Agent for Service of Process
An Agent for Service of Process is a person or company who agrees to receive legal mail and state notices on behalf of your LLC.
This is more commonly known as Registered Agent.
Amendment
An Amendment (often called Articles of Amendment) is a document filed with the Secretary of State and is used to change things like your:
- LLC Name
- LLC Member(s)
- LLC Manager(s)
- And other information on your Articles of Organization
Note: An Amendment is not used to change your Registered Agent. This filing is usually called a Change of Registered Agent.
Annual Business Renewal
More commonly known as Annual Report.
Annual Report
In most states, LLCs need to file an Annual Report with the Secretary of State in order to keep their LLC’s contact information up to date.
There is often an annual fee associated with the Annual Report and on average, it’s between $20 and $100.
Articles of Organization
(Also known as Certificate of Organization and Certificate of Formation)
This is the document filed with the Secretary of State that creates your LLC. It includes things like your LLC name, address, and Registered Agent information.
Once the state approves your Articles of Organization, your LLC officially goes into existence.
Brand Name
A brand name is a unique name used by a business to identify its goods or services. It’s an important part of building a company’s identity and reputation with customers.
Business Bank Account
A business checking account in the name of your LLC, used to keep business finances separate from personal finances.
Business Entity
A catch-all term for any business entity (or unincorporated entity). For example:
- Sole Proprietorship
- Partnership
- LLC (Limited Liability Company)
- Corporation
Business Entity Formation
Business Entity Formation is the process of filing paperwork with the Secretary of State in order to create a state-level entity (such as an LLC or Corporation).
Business Entity Search
A Business Entity Search is often done on the Secretary of State’s website. And it can be used to make sure an LLC Name is available, or to find information about an existing LLC in the state.
Business Entity Status
This typically refers to the status of your entity after it’s filed with the state. For example, is it “pending” or “approved”.
This can also refer to an entity that’s not in good standing with the state (ex: “delinquent”) or an entity that’s been shut down by the state (ex: “administratively dissolved”).
Business Formation Documents
Business Formation Documents are the paperwork needed to form an entity with the state.
For an LLC, this is most often called the Articles of Organization.
For a Corporation, this is most often called an Articles of Incorporation.
Business License
Business Licenses can be granted by a state, city, or municipality. They are used to regulate businesses that engage in certain activities. For example, if you are opening a daycare, you most likely need a business license in your city.
Business Name
This is the legal name of your business entity.
Business Name Reservation
This is not required, but if you’d like to reserve your business name before filing a Business Formation document, you can. There is often a fee associated with this. And your name is usually reserved for 6 months.
Business Structure
More commonly known as a Business Entity.
Capital Contribution
A Capital Contribution is when an LLC Member (owner) puts money (or other assets) into an LLC in exchange for LLC Membership Interest (ownership).
Certificate of Authority
For Foreign LLC registration (registering your LLC in another state), a Certificate of Authority is granted once the new state approves your filing.
Certificate of Existence
More commonly known as Certificate of Good Standing.
Certificate of Formation
(Also known as Articles of Organization and Certificate of Organization)
This is the document filed with the Secretary of State that creates your LLC. It includes things like your LLC name, address, and Registered Agent information.
Once the state approves your Certificate of Formation, your LLC officially goes into existence.
Certificate of Good Standing
A letter from the Secretary of State showing that your LLC is in “good standing” (which usually just means the LLC has kept up to date with its Annual Report or any required annual filings with the state).
Certificate of Organization
(Also known as Articles of Organization and Certificate of Formation)
This is the document filed with the Secretary of State that creates your LLC. It includes things like your LLC name, address, and Registered Agent information.
Once the state approves your Certificate of Organization, your LLC officially goes into existence.
Change of Registered Agent
Change of Registered Agent is the form you file (either online or by mail) to change or update your Registered Agent with the Secretary of State.
Compliance
Compliance is often used as a “catch-all” phrase to mean any and all requirements (form a state agency) that an LLC must follow. For example:
- maintaining a Registered Agent,
- filing an Annual Report with the Secretary of State,
- and paying franchise tax with the State Department of Revenue.
Corporation
An entity filed with the state that protects the owners from business debts and liabilities. Owners of a Corporation are called Shareholders. And a Corporation must elect a board of directors and corporate officers. Additionally, Corporations must hold annual meetings and record meeting minutes (notes about the meetings).
Corporations are not as common as Limited Liability Companies (LLCs) and they are often used by companies who are raising money and looking for investors. The reason Corporations are less popular than LLCs is because they face double taxation.
C-Corporation
The “C” in C-Corporation refers to Subchapter C of the IRS code. And a C-Corporation is technically how the IRS treats a Corporation for tax purposes. Said another way, it simply means a Corporation is taxed as a C-Corporation by the IRS.
Corporate Entity
More commonly known as a Business Entity.
Corporate Veil
A Corporate Veil is the “layer of protection” (granted by state law) that protects business owners from the debts and liability of their business entity.
DBA (Doing Business As)
This is when a person or business does business under a name that is different from their true and legal name.
Examples:
- Joe Smith has a Sole Proprietorship (does business under his first and last name), but he files a DBA to do business as “Joe’s Painting”.
- Sally forms an LLC called Sally Enterprises LLC, and she also files a DBA to do business under the name “Sally’s Sandwiches”.
Another way to think of a DBA is as a “nickname” that sits on top of an existing name.
Disregarded Entity
A Disregarded Entity is an IRS term, and it refers to any Single-Member LLC (regardless of who owns it). Meaning, regardless of whether or not the single member is a person or another company.
It’s easiest to replace the word “disregarded” with “looks past”. For example, if a Single-Member LLC is owned by an individual person, the IRS looks past the LLC and sees there is just one owner. And let’s say that the owner is a US citizen. Therefore, the IRS will tax the LLC as a Sole Proprietorship.
As another example, let’s say there’s a Single-Member LLC owned by another company. The IRS looks past the LLC and sees that the owner is a Corporation. In this scenario, the LLC will be taxed as a branch/division of the parent company.
To sum up, the IRS disregards a Single-Member LLC itself, and instead taxes the entity based on who owns it.
Dissociation
This is when an LLC Member (owners) chooses to leave the LLC. The terms of which are often spelled out in the LLC’s Operating Agreement.
Dissolution
This is when an LLC is shut down, either by the Members (owners) or the state (for failure to meet ongoing state requirements, for example).
Distributions
Distributions are when the LLC gives money to the LLC Members (owners), and is most often a share of the profit.
(The opposite of a distribution is a contribution; money going into the LLC.)
Domestic LLC
A Domestic LLC is an LLC formed in the state in which it operates. For example, if you form an LLC in California, that is a Domestic LLC in California.
The opposite would be a Foreign LLC. For example, if you form an LLC in California and then register it to do business in Idaho. The registration in Idaho is known as a Foreign LLC, and the original registration in California is known as a Domestic LLC.
Analogy: It’s similar to domestic and international flights from within the US, however, California would be the US, and every other state would be another country.
EIN (Employer Identification Number)
An EIN is a 9-digit number given to an LLC by the IRS. It’s used for identification purposes (it’s like the LLC’s “Social Security Number”), paying taxes, opening a business bank account, and more.
Also known as:
- FEIN (Federal Employer Identification Number)
- Tax ID Number
- Federal Tax ID Number
Entity Conversion
This is when an entity changes itself into another entity with the state. For example, an LLC converting into a Corporation or a Corporation converting into an LLC.
Entity Classification
Entity Classification refers to how the IRS taxes different entities.
For example, by default:
- A Single-Member LLC is taxed like a Sole Proprietorship
- A Multi-Member LLC is taxed like a Partnership
Alternatively, both Single-Member LLCs and Multi-Member LLCs can elect to be taxed as a Corporation:
- LLC taxed as an S-Corporation
- LLC taxed as a C-Corporation
Note: The first two classifications happen by default. However, to be taxed as an S-Corporation, an LLC needs to file Form 2553. And to be taxed as aC-Corporation, an LLC needs to file Form 8832.
Federal Tax ID Number
See EIN.
Fictitious Name
See DBA.
Foreign LLC
A Foreign LLC is when an LLC in one state registers to do business in another state. For example, an LLC formed in California registers to do business in Idaho.
Foreign-owned LLC
This is when a U.S. LLC is owned by a non-US resident or a foreign company (a company formed in another country).
Franchise Tax
Franchise Tax is the tax for “privilege of doing business” in a state. Said another, a mandatory fee paid just so your LLC can exist.
Not all states charge an Annual Franchise Tax, but the most commonly known one is California.
IRS (Internal Revenue Service)
The IRS is a bureau within the US Department of the Treasury and is responsible for tax collecting, tax return processing, and tax enforcing.
IRS Form 1040
IRS Form 1040 (U.S. Individual Income Tax Return) is used by US taxpayers to report their income, losses, credits, and deductions.
(Note: By default, Single-Member LLCs are taxed like Sole Proprietorships, which is why they need to file Form 1040 every year.)
IRS Form 1065
IRS Form 1065 (U.S. Return of Partnership Income) is used by Multi-Member LLCs to report their income, losses, credits, and deductions.
(Note: By default, Multi-Member LLCs are taxed like Partnerships, which is why they need to file Form 1065 every year.)
IRS Form 2553
IRS Form 2553 (Election by a Small Business Corporation) is used by LLCs to elect S-Corporation tax treatment.
IRS Form 8832
IRS Form 8832 (Entity Classification Election) is most often used by LLCs to elect C-Corporation tax treatment (which is not very common).
IRS Form SS-4
IRS Form SS-4 (Application for Employer Identification Number, EIN) is used by business entities to request an EIN from the IRS.
IRS Schedule C
IRS Schedule C (Profit or Loss from Business, Sole Proprietorship) is used to report income or losses from a Sole Proprietor’s business.
(By default, Single-Member LLCs are taxed like Sole Proprietorships, which is why they need to file Schedule C every year. If there is no income or losses, a Schedule C for the LLC doesn’t need to be filed.)
LLC Formation Services
LLC Formation Services are companies that can form your LLC for you. They also offer additional services, such as the option to be your LLC’s Registered Agent and file your LLC’s Annual Report.
LLC Kit
LLC Kits refer to a “bundle of products”, typically accessory items like a corporate seal, 3-ring binder to organize paperwork, and LLC Membership Certificates to show who the owners are.
Note: LLC kits are not required. You can make your own 3-ring binder (or store paperwork digitally). Corporate seals/stamps aren’t used. And LLC Membership Interest is spelled out in the LLC’s Operating Agreement. Typically, LLC Kits are just ways for LLC filing companies to increase their average order value.
LLC Member
An LLC Member is an owner of the LLC.
LLC Manager
An LLC Manager is a person or company who has the authority to bind the LLC into contracts and agreements. By default, an LLC Manager is not the same thing as an LLC Member (owners).
LLC Management Structure
This describes how an LLC will be managed. Specifically, which of the following will be true:
Member-Managed LLC:
- This is when all of the Members (owners) run the day-to-day operations, as well as have the ability to bind the LLC in contracts and agreements.
Manager-Managed LLC:
- This is when one person (or multiple people), called “Managers” run the day-to-day operations, as well as have the ability to bind the LLC in contracts and agreements. The Managers are elected by the Members (owners).
LLC Membership Certificate
An LLC Membership Certificate is a document (typically with a fancy border) that spells out who owns the LLC.
(Note: These are not required as LLC Membership Interests are typically spelled out in the LLC’s Operating Agreement.)
LLC Membership Interest
LLC Membership Interest is the term used to denote ownership of an LLC. LLC Membership Interest is most often expressed as a percentage (example: Sally owns 100% of the LLC) or in units (ex: Sally owns 10 of the 10 units). Percentage ownership is the simplest and most common.
LLC Name
The legal name of the LLC.
LLC Name Distinguishability
Making sure an LLC name is “unique upon the records” of a given state. Meaning, the LLC name is unique and not “confusingly similar” to an existing business. This can often be checked in the Business Entity Database on a specific Secretary of State’s website.
LLC Organizer
An LLC Organizer is the person (or company) who signs and files the Articles of Organization with the Secretary of State. You can simply think of them as the “document submitter”.
An LLC Organizer isn’t automatically a Member (owner of the LLC). Although, an LLC Member may also act as the LLC Organizer.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a legal business entity that benefits from personal asset protection and pass-through taxation.
LLCs can be used to run a business and/or own assets, like real estate.
Meeting Minutes
These are simple notes taken from a business meeting, whether in-person, by phone, or online.
Multi-Member LLC
An LLC with 2 or more owners. Those owners can be individuals and/or companies.
More specifically, those owners can be any combination of:
- US citizens
- US residents
- US companies
- Non-US residents
- Non-US companies
Non-US resident LLC
An LLC owned by a Non-US resident. Since there are no citizenship or residency requirements for LLCs, non-US residents and non-US citizens can form LLCs in the U.S.
Operating Agreement
An Operating Agreement is an “internal management document” for your LLC. It spells out:
- who owns the LLC
- how much of the LLC they own
- how profits are splits
- how the LLC is managed
- and more
We recommend having an Operating Agreement for both Single-Member LLCs and Multi-Member LLCs.
Operating Agreement Amendment
An Operating Agreement amendment is when changes are made to the Operating Agreement.
You can either:
- attach an amendment (another piece of paper) to your original Operating Agreement, or
- you can edit your existing Operating Agreement, rename the document “Operating Agreement 2”, and include a statement at the top: “Operating Agreement 2, effective [date], shall supersede and replace all prior Operating Agreements.”
Owner’s Draw
An owner’s draw is when a business owner takes money out of the business for their personal use. You can think of it like paying yourself, but instead of getting a regular paycheck, you take a portion of the profits when you need it.
Partnership (aka General Partnership)
A General Partnership is when 2 or more people go into business together.
Each of the Partners shares the responsibilities, profits, and risks in the business – including business debts.
You can think of a Partnership like a “2-person Sole Proprietorship”.
Partnership Taxation
Partnership Taxation is how the IRS treats the taxes for businesses that are owned by 2 or more people.
With Partnership Taxation, the business/Partnership itself doesn’t pay taxes. Instead, each partner gets a K-1 that shows their share of profit (or loss). And then each partner reports and pays their share of taxes on their personal tax return (Form 1040).
Pass-Through Taxation
Pass-through Taxation is a special way the IRS taxes some businesses.
Here’s how it works:
Instead of the business paying taxes on its income, the profits or losses “pass through” to the owners. And then the owners report their portion of the business income on their personal tax returns (Form 1040).
This means that the business is only taxed once (at the individual level), instead of being taxed at the business level, too. This helps business owners avoid double taxation (which happens in C-Corporations).
Examples of business entity types that have pass-through taxation as their default tax status are:
- Sole Proprietorships
- General Partnerships
- LLCs
- S-Corporations
Personal Asset Protection
You can think of Personal Asset Protection as a protective wall between your business assets, and your personal assets (like your car or house).
If your business gets sued, Personal Asset Protection helps keep your personal assets from being used to settle the business’s debts or liabilities.
Not all business structures offer this, but LLCs and Corporations do.
Principal Office Address
A Principal Office Address is the official location of your business. It’s the address where you keep important business documents and manage your business’s main operations.
This address can be a business address, or a home address. And you must list this address on your paperwork when you start an LLC.
Professional LLC
A Professional LLC (PLLC) is a type of Limited Liability Company formed for the purpose of providing professional services.
In this case, “professional services” means services that require a special license with the state in order to provide those services.
For example, doctors, lawyers, architects, and veterinarians are required to be licensed with the state in order to offer those services.
Registered Agent
A Registered Agent is a person or company who agrees to accept legal documents on behalf of your LLC if your business becomes involved in a lawsuit.
Additionally, the state may send notices and reminders to your LLC’s Registered Agent.
The rules for who can be your LLC’s Registered Agent vary based on the state where your LLC is located.
You may also see a Registered Agent called:
- a Resident Agent
- a Statutory Agent
- an Agent for Service of Process
These all mean the same thing, and most states use the term “Registered Agent”.
Registered Agent Consent
Registered Agent Consent is when a person or company agrees to be your business’s Registered Agent. Meaning, they agree to accept important legal documents and government notices on behalf of your business.
Some states require you to submit paperwork called a Registered Agent Consent Form (ex: Texas). This document helps to make sure the person listed as the Registered Agent on your LLC paperwork is okay with taking on the responsibility.
Registered Agent Services
Registered Agent Services are companies that you pay to accept legal mail on behalf of your company if your business becomes involved in a lawsuit.
You may see Registered Agent Services also be referred to as Commercial Registered Agents. They mean the same thing.
Registered Office
A Registered Office is the Registered Agent’s physical street address.
The Registered Office and Registered Agent’s name go on public record.
Resolutions
Resolutions are a formal document where decisions are recorded that were made by the LLC’s Members or Managers. These resolutions can cover issues like adding or removing Members, taking out a business loan, making changes to the LLC’s policies or the way it’s governed, etc.
These aren’t required in order to make changes to your LLC, but can be used to “memorialize” (document and date) certain business decisions and “make your stuff look fancy”.
Resignation of Registered Agent
Resignation of a Registered Agent is when the person or company serving as your Registered Agent decides to no longer take on that responsibility.
In order to officially resign, the Registered Agent needs to fill out a special form (the Registered Agent Resignation) to let the state government know that they will no longer be accepting legal documents on behalf of the business.
If a Registered Agent resigns, the business is required to find a new Registered Agent to take over the role. This makes sure the business doesn’t miss any important legal documents or state notices.
S-Corporation
An S-Corporation (S-Corp) is an optional tax election made with the IRS by filing Form 2553.
This tax election “sits on top of” a business structure (either an LLC or a Corporation). And once Form 2553 is approved, that business pays taxes like an S-Corporation.
Said another way: From a legal perspective, your existing business structure stays the same. But from a tax perspective, your business files and pays taxes like an S-Corporation.
Think about it like this: Your LLC (or Corporation) is wearing an “S-Corp hat” for tax purposes.
Secretary of State
The Secretary of State is the office that is responsible for approving and maintaining business filings. Meaning, this is the place where you’ll file your LLC documents.
They also make sure that businesses stay compliant by filing their Annual Reports and keeping their Registered Agent information up to date.
Note: In nearly all states, this office is called the Secretary of State. However, in some states it’s called the Department of State.
Self-Employment Tax
Self-employment tax is the money you pay to cover Social Security and Medicare when you work for yourself.
In a traditional employer-employee relationship, the employer and employee each pay half of the Social Security and Medicare taxes.
However, self-employed business owners (which include LLC owners) have to pay the full amount themselves – both the employer’s half, and the employee’s half.
Service of Process
Service of Process is the delivery of legal documents, such as a notice of a lawsuit.
Other examples of documents that are delivered by Service of Process are:
- complaint (the filing that starts a lawsuit)
- subpoena (a demand for documents or testimony)
- writ (requires or prohibits some action)
- summons (requires your attendance at a hearing)
Single-Member LLC
A Single-Member LLC is an LLC with only 1 owner (called a Member).
That single owner can be a:
- US citizen
- US resident
- US company
- Non-US resident
- Non-US company
Sole Proprietorship
A Sole Proprietorship is an informal business structure that has 1 business owner.
You don’t have to file a document with the state in order to start a Sole Proprietorship.
As soon as you begin taking actions with the intent to make a profit, you are operating a Sole Proprietorship.
Sole Proprietorship Taxation
Sole Proprietorship Taxation is when a business owner and the business are considered to be the same legal entity for tax purposes.
This means that instead of being taxed at the business level, the business income is only taxed once, at the personal level. Meaning, the business owner reports all of the business’s income and expenses on their personal tax return (Form 1040).
Sole Proprietorships and Single-Member LLCs both receive this tax treatment from the IRS by default.
State Filing Fees
State filing fees are the charges you pay to file paperwork with a state government agency. This includes the cost of submitting paperwork to form an LLC, file an Annual Report, or make changes to your business information that’s on file with the state.
The amount of each fee depends on the state and the type of filing.
State Requirements
State requirements are rules that businesses and their owners are required to follow in order to legally do business in a state.
State requirements for LLC include things like:
- registering your business
- always keeping a Registered Agent on file
- filing Annual Reports
- paying taxes and fees
Statutory Agent
A Statutory Agent is a person or company who agrees to receive legal mail and state notices on behalf of your LLC.
This is more commonly known as Registered Agent.
Tax Classification
Tax Classification is the way a business or individual is categorized for tax purposes by the IRS. Your tax classification determines how your LLC will be taxed.
For example:
- The default tax classification for a Single-Member LLC is to be taxed like a Sole Proprietorship.
- And the default tax classification for a Multi-Member LLC to be taxed like a Partnership.
However, a Single-Member LLC or Multi-Member LLC can choose to be taxed as an S-Corporation or C-Corporation depending on its business structure and needs. And this is called choosing an elective tax classification.
Tax Deductions
Tax deductions are expenses that you can subtract from your total income before you calculate how much tax you owe. This helps to reduce how much tax you have to pay.
For example: If you run an LLC, you can deduct the cost of office supplies, business travel, job equipment, and more.
Tax Identification Number
See EIN.
Tax Year
The IRS taxes your income based on a 12-month period called the “tax year”. Most people use the “calendar year” (January 1 to December 31) as their tax year.
That said, you can choose to use a different 12-month period (called a “fiscal year”) for your business tax year if that makes more sense for your LLC. However, this is not that common.
Taxes
Taxes are money that businesses and individuals are required to pay to the government. This money is based on how much a person or business makes, and the taxes are meant to fund public services like schools, roads, libraries, and healthcare.
There are many different types of taxes, like income tax, sales tax, and property tax.
Business taxes can be more complicated than individual taxes if a business has employees, payroll, and other expenses.
Trademark
A Trademark is a symbol, name, logo, or phrase that identifies your business and sets it apart from other businesses. Trademarks are a way to protect a business brand to make sure someone else isn’t using something similar that could confuse customers about which brand is which.
Registering a trademark gives the trademark owner the legal right to use it exclusively for specific purposes. If someone else tries to copy it, you can take legal action to stop them.
Trade Name
More commonly known as a DBA.
