Glossary of most frequent business formation terms
A B C D E F G H I J L M N O P Q R S T U V W
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Paid-in capital
Paid-in Capital
Requirements
Parent Corporation
Partnership
Par Value
Pass-through Taxation
Patent
Perpetual existence
Piercing the Corporate
Veil
Preemptive Rights
Preferred Shares
(Stock)
Price-Earnings Ratio
(P/E ratio)
Private Corporation
Promoters
Professional Corporation
Proxy
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Paid-in capital
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.
Paid-in Capital Requirements
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.
Parent Corporation
A corporation
that either owns outright or controls a subsidiary. See
Holding Company.
Partnership
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.
Par Value
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 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.
Perpetual existence
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.
Preemptive Rights
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.
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.
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.
Proxy
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.
