Business Law Glossary

50+ Essential Terms Every Business Owner Should Know

Business Law Glossary

Essential business law terms defined in plain language. Click any letter to jump to that section.

A B C D E F G H I L M N O P R S T

A

Accredited Investor

An individual or entity that meets specific SEC income or net worth thresholds, qualifying them to participate in certain private securities offerings.

Acquisition

The purchase of one company by another, either through asset purchase, stock purchase, or merger.

Articles of Incorporation

The formal document filed with a state to legally create a corporation, establishing its name, purpose, share structure, and registered agent.

Articles of Organization

The formation document filed with a state to create a limited liability company (LLC).

Asset Purchase

An acquisition structure where the buyer purchases specific assets and assumes specific liabilities of the target business, rather than buying the entity itself.

B

Beneficial Ownership

The true ownership of a business entity, which must now be reported under the Corporate Transparency Act.

Board of Directors

The governing body of a corporation responsible for overseeing management, setting strategy, and protecting shareholder interests.

Breach of Contract

The failure of a party to perform its obligations under a contract without legal excuse.

Buy-Sell Agreement

A legally binding contract between co-owners of a business that governs the sale or transfer of ownership interests upon certain triggering events.

Bylaws

The internal rules that govern how a corporation operates, including board structure, officer roles, meeting procedures, and voting requirements.

C

Capital Contribution

The money, property, or services that an owner provides to a business entity in exchange for an ownership interest.

C-Corporation

A standard corporation taxed as a separate entity under Subchapter C of the Internal Revenue Code, subject to corporate income tax.

Certificate of Good Standing

A document issued by a state confirming that a business entity is currently in compliance with all filing requirements and authorized to conduct business.

Confidentiality Agreement

See Non-Disclosure Agreement (NDA).

Corporate Governance

The system of rules, practices, and processes by which a company is directed and controlled.

Corporate Veil

The legal separation between a business entity and its owners that protects owners from personal liability for business debts and obligations.

Covenant Not to Compete

See Non-Compete Agreement.

D

Due Diligence

A comprehensive investigation or audit of a business or individual prior to signing a contract or completing a transaction.

E

Earn-Out

A contractual provision in an M&A transaction where a portion of the purchase price is contingent on the business achieving specified performance targets after closing.

Employee Stock Ownership Plan (ESOP)

A qualified retirement plan that invests primarily in the stock of the sponsoring employer, often used as an exit strategy for business owners.

Entity Formation

The legal process of creating a business entity such as an LLC, corporation, or partnership with the appropriate state authority.

Equity

Ownership interest in a company, typically represented by shares of stock (in a corporation) or membership interests (in an LLC).

F

Fiduciary Duty

A legal obligation to act in the best interest of another party, such as the duty of directors to act in the best interest of shareholders.

Force Majeure

A contract clause that excuses performance when extraordinary events beyond the parties' control prevent fulfillment of obligations.

Foreign Entity Qualification

The process of registering a business entity to do business in a state other than the state where it was originally formed.

Franchise Disclosure Document (FDD)

A comprehensive legal document that franchisors must provide to prospective franchisees containing 23 items of required disclosure about the franchise system.

G

General Partnership

A business structure in which two or more individuals share ownership, management, and unlimited personal liability for business debts.

Governing Documents

The legal documents that establish and control a business entity, such as articles of incorporation and bylaws (for corporations) or articles of organization and operating agreements (for LLCs).

H

Holding Company

A parent entity that owns controlling interests in subsidiary companies but does not produce goods or services itself.

I

Indemnification

A contractual obligation for one party to compensate another for losses, damages, or liabilities arising from specified circumstances.

Intellectual Property (IP)

Creations of the mind that have commercial value and are protectable under law, including trademarks, patents, copyrights, and trade secrets.

L

Letter of Intent (LOI)

A document expressing a preliminary commitment between parties to engage in a future transaction, outlining key terms and conditions.

Liability

Legal responsibility for debts, obligations, or wrongful acts.

Limited Liability Company (LLC)

A business entity that provides limited liability protection to its owners (members) while offering pass-through taxation and flexible management.

Limited Liability Partnership (LLP)

A partnership structure that provides partners with limited personal liability for the negligence or misconduct of other partners.

Limited Partnership (LP)

A partnership with at least one general partner (with unlimited liability) and one or more limited partners (with liability limited to their investment).

Litigation

The process of resolving disputes through the court system.

M

Mediation

A form of alternative dispute resolution where a neutral third party helps disputing parties reach a voluntary agreement.

Merger

The combination of two companies into a single entity, with one entity typically surviving and the other ceasing to exist.

N

Non-Compete Agreement

A restrictive covenant that prevents a party from competing with the other party within a specified scope, geography, and time period.

Non-Disclosure Agreement (NDA)

A contract establishing confidential relationship between parties, protecting sensitive information from disclosure.

Non-Solicitation Agreement

A restrictive covenant that prevents a party from soliciting the other party's customers, clients, or employees for a specified period.

O

Operating Agreement

The governing document for an LLC that establishes the rights, responsibilities, and relationships of the members.

P

Partnership Agreement

A legal document that establishes the terms of a business partnership, including profit sharing, management authority, and dissolution procedures.

Pierce the Corporate Veil

A legal action where courts disregard the limited liability protection of a business entity, holding owners personally liable for business obligations.

Pro Hac Vice

A legal procedure allowing an attorney licensed in one jurisdiction to temporarily practice in another jurisdiction for a specific case.

Purchase Agreement

A legally binding contract between a buyer and seller that sets forth the terms and conditions of a transaction.

R

Registered Agent

A person or entity designated to receive legal documents and official correspondence on behalf of a business entity.

Representations and Warranties

Statements of fact made by parties in a contract, particularly in M&A transactions, regarding the condition and status of the business being sold.

S

S-Corporation

A corporation or LLC that has elected pass-through taxation under Subchapter S of the Internal Revenue Code, avoiding double taxation.

Shareholder Agreement

A contract among shareholders that governs the relationship between owners, including voting rights, transfer restrictions, and dispute resolution.

Sole Proprietorship

A business owned and operated by a single individual with no legal separation between the owner and the business.

Stock Purchase

An acquisition structure where the buyer purchases the ownership interests (stock) of the target entity, acquiring the entity with all its assets and liabilities.

T

Trade Secret

Business information that derives economic value from not being generally known and is subject to reasonable efforts to maintain its secrecy.

Trademark

A word, phrase, symbol, design, or combination thereof that identifies and distinguishes the source of goods or services.

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