Terms That Private-Company Owners Should Know

Articles of Incorporation (or Certificate of Incorporation): Instrument under which a corporation is formed. The contents are prescribed in the particular state's general incorporation statute.

Bylaws: Regulations, ordinances, rules and laws adopted by an association or corporation for its government.

Board of Directors: Elected representatives of the members or shareholders of an organization who are collectively charged with selecting and appointing the officers who will manage the day-to-day affairs of the business or organization.

Business: Commercial, industrial, service, or investment entity, or combination thereof, pursuing an economic activity.

Closely Held Corporation (a.k.a. Close Corporation): Corporation owned by few shareholders whose shares are not publicly traded.

Control: Power to direct management and policies of a business.

Controlling Interest: Ownership bloc sufficient to exert control through election of directors.

Corporation: Legal entity, organized under the laws of a particular state, consisting of an association of individuals (or other legal entities), which exists distinct from its members (shareholders), and is vested with the capacity for continuous existence irrespective of changes in its members. Includes C-corporations, S-corporations, limited-liability corporations and professional corporations.

Directors: See "Board of Directors."

Majority Interest: Informal term for Controlling Interest (see "Controlling Interest").

Minority Interest: Informal term for Non-Controlling Interest (see "Non-Controlling Interest").

Non-Controlling Interest: No power to direct management and policies of a business.

Operating Agreement: Document that defines, governs or restricts the rights of members of an LLC. Same as shareholder's agreement for C-corporations and S-corporations.

Quorum: Number of members of a committee, board of directors, meeting of shareholders, trustees, legislature or other body who must be present for the body to act. For a corporation, if quorum requirements exist, they are stipulated in the articles of incorporation, bylaws or state statutes.

Shareholder: One who holds (owns) shares (units of ownership) in a corporation.

Shareholder's Agreement: Document that defines, governs or restricts the rights of holders of shares of stock in a C-corporation or S-corporation. For an LLC, it's called an Operating Agreement.