Glossary of Financial & Legal Terms
Business jargon, simplified. Clear definitions for the legal, financial, and compliance terms you need to know.
A
Accounting
The process of recording, organizing, and reporting a business’s financial activities for accurate tracking and compliance.
Accounts Payable
Money a business owes to its suppliers or creditors for purchases made on credit (a liability on the balance sheet).
Accounts Receivable
Money owed to a business by its customers for products or services delivered but not yet paid for (an asset on the balance sheet).
Accrual Basis Accounting
An accounting method where income and expenses are recorded when they are earned or incurred, regardless of when cash is actually received or paid.
ACH
Electronic funds transfer system for batch-processing low-cost bank payments in the United States.
Administrative Dissolution
The involuntary closure of a business by the state due to failure to meet compliance requirements like annual report filings or tax payments.
Amendment
A formal change made to a company’s original formation documents, filed with the state to update key legal or structural business details, such as name, address, or management.
Angel Investor
Angel Investor: An individual who invests personal funds into early-stage startups (usually in exchange for equity) often providing mentorship alongside capital.
Annual Report
A mandatory yearly filing to a U.S. state that updates the company’s information (like directors, officers, address) and confirms it’s in compliance, often accompanied by a fee.
Apostille
A government-issued certificate that authenticates the validity of a document for use in another country, under the Hague Apostille Convention.
Articles of Incorporation
A document filed with a U.S. state to legally create a corporation, outlining key details like the company name, address, registered agent, and initial stock structure.
Articles of Organization
A document filed with a U.S. state to legally create a Limited Liability Company (LLC), outlining company details like name, address, registered agent, and sometimes management structure.
Assumed Name (DBA)
A registered alternate name a business can use to operate publicly, different from its legal entity name.
Audit
A formal examination of a company’s financial records to ensure accuracy, transparency, and compliance with tax or reporting standards.
Authorized Member
An owner of an LLC who has the legal authority to act on behalf of the company. What is an Authorized Member?
Authorized Representative
A person or organization formally permitted to act on behalf of a company in specific legal or administrative matters.
Authorized Shares
The maximum number of shares of stock that a corporation is legally allowed to issue, as specified in its Articles (or Certificate) of Incorporation.
B
Balance Sheet
A financial statement that provides a snapshot of a company’s financial position at a given moment, listing assets, liabilities, and equity.
Bank Reconciliation
The process of matching and verifying that a company’s accounting records (cash ledger) align with the bank’s records (bank statements), identifying any differences or errors.
Beneficial Owner
A beneficial owner is the real person who ultimately owns or controls a company, even if the company is legally held in another name.
Beneficial Ownership Information Report
A confidential report filed with FinCEN (U.S. Treasury) identifying a company’s beneficial owners (and company applicants), required by the Corporate Transparency Act for most U.S. entities as of 2024.
Board of Directors
A group of individuals elected by shareholders to govern and oversee a corporation’s management and major decisions, typically including company strategy and executive hiring.
Bookkeeping
The routine recording and organizing of financial transactions (sales, purchases,payments, receipts) of a business, forming the basis of the accounting system.
Business Address
The official address a company uses for registration, correspondence, and legal purposes.
Business Credit
A credit profile tied to your company’s legal entity, separate from your personal credit history.
Business Entity
The legal structure a company adopts, such as an LLC, corporation, or sole proprietorship.
Business License
A permit that allows a company to legally operate within a specific city, county, or state.
Business-to-Business
A type of commerce where transactions occur between two businesses rather than between a business and individual consumers.
Business-to-Consumer (B2C)
A type of commerce where businesses sell products or services directly to individual consumers for personal use.
Bylaws
The internal rulebook of a corporation, establishing how the corporation is governed and operated, including the roles of directors/officers, meeting procedures, and voting rights.
C
Capital Contribution
The money, property, or services that an owner or investor puts into a company in exchange for ownership (used to fund the business without creating debt).
Capital Stock
The total number of shares a corporation is authorized to issue, representing ownership in the company (includes both common and preferred stock).
Capitalization Table (Cap Table)
A detailed record of a company’s ownership structure (showing who owns what percentage of equity, including founders, investors, and option holders).
Cash Basis Accounting
An accounting method where income and expenses are recorded only when cash is actually received or paid (commonly used by small businesses for its simplicity).
Cash Flow
The movement of money into and out of a business (tracking how much cash is available to operate, pay expenses, and grow).
Cash Flow Statement
A financial report that shows how cash moves in and out of a business during a specific period (broken into operating, investing, and financing activities) to measure liquidity and financial health.
Certificate of Formation
The official legal document that registers an LLC or Corporation with the state (commonly used in Delaware for LLCs); once filed and approved, it legally establishes the business as a recognized entity (equivalent to the Articles of Organization).
Certificate of Good Standing
An official state-issued document that confirms a company is legally registered, up-to-date with all required filings, and authorized to do business in that state.
Certificate of Incorporation
The legal document filed with the state to officially form a Corporation; it establishes the company’s legal existence and is equivalent to Articles of Incorporation in most states.
Certified Copy
An official copy of a business document issued and stamped by the state to confirm it is a true and accurate record from state files (commonly requested for legal, banking, or international use).
Certified Public Accountant
A licensed accounting professional in the U.S. who is qualified to provide tax, audit, and financial advisory services in compliance with federal and state regulations.
Chart of Accounts
An organized list of all the financial accounts used by a business to classify income, expenses, assets, liabilities, and equity (forming the foundation of its bookkeeping system).
Chief Executive Officer (CEO)
The Chief Executive Officer (CEO) is the highest-ranking executive in a company, responsible for overall strategy, major corporate decisions, and managing the organization’s operations and resources.
Chief Financial Officer (CFO)
The Chief Financial Officer (CFO) is the executive responsible for managing a company’s finances, including accounting, budgeting, reporting, and strategic financial planning (often appointed after an LLC or corporation is formed to ensure strong fiscal management and compliance).
Chief Marketing Officer (CMO)
The Chief Marketing Officer (CMO) is the executive responsible for leading a company’s marketing strategy, brand development, and customer engagement to drive growth and revenue.
Chief Operating Officer (COO)
The Chief Operating Officer (COO) is the executive responsible for managing a company’s daily operations and ensuring that business plans are effectively executed (often appointed after an LLC or corporation is formed to support growth and efficiency).
Chief Technology Officer (CTO)
The Chief Technology Officer (CTO) is the executive responsible for overseeing a company’s technology strategy, infrastructure, and innovation, ensuring that technology supports the overall business goals.
Compliance
The act of meeting all legal, regulatory, and tax obligations required to maintain a business’s good standing and lawful operation in the U.S. What is Compliance?
Conversion
The legal process of changing a company’s entity type or state of formation (such as converting an LLC to a Corporation or moving a Delaware company to another state) while maintaining business continuity.
Copyright
A legal right that protects original works of authorship (such as books, music, software, artwork, and videos) by giving the creator exclusive rights to use, reproduce, distribute, and display the work, usually for the creator’s lifetime plus a set number of years.
Corporate Resolution
An official document used by a corporation’s board of directors or shareholders to record and authorize important decisions or actions taken on behalf of the company.
Cost of Goods Sold
The direct costs of producing or purchasing the goods a business sells (such as materials, labor, and manufacturing) excluding overhead or operating expenses.
D
Delinquent Status
A state-imposed label indicating that a company has failed to meet certain compliance obligations, such as filing annual reports or paying required fees (putting it at risk of penalties or dissolution).
Depreciation
An accounting method that spreads the cost of a long-term asset over its useful life, reflecting wear and tear and reducing taxable income over time.
Direct-to-Consumer (D2C)
A business model where a company sells its products or services directly to the end consumer without relying on third-party retailers, wholesalers, or marketplaces.
Disregarded Entity
A business entity that is separate from its owner legally, but treated as the same person for U.S. federal tax purposes (typically refers to a single-member LLC).
Dissolution
The official process of legally closing a U.S. business at both the state and federal levels (requiring formal filings to terminate the company’s legal existence and end tax and compliance obligations).
Dividend
A distribution of a portion of a corporation’s profits to its shareholders, typically in cash (or sometimes stock), usually declared by the board of directors, providing owners a return on their investment.
Doing Business As (DBA)
A registered trade name a business uses that is different from its legal name (often used for branding, operating multiple lines of business, or selling under a different name).
Double Taxation
A situation where the same income is taxed twice (first at the corporate level and again at the shareholder level when profits are distributed), most commonly associated with C Corporations.
Dropshipping
An order fulfillment method where the seller does not keep inventory but transfers customer orders directly to a third-party supplier, who ships the product to the customer.
DUNS
A unique nine-digit identifier issued by Dun & Bradstreet (D&B) to track a business’s credit and financial history.
E
E-commerce
The buying and selling of goods or services via the internet, often through online stores or marketplaces, involving digital marketing, electronic payment systems, and delivery logistics.
Effective Date
The date on which a legal filing (such as a company formation, amendment, or dissolution) officially takes effect as recognized by the state.
Effectively Connected Income (ECI)
Income earned by a non-U.S. person or business that is connected to a trade or business in the United States and is therefore subject to U.S. taxation.
Electronic Federal Tax Payment System (EFTPS)
A secure U.S. Treasury online system for paying federal taxes electronically. What is The Electronic Federal Tax Payment System (EFTPS)?
Employer Identification Number (EIN)
A unique nine-digit number issued by the IRS to identify a business for tax purposes (similar to a Social Security Number and Individual Taxpayer Identification Number but for companies).
Engaged in Trade or Business in the United States (ETBUS)
A status describing when a non-U.S. person or entity has sufficient business activity in the U.S. to be considered as “doing business” there for tax purposes.
Entity Classification Election
A formal request made to the IRS to choose how a business entity will be classified for U.S. federal tax purposes, such as being taxed as a corporation, partnership, or disregarded entity.
Equity
Equity represents an ownership interest in a business, typically expressed as shares or a percentage of ownership, which entitles the holder to a portion of the company’s profits and, in some cases, voting rights.
Escrow
A financial arrangement where a neutral third party holds funds, assets, or documents on behalf of two or more parties until agreed-upon conditions are met.
Expense
The cost a business incurs in its day-to-day operations to generate revenue, such as rent, salaries, utilities, and supplies.
F
FATCA (Foreign Account Tax Compliance Act)
The Foreign Account Tax Compliance Act, or FATCA, is a U.S. law that requires foreign financial institutions and certain other entities to report information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Federal Tax Identification Number
A Federal Tax Identification Number (most commonly an Employer Identification Number (EIN)) is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify a business for federal tax purposes.
FinCEN (The Financial Crimes Enforcement Network)
The Financial Crimes Enforcement Network, or FinCEN, is a bureau of the U.S. Department of the Treasury responsible for collecting and analyzing financial data to combat money laundering, terrorism financing, and other financial crimes.
Foreign Qualification
The process by which a business registers to legally operate in a state other than its state of formation, allowing it to conduct activities such as hiring employees, opening offices, or maintaining inventory in that state.
Foreign-Owned U.S. Entity
A business formed in the United States that is at least 25% owned by a foreign individual, company, or other entity.
Franchise Tax
Franchise tax is a state-imposed fee that businesses must pay for the privilege of being registered and operating in that state.
Freelancer
A freelancer is a self-employed individual who offers services to clients on a project or contract basis rather than working as an employee.
Fulfillment by Amazon (FBA)
Fulfillment by Amazon is a service where Amazon stores, packs, and ships products on behalf of sellers.
G
Good Standing
A company’s official status showing it is compliant with all state requirements (such as filings, fees, and taxes) allowing it to legally operate and maintain its rights in that state.
Gross Profit
Gross profit is the amount a business earns from its revenue after subtracting the direct costs of producing goods or delivering services, but before accounting for operating expenses, taxes, or interest.
I
Income Statement (Profit & Loss)
A financial report that summarizes a company’s revenues, costs, and expenses over a specific period, showing whether the business made a profit or incurred a loss.
Incorporator
For corporations, the Incorporator is the person or entity responsible for preparing, signing, and filing the Articles of Incorporation with the state to legally form the company (similar to how an Organizer performs this role for an LLC).
Individual Taxpayer Identification Number (ITIN)
An Individual Taxpayer Identification Number issued by the IRS to non-U.S. residents and others who are not eligible for a Social Security Number, used primarily for federal tax purposes.
Intellectual Property Rights (IP Rights)
The legal rights that protect creations of the mind, such as inventions, designs, brands, and creative works, and that give their owners exclusive control over how they are used and distributed.
Intent to Use (ITU)
A trademark application basis in which the applicant declares that they have a genuine plan to use the mark in commerce in the near future, but have not yet started selling goods or services under that mark.
Internal Revenue Service
The Internal Revenue Service (IRS) is the U.S. federal agency responsible for administering and enforcing tax laws, including the collection of taxes and processing of tax returns.
Invoice
An invoice is a commercial document issued by a seller to a buyer that lists goods or services provided, their quantities, prices, and payment terms.
L
Liability
A legal obligation or debt a business or individual owes, usually as a result of contracts, laws, or wrongful acts (can include money owed, duties to perform, or responsibility for damages).
Limited Partnership (LP)
A business structure that includes at least one general partner who manages the business and assumes unlimited liability, and one or more limited partners who contribute capital but have limited liability and no active management role.
M
Mail Forwarding
A service that receives mail on behalf of a business or individual at a designated address and then forwards it to another location, often used by businesses without a physical U.S. office to maintain a U.S. mailing address.
Manager (LLC)
An individual or entity appointed to handle the day-to-day operations and decision-making of a Limited Liability Company (LLC) when the business is structured as manager-managed instead of member-managed.
Manager-Managed LLC
A Limited Liability Company in which the owners, called members, appoint one or more managers to run the day-to-day operations instead of managing the business themselves.
Member (LLC)
An owner of a Limited Liability Company (LLC) who holds a percentage of the business, known as a membership interest, and has certain rights to profits, voting, and participation in the company’s management.
Member-Managed LLC
A Limited Liability Company in which all owners, called members, are directly involved in running the day-to-day operations and making business decisions.
Multi-Member LLC
A Limited Liability Company with two or more owners, called members, who share in the ownership, management, and profits of the business.
N
Notice of Allowance (NoA)
A formal notification from the United States Patent and Trademark Office (USPTO) indicating that a trademark application has passed the examination process and will be allowed for registration once additional requirements are met, usually proof of actual use in commerce.
NRA (Non-Resident Alien)
An individual who is not a U.S. citizen and does not meet the IRS substantial presence or green card test for tax residency.
O
Office Action
A formal communication from the United States Patent and Trademark Office (USPTO) to a trademark or patent applicant, outlining issues or requirements that must be addressed before the application can proceed toward approval.
Officer
An individual appointed by a corporation or LLC to manage day-to-day operations and carry out the decisions of the owners or board of directors.
Operating Agreement
A legal document that outlines the ownership, structure, and operating rules of an LLC.
Operating Income
The profit a business earns from its core operations after subtracting operating expenses from gross profit, without including income from non-operational activities.
Option Pool
A set number of company shares reserved for future issuance to employees, advisors, or consultants as part of equity-based compensation plans.
Out-of-State Registration
The process of registering an existing company to legally operate in a state other than the one where it was originally formed.
Outstanding Shares
The total number of a company’s shares of stock that are currently owned by all shareholders, including those held by institutional investors and company insiders.
Overhead Costs
Ongoing business expenses that are not directly tied to producing goods or services but are necessary to keep the business running.
Owner’s Draw
Money taken out of a business by the owner for personal use, typically in businesses like sole proprietorships, partnerships, or LLCs taxed as pass-through entities.
P
Par Value
The nominal or face value assigned to a share of stock by a corporation at the time it is authorized, as stated in the company’s formation documents.
Partnership
A business structure where two or more individuals or entities agree to operate a business together, sharing profits, losses, and management responsibilities according to an agreed arrangement.
Pass-Through Taxation
A tax structure (also called flow-through taxation) where business income “passes through” to the owners’ personal tax returns, avoiding corporate-level income tax and the double taxation faced by C corporations.
Payroll Tax
Taxes that employers are required to withhold from employees’ wages and pay to government agencies, along with employer-paid contributions, to fund programs like Social Security, Medicare, and unemployment insurance.
President
The top executive officer in a corporation responsible for overseeing the company’s overall operations, executing strategic plans, and ensuring that business objectives set by the board of directors are met.
Profit Margin
A percentage that shows how much profit a business makes for every dollar of revenue after covering its costs.
Q
Qualified Business Income
Net business income earned from a U.S. pass-through entity that may be eligible for a 20% federal tax deduction under Section 199A of the U.S. Tax Code.
Quarterly Estimated Taxes
Periodic tax payments made to the Internal Revenue Service (IRS) and, in some cases, state tax authorities to cover income that is not subject to withholding, such as self-employment income, business profits, dividends, or rental income.
Quarterly Taxes
Quarterly taxes are estimated tax payments made four times a year to the IRS (and sometimes state tax agencies) to cover income and self-employment taxes as you earn income, rather than waiting until the end of the year.
R
Registered Agent
An individual or company officially appointed to receive a business’s legal documents, government notices, tax forms, and service of process (lawsuits) on its behalf, ensuring the business stays informed and compliant with state requirements.
Reinstatement
The process of restoring a business entity that has been administratively dissolved (by bringing it back into good standing with the state through filings and payment of fees).
Resale Certificate
A document that allows a business to purchase goods tax-free if those goods are intended for resale; used to avoid paying sales tax on inventory purchases.
Revenue
The total amount of money a business earns from selling goods or services before any expenses are deducted.
Routing Number
A routing number is a unique nine-digit code used in the U.S. banking system to identify the specific financial institution where a bank account is held.
S
S Corporation (S-Corp)
A U.S. corporation that has elected to be taxed as a pass-through entity, allowing profits and losses to flow directly to shareholders, avoiding double taxation at the federal level.
SAFE (Simple Agreement for Future Equity)
A startup investment agreement where an investor provides capital in exchange for the right to receive equity in a future priced round (commonly used in early-stage fundraising).
Sales Tax
A state-level tax charged on the sale of goods or certain services, collected from customers and remitted to the state by the seller.
Schedule K-1
A U.S. tax form used by partnerships and certain LLCs or S corporations to report each owner’s share of the business’s income, deductions, and credits to the IRS and to the owner.
Secretary
A corporate officer responsible for maintaining a company’s official records, preparing and keeping meeting minutes, and ensuring compliance with legal and reporting requirements.
Secretary of State
The Secretary of State (SOS) is the state government office responsible for registering and maintaining official records for businesses, such as LLCs and corporations, and ensuring they remain in compliance with state requirements.
Share (Stock)
A unit of ownership in a corporation, representing a claim on the company’s assets and earnings (commonly issued to founders, investors, or employees).
Shareholder
An individual or entity that owns shares in a corporation, giving them a financial interest in the company and certain rights, such as voting or receiving dividends.
Shareholder Agreement
A private contract between a corporation’s shareholders that outlines their rights, responsibilities, and rules on how the company will be owned and operated.
Single-Member LLC (SMLLC)
A Limited Liability Company with only one owner (member). It offers liability protection and flexible taxation (usually treated as a “disregarded entity” for U.S. tax purposes by default).
Social Security Number (SSN)
A 9-digit identification number issued by the U.S. government to citizens and eligible residents (primarily used for taxation, employment, and government benefits).
Sole Proprietorship
A sole proprietorship is the simplest type of business structure in the U.S., owned and operated by one person.
Specimen (Trademark Filing)
A real-world example showing how a trademark is actually used in commerce to identify and distinguish goods or services.
Startup
A newly founded business, typically designed to scale quickly by solving a problem with an innovative product, service, or business model (often in tech or high-growth industries).
State Income Tax
State income tax is a tax imposed by individual U.S. states on income earned within their borders.
Statement of Information
A Statement of Information is a mandatory filing that keeps a U.S. state’s records about your company up to date, including details like business addresses, owners, and officers.
Statement of Use
A Statement of Use (SOU) is a filing submitted to the United States Patent and Trademark Office (USPTO) in an “Intent to Use” trademark application to prove that the trademark is now being used in U.S. commerce.
T
Tax Nexus
A legal connection between a business and a U.S. state that requires the business to collect and remit taxes in that state.
Tax Treaty
A formal agreement between two countries that reduces or eliminates double taxation on income earned across borders.
TIN (Taxpayer Identification Number)
A unique number (such as the EIN, ITIN, or SSN) used by the IRS to identify individuals and businesses for tax purposes in the United States.
Trade Name
A Trade Name is a name that a business uses publicly that is different from its legal name (also known as a “Doing Business As” (DBA) name).
Trademark
A trademark is a word, phrase, symbol, design, or combination of these that identifies and distinguishes the source of goods or services, protecting a brand’s identity in the marketplace.
Treasurer
A treasurer is a corporate officer responsible for managing a company’s financial assets, overseeing budgets, and ensuring accurate financial reporting.
U
Ultimate Beneficial Owner (UBO)
The individual who ultimately owns or controls a business, even if the business is held through other companies, nominees, or intermediaries.
Use Tax
A tax imposed by U.S. states on goods purchased without paying sales tax and later used, stored, or consumed within the state.
USPS 1583
A form required by the United States Postal Service that authorizes a Commercial Mail Receiving Agency (CMRA), such as a virtual mailbox or mail forwarding service, to receive and handle mail on behalf of an individual or business.
V
Valuation Cap
A clause in a SAFE or convertible note that sets the maximum company valuation at which an investor’s investment will convert into equity (designed to protect early investors from excessive dilution in future funding rounds).
Vendor
An individual or company that sells goods or services to another business or customer; often used in business-to-business (B2B) transactions and vendor agreements.
Venture Capital
A type of private equity financing provided by investors to early-stage, high-growth startups in exchange for equity (commonly used to fund innovation, scale operations, and enter new markets).
Vesting
The process by which someone earns ownership of shares or benefits (such as stock options or equity) over time, rather than receiving them all at once.
Vice President (VP)
A corporate officer responsible for overseeing specific areas of a company’s operations or management, often acting as second-in-command to the President or CEO.
Virtual Office
A service that provides a business with a U.S. mailing address and other office-like functions (such as mail handling and business presence) without renting physical office space; commonly used by remote teams and…
Void Status
A legal status assigned by a state when a business entity has failed to meet certain compliance requirements, resulting in the loss of its legal rights and good standing.
Voting Rights
The legal right of a shareholder or member to vote on key company matters, such as electing directors or approving major decisions (based on the type and number of shares or ownership held).
W
W-8BEN / W-8BEN-E
IRS forms used by non-U.S. individuals (W-8BEN) and entities (W-8BEN-E) to certify their foreign status and claim tax treaty benefits for income earned from U.S. sources.
W-9
An IRS form used by U.S. persons and entities to provide their Taxpayer Identification Number (TIN) to another party, usually for tax reporting purposes.
Wire Transfer
An electronic transfer of funds between banks (used for sending money quickly and securely, especially across international borders or for large transactions).
Withholding Agent
A person or company responsible for withholding U.S. taxes from payments made to foreign individuals or businesses and remitting them to the IRS.
Withholding Tax
A tax withheld at the source of income (often by the payer) before the payment is made to the recipient.
Working Capital
The difference between a company’s current assets (cash, accounts receivable, inventory) and current liabilities (accounts payable, short-term loans, accrued expenses).