NCA Business Organizations key terms

A business owned and run by one individual with no legal separation between owner and business. The owner keeps all profits but bears unlimited personal liability for business debts and obligations.

A business owned by two or more persons who share profits, losses, and management under a partnership agreement or default statutory rules. Each partner generally has unlimited personal liability for partnership obligations.

A partnership with at least one general partner who manages the business and bears unlimited liability, plus limited partners who contribute capital but do not manage and whose liability is capped at their investment.

A hybrid entity that provides limited liability to all owners while allowing flexible management and pass-through taxation. Owners are called members, and the entity is governed by articles of organization and an operating agreement.

A legal entity separate from its owners, formed by filing articles of incorporation with a state. It can own property, sue and be sued, and issue shares, and shareholders generally are not personally liable for corporate debts.

A corporation or LLC electing special tax status under which income passes through to shareholders, avoiding entity-level tax. Eligibility limits include a cap on shareholders and restrictions on who may hold shares.

A legal shield that generally prevents owners from being personally responsible for the debts, judgments, or obligations of the business entity beyond their investment. It can be lost through fraud or failure to respect formalities.

A condition in which an owner's personal assets are exposed to satisfy business debts and claims, not merely the amount invested. It is characteristic of sole proprietorships and general partners.

A court remedy that disregards the liability shield and holds owners personally liable, typically when the entity is used as a sham, is undercapitalized, or formalities are ignored to commit wrongs.

A theory allowing courts to hold an individual liable for entity debts when the owner and entity are so intertwined that they lack separate identities, often shown by commingled funds and missing records.

The document filed with a state to create a corporation, usually stating the name, registered agent, purpose, and authorized shares. It is a public charter and may be amended by filing with the state.

Internal rules adopted by a corporation governing meetings, voting, officer duties, and recordkeeping. Bylaws must be consistent with law and the articles of incorporation and are typically not filed publicly.

A contract among LLC members setting out ownership percentages, capital contributions, management structure, profit distribution, and procedures for transfer or dissolution. It supplements state LLC statutes and can override default rules.

A person or entity that owns shares of stock in a corporation, giving rights to vote on certain matters, receive declared dividends, and share in residual assets on liquidation.

The body elected by shareholders to oversee corporate affairs, set strategy, declare dividends, and appoint officers. Directors owe fiduciary duties of care and loyalty to the corporation and its shareholders.

A corporate agent appointed by the board to run day-to-day operations, such as a president, treasurer, or secretary. Officers owe duties to the corporation and act within authority granted by the board or bylaws.

An owner of a limited liability company or nonprofit corporation. Members hold economic and governance rights defined by statute and the operating agreement, and their liability is generally limited to their investment.

An investor in a limited partnership who contributes capital but takes no part in management. In exchange, the limited partner's personal liability is generally limited to the amount invested.

A partner in a limited partnership who manages the business and bears unlimited personal liability for partnership obligations. A general partner may also be an entity, such as a corporation.

A contract among partners that sets out contributions, profit and loss sharing, management authority, dispute resolution, and buyout terms. It can modify many default statutory rules that would otherwise apply.

Money, property, or services an owner promises to the entity in exchange for an ownership interest. Contributions determine ownership percentages and affect distribution rights and liability among owners.

A legal obligation to act in the best interest of another party, requiring loyalty and care. Partners, directors, officers, and managers typically owe fiduciary duties to the entity and its owners.

A fiduciary obligation requiring a person to put the entity's interests ahead of personal interests, avoiding self-dealing, conflicts of interest, and usurpation of corporate opportunities without proper approval.

A fiduciary obligation to act with the diligence, prudence, and informed judgment a reasonable person would use in similar circumstances. It requires oversight and reasonable inquiry before significant decisions.

A presumption that directors acted on an informed basis, in good faith, and in the honest belief their decision served the corporation. It protects reasonable decisions from liability even when outcomes are poor.

A rule preventing fiduciaries from taking a business opportunity that belongs to the entity unless the entity first declines it after full disclosure and proper approval by disinterested decision-makers.

A tax structure in which entity income is reported on owners' individual returns and taxed once, rather than at the entity level. Partnerships, S corporations, and many LLCs use this treatment.

A tax result in which corporate profits are taxed once at the entity level and again when distributed to shareholders as dividends. It is a primary reason some businesses choose pass-through entities.

A distribution of corporate profits to shareholders, declared by the board of directors. Dividends are generally paid in proportion to shares held, subject to statutory limits on distributions.

A person or company designated to receive legal notices and service of process on behalf of an entity within a state. The agent must maintain a physical address in that state.

The process of ending an entity's legal existence, typically requiring owner or board approval, winding up of affairs, payment of debts, and distribution of remaining assets before a final filing with the state.

The stage after dissolution in which an entity collects assets, pays creditors, resolves claims, and distributes any remainder to owners. It precedes the final termination filing that ends legal existence.

Converting an entity's assets into cash to pay debts and distribute remaining value to owners. Liquidation often occurs during winding up, and distribution order is governed by statute and agreements.

The order in which claims are paid when an entity dissolves or liquidates. Secured and general creditors are typically paid before owners receive any residual distribution.

A business arrangement in which a franchisor licenses its brand, systems, and support to a franchisee in exchange for fees and royalties. Franchise relationships are heavily regulated by disclosure rules.

A business arrangement in which two or more parties combine resources for a specific project or limited purpose. It may be structured as a partnership, LLC, or contract and is governed by the parties' agreement.

An entity formed for charitable, educational, or other public purposes rather than distributing profits to owners. It may seek tax-exempt status and is governed by a board and state nonprofit statutes.

An entity formed by licensed professionals such as lawyers or doctors to practice together while obtaining certain liability and tax benefits. Owners remain personally liable for their own professional negligence.