An accounting method under which profits are subject to tax after all revenues and costs have been accounted for even though they may not have been received from customers or paid to suppliers or lenders. Aggregate Par Value Aggregate par value is the par value multiplied by the number of authorized shares. Annual Meeting of Shareholders All countries require companies to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on. However, this is not true of many offshore companies in tax havens. e.g. Mauritius offshore [GBC 2] incorporation.
Annual Report A required annual 'state of affairs' filing for 'resident' companies in all countries. This must include statements of profit and loss, balance sheet, funds flow, names of directors and other mandatory information which must be given to the company's shareholders and in some case to the registrar of companies. Most offshore companies do not require this report. Apostille Apostille is a French word meaning certification. It is a method of certifying a document for use in another country pursuant to the 1961 Hague Convention. With this certification by Apostille, a document is entitled to recognition in the country of intended use, and no additional certification or legalization by the embassy or consulate of the foreign country where the document is to be used is required. However there are only 68 countries that except this form of certification. Articles of Incorporation or Certificate of Incorporation or Charter The 'articles' - sections or by laws, are the primary legal document of a corporation and is like the constitution of the company. They serve as a the legal and practical guidelines of how the corporation will be governed and assigns responsibilities to various officers of the corporation. The Articles of Incorporation are generally filed with the registrar of companies. Articles of Organization For Limited Liability Companies [LLCs] they are very similar to the Articles of Association or Incorporation. For more information see Certificate of Incorporation page. Asset Anything that is owned by a business, government, institution, or individual. This can include stocks, bonds, real estate, equipment, a brand name, or the value of a company as an operating business, sometimes known as goodwill. Assumed Name A name under which a corporation conducts business that is not the legal name of the corporation as shown in its articles of incorporation. Assumed names (also called Doing Business As or DBA) could be filed at the registrar of companies or other appropriate authority. A corporation can use multiple assumed names. Authorized Shares or Stock The total number of shares a corporation is authorized to issue. This number is specified in the articles of incorporation. All of the shares authorized need not be issued to shareholders; the corporation can have un-issued shares that can distributed at a later time. Back to Top of Incorporation Glossary B Board of Directors The governing body of a corporation. Elected by shareholders, the directors are responsible for selecting the officers and assigning them jobs and roles, and for the general control of the corporation. Business Entity An organization that possesses a separate existence for tax purposes. Some types of business entities include corporations and limited liability companies. Written details of a proposed or existing venture. It will typically explain the vision, current status, expected needs, defined markets, and projected financial and operating results of the business. Bylaws 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. The bylaws are adopted at the corporation's initial meeting. Sometimes they are part of the Articles of Association or Incorporation.
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C Capital Gains or Losses Gains or losses realized from the sale or exchange of assets. The amount is the difference between the asset's purchase and sale price. Capital Stock - See Authorized stock Cash Method An accounting method under which profits, revenues and costs are calculated only when actually collections are received from clients and payments are actually made to suppliers. In older family managed Indian businesses, this was known as the 'Parta' system. C Corporation A C corporation is simply a standard United States business corporation. It is called a C corporation because it is taxed under subsection C of the USA IRS code. Certificate of Good Standing A certificate issued by the authorized official as conclusive evidence that a corporation or LLC is in existence or authorized to transact business. The certificate generally states the corporation's or LLC’s name; that it is duly incorporated or organized and authorized to transact business; that all fees, taxes and penalties owed to the government have been paid; that its most recent annual report [if applicable], has been filed; and, that the articles of dissolution have not been filed. Also known as a certificate of existence or certificate of authorization. Common Stock or Equity Shares The primary stock of a corporation. This stock gives shareholders the right to participate in management of the corporation and give the shareholder a proportionate share of the dividends. Corporate Kit A binder usually containing essential items for the routine maintenance and administration of a corporation. Corporate kits include sample minutes, resolutions and bylaws, stock certificates, a corporate seal, and stock ledger. Corporate Record Book Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book which contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register. Corporate Seal A device made to either emboss or imprint certain company information onto documents. This information usually includes the company's name and date and state of formation. Corporate seals are often required when opening corporate bank accounts, distributing shares or conducting other corporate business. Back to Top of Incorporation Glossary
D Directors Directors are elected by the shareholders. They manage or direct the affairs of a corporation. Typically, the directors make only major business decisions and monitor the activities of the officers. Dissolution or Winding up The termination of a corporation's legal existence. Dissolution may be caused in many ways including, failure to file annual reports, failure to pay certain taxes, bankruptcy, or voluntary dissolution of the corporation by the shareholders and directors. The rules for dissolution vary from one offshore tax haven to another and are easier than those for companies incorporated 'on shore'. Dividend A dividend is money or property paid by the company out of its profits to it's shareholders. The directors of the corporation decide if a dividend payment is to be made. Double Taxation Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. Depending on the laws if corporate earnings are distributed to shareholders in the form of dividends, sometimes dividend income is taxed as regular income in the hands of the shareholders. Many Double Tax Avoidance Treaties [e.g. the one between Mauritius and India] nullify this. Back to Top of Incorporation Glossary
E Equity The amount of 'ownership' of a shareholder in a corporation. These are funds invested by the owner or owners in the company in exchange for which they will have received equity 'shares' or 'stock'. Back to Top of Incorporation Glossary F Fiscal of Financial Year Any twelve-month period used by a business as its annual accounting period. Federal Tax Identification Number [Valid for USA incorporations] This is a number assigned to a corporation or any other business entity by the US federal government for tax purposes. Banks generally require a tax identification number to open bank accounts. The federal tax identification number is also known as the Employer Identification Number (EIN). Foreign Corporation A corporation is referred to as a foreign corporation in all countries except for the country where it is incorporated. Back to Top of Incorporation Glossary
G H Holding Company A corporation that owns a large number of shares in other companies. Holding companies use the voting rights that come with their shares to exert influence over the companies under them. Mostly they do not have operations. Back to Top of Incorporation Glossary I The act of creating or organizing a corporation under the laws of a specific jurisdiction. Incorporator The person or entity - agent - that prepares, files and signs the articles of incorporation. Varal LLC-FZC acts as an incorporator or incorporation agent via it's associates in Mauritius, BVI, Seychelles, Dubai and Ras Al Khaimah, United Arab Emirates. Involuntary Dissolution The termination of a corporation's legal existence because of an administrative or judicial proceeding; dissolution forced upon a corporation rather than decided upon by the corporation. Back to Top of Incorporation Glossary
J Judicial Dissolution Involuntary dissolution of a corporation by a court at the request of the justice department of the country, a shareholder or a creditor.
Back to Top of Incorporation Glossary K L Limited Liability Company (LLC) A business entity formed upon filing articles of association with the proper state authorities and paying all fees. LLCs limit the liability of their shareholders to the net worth of the company. LLC Kit Usually contains essential items for the routine maintenance and administration of a limited liability company. LLC kits include incorporation certificates, Articles or Memorandum of Association, share certificates, and an LLC seal. LLC Seal or Company Seal A device made to either emboss or imprint certain company information onto documents. This information usually includes the company's name and date and country of incorporation. LLC seals may be required when opening bank accounts, distributing share certificates or conducting other company business. Back to Top of Incorporation Glossary
M Manager An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to be controlled by managers this fact must be stated in the articles of organization or incorporation or association. Member or Shareholder A member or a shareholder is a person or entity who is an owner of some or all of a LLC or incorporated company. The business decisions of an LLC can be made by the members or share holders unless they delegate this authority to their Directors or Managers as provided for in the Articles of Association. Membership or shareholder's Interest This is the ownership portion of the incorporated company. Merger A merger occurs when two corporations join together into one. The assets and liabilities of the disappearing entity or entities are absorbed into the surviving or new entity. Minutes A written record which details the events of the corporation as reported and discussed in Board of Director's meetings or in the Meetings of Shareholders. These records should be kept in the corporation's or LLC's record book. Back to Top of Incorporation Glossary N Name Reservation The name of a corporation or LLC must be distinguishable on the records of the country's registrar of companies. If the name is not unique, the Registrar will reject the articles of incorporation or articles of organization or association (for LLCs). No-Par-Value Stock Stock with no minimum value. Most offshore tax havens allow no-par stock. If the stock is no-par stock then the amount of stated capital is typically an arbitrary amount assigned by the board of directors. Some countries, though, assign a value of $1.00 to stock when filed as being no-par-value stock. Not For Profit (or Nonprofit) Corporation A corporation organized for some charitable, civil or other social purpose which does not entail the generation of profits for shareholders. Not very useful in a tax haven where there are mostly zero taxes on profits. Back to Top of Incorporation Glossary O Officers The directors appoint officers or managers. They manage the daily affairs of the corporation or company. Operating Agreement An agreement among the LLC's / company's members or shareholders which govern the LLC's or company's operations and the rights of its members or shareholders. It is analogous to corporate bylaws. Organizational or Board of Director's initial Meeting The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed such as: the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed. Organizer or Incorporation Agent The person who or the entity that prepares, files and signs the articles of organization. Varal LLC-FZC serves as an organizer or incorporation agent for new companies in Seychelles, Mauritius and Dubai and Ras Al Khaimah, UAE. Back to Top of Incorporation Glossary P Paid in or up Capital A few states require corporations to have a specified amount of paid in or up capital prior to starting business. Parent Corporation A corporation that owns a controlling interest in another corporation. Partnership A partnership is an association of two or more persons. In contrast to a corporation, a general partnership can come into existence without the need to file any formal papers with any Registrar of Companies in a country. The owners of a partnership are personally and fully liable for all business debts; thus, personal property could be taken to pay business debts. Par Value The stated minimum value of a share of stock. Preferred Shares A class of shares that entitles the holders to preferences over the holders of common shares, usually with regard to dividends and distributions of assets upon dissolution or liquidation. Professional Corporation A corporation which is organized for the purpose of engaging in a learned profession such as law, medicine or architecture. There is generally no such category in the tax havens. Proxy If a shareholder can not attend a meeting, the shareholder is allowed to vote by proxy. Back to Top of Incorporation Glossary Q Quorum The minimum attendance required to conduct business at a shareholder or board of directors' meeting. Usually, a quorum is achieved if a majority of directors are present (for directors' meetings) or outstanding shares are represented (for shareholder meetings). This depends on the company's bylaws or Articles of Association. Back to Top of Incorporation Glossary
R The agent will receive service of process on the corporation and other important documents. The local corporate service provider is sometimes named in the articles of incorporation, and must be located in the country of incorporation. Registered Office The office named in the articles of incorporation or association. The registered office must be where the registered corporate service provider is located, and need not be the principal office or place of business of the corporation. Reinstatement Returning a corporation or LLC that has been administratively dissolved or had its certificate of incorporation revoked, to good standing with the country of formation or incorporation. Resolution A resolution is a formal decision of the corporation, which has been adopted by either the shareholders or the board of directors. Back to Top of Incorporation Glossary S Share An interest in a corporation. The total ownership of a corporation is divided into shares of stock. Shareholder Any holder of one or more shares in a corporation. A shareholder usually has evidence that they are a shareholder; this evidence is represented by a stock or share certificate. Companies (either corporations or LLCs) that are formed, but have never been used or have been used and are currently up for sale. Sole Proprietorship A business carried on by the owner as an individual. The owner of a sole proprietorship is personally and fully liable for all business debts; thus, personal property could be taken to pay business debts. Back to Top of Incorporation Glossary Stated Capital The par value of shares multiplied by the number of shares outstanding. Stock An equity or ownership interest in a corporation, measured in shares. Ownership of shares is demonstrated by stock certificates. Stock or Share Certificate A written instrument that shows ownership of shares in a corporation. Stockholder See Shareholder. A record book, also called a stock or share transfer ledger, which lists the owners of shares of stock in a corporation. Subsidiary A corporation that is either wholly owned or controlled through ownership of a majority of its voting shares, by another corporation or business entity. Back to Top of Incorporation Glossary
T Tax-exempt Organization A tax-exempt organization in most of the 'onshore' jurisdictions may be required to operate exclusively for charitable, religious, literary, educational or similar types of purposes. Treasury Shares Shares of stock which were issued and later acquired or bought back by the corporation. Back to Top of Incorporation Glossary U Underwriter A company that purchases shares of a corporation and arranges for sale of the shares to the general public. Back to Top of Incorporation Glossary V Voluntary Dissolution or Winding Up Action taken by shareholders, corporate service providers, registered agents or initial directors to dissolve a corporation. Or action taken by members or organizers to dissolve an LLC. The process is completed by filing Articles of Dissolution with the Registrar of Companies of the relevant jurisdiction. Voting Rights Rights of shareholders to vote their shares as mentioned in the o provisions of the country's laws, the articles of incorporation or association and the bylaws. Back to Top of Incorporation Glossary W X Y Z Back to Top of Incorporation Glossary Go From Incorporation Glossary To Incorporation Home Page Do you want to know, when or even if, you should incorporate your business? Straight talk about business entities - how to make the right choice. What's involved and what are the benefits? Learn the answers quickly and in easy-to-understand language with this multi-media program designed specifically for entrepreneurs. Do you need help in doing your incorporation? Consult EasyContracts. Search this site via the Google designed box for the topic of your choice. We have more than 95,000 words to choose from, in 125 pages of video, text and images.  Custom Search
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