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.

Capitalization

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

Capital Loss

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.

Cash Method of Accounting

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

Capital Stock

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

C Corporation

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.

Certificate of Authority

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.

Certificate of good standing

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.

Certificate of Incorporation

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.

Charter

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.

Close Corporation

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.

Common Shareholders

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.

Common Shares (Common Stock)

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.

Consolidation

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.

Constituent

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

Convertible security

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.

Copyright

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

Corporate indicator

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.

Corporate kit

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.

Corporate Name

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 (Record book)

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.

Corporation

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.

Corporation law

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

Cumulative Dividends

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.

Cumulative Voting

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.

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Glossary of most frequent business formation terms

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Capital Gain