Glossary of Legal Terms



Accrual Basis Accounting – A method of accounting that records sales, expenses and other events at the time they occur, instead of when cash changes hands.

Acquisition – obtaining a controlling interest in a company, sometimes called a  takeover

Administrative Dissolution – Dissolution of an entity by the state (normally by the Secretary of State) for reasons such as not paying taxes, failing to deliver an annual report, or operating with no registered agent.

Alternative Dispute Resolution (ADR) – A category of methods for resolving disputes, claims and lawsuits outside the courtroom (usually arbitration or mediation).

Amortization – Gradual payment of a debt through a payment schedule, or writing off an intangible asset against expenses over the period of the asset’s useful life.

Arbitration – Process of holding a hearing in a non-judicial setting that provides final relief to all parties. Arbitration hearings are typically held in law offices, hotels or business center conference rooms. They are presided over by attorneys or retired judges. Rules of evidence usually don’t apply, but parties can make objections that are ruled upon by the presiding arbitrator. Grounds to appeal an arbitrator’s award are usually very limited.

Arbitration Clause – A clause in a contract that states the parties agree to resolve disputes through arbitration, often by waiving their rights to a jury trial. 

Arbitration Panel – Members who will hear evidence and participate in determining a dispute. Panels usually have one or three members.

Arbitrator – Someone who participates in ruling over a dispute pending in arbitration.

Articles Of Dissolution – The document that, when filed with the state, causes the dissolution of the entity.

Articles Of Incorporation – a document that when filed forms a corporation and sets basic information (name, purpose, directors, and stock).

Asset – Property of a person, business organization, trust or estate that is subject to the payment of debts.

  • Appointed Asset – An estate asset that will be distributed under a power of appointment.
  • Capital Asset – A long-term asset that is not regularly bought or sold as part of the owner’s business.Any asset classified as a capital asset by the Internal Revenue Code.
  • Current Asset – A short-term asset (such as inventory, accounts receivable, or a note) that can be converted into cash quickly.
  • Fixed Asset – A tangible asset (such as piece of equipment) that is permanent or long-term.
  • Intangible Asset – An asset (such as goodwill or a patent) that does not exist in physical form.
  • Marital Asset – An asset acquired during a marriage.
  • Net Asset – Excess assets over liabilities. Also called net worth.
  • Quick Assets – Cash, accounts receivable, and other current assets. Does not include inventories.
  • Tangible Asset – An asset with physical form and can be appraised using actual or approximate value.
  • Wasting Asset – Property (such as a copyright or gas well) that will eventually lose its value because it will expire or be used up.


Breach Of Contract – A failure to perform agreed upon duties owed to another person or company under a contract.

Board Of Directors – a group of people elected by the shareholders of a corporation to manage the corporation’s business and appoint officers.

Break-Even Analysis – An analysis that determines the point at which a company makes neither a profit nor a loss.

Burden Of Proof – Level of proof required to substantiate a claim. Civil cases have a “by a preponderance of the evidence” burden of proof while criminal cases require “beyond a reasonable doubt”.

Business Plan – A document that describes a business, its objectives, strategies, market, customers, operations and financial forecast.


Capital – Relating to capital assets. Accumulated money invested or available for investment.

  • Debt Capital – capital raised by borrowing (issuing bonds or securing loans)
  • Equity Capital – capital that is free of debt.
  • Fixed Capital – capital invested on a long-term basis or in fixed assets.
  • Paid-in Capital – equity capital received in exchange for an interest in the ownership of a business.
  • Working Capital – capital available for use in the course of business.

Case Law (Common Law) – A body of laws derived from rules in published cases as decided by trial and appellate courts.

Cash Basis Accounting – A method of accounting that records sales and expenses when the transfer of cash occurs.

Cash Flow Statement – A financial statement that charts the sources and uses of cash of a business.

Certificate Of Assumed Name, Trade Name, Or Fictitious Name – A certificate granted by a state authority that allows you to transact business under a name other than your own. Also called Doing Business As or DBA.

Certificate Of Incorporation – A certificate issued by a state’s secretary of state that shows acceptance of a corporation’s articles of incorporation.

Company – An association of persons for carrying on a commercial or industrial enterprise.

  • Finance Company – A company that makes usually small short-term loans to individuals.
  • Growth Company – A company that grows at a greater rate than the economy as a whole and that usually directs a relatively high proportion of income back into the business.
  • Holding Company – A company whose sole function is to own and control other companies.
  • Investment Company – A company that earns income solely or primarily by holding and investing in securities issued by other companies or by government agencies.
  • Joint-stock company – A business organization whose capital is represented by shares owned by stockholders each of whom is personally liable for the company’s debts.
  • Limited Liability Company – An unincorporated company formed under applicable state statute whose members cannot be held liable for the acts, debts, or obligations of the company and that may elect to be taxed as a partnership.
  • Mutual Company – An insurance company whose capital is owned by its policyholders.
  • Surety Company – A company that provides surety bonds for a fee.
  • Trust Company – A company and often a commercial bank acting as trustee for individuals and businesses and providing related financial or estate planning services.

Corporation – An intangible and artificial creation existing as a voluntary chartered association of individuals that has most of the rights and duties of natural persons but with perpetual existence and limited liability.

  • Close Corporation – Shares are held by a small number of individuals and not publicly traded.
  • Foreign Corporation – Organized under the laws of a government other than that in which it is doing business.
  • Government Corporation – a government-owned corporation (such as a utility or railroad) engaged in enterprise that may require the exercise of powers unique to the government, such as eminent domain.
  • Public Corporation  – A business corporation whose stocks are traded on a public exchange.
  • Nonprofit Corporation – Formed for a charitable or benevolent purpose and not for profit. Afforded special tax treatment.
  • S Corporation – A small business corporation that is treated for federal tax purposes as a partnership. Also called subchapter S corporation or S Corp. 
  • Shell Corporation – Exists as a legal entity without independent assets or operations. Used as an instrument by which another company can carry out dealings usually unrelated to its primary business, such as an acquisition or merger.
  • Small Business Corporation -Set out in Sec. 1361 of the Internal Revenue Code as having 35 shareholders or less and no more than one class of stock.
  • Professional Corporation – Organized by one or more licensed individuals to provide professional services.

Continuance – A postponement of a hearing or trial from a scheduled date to a later date.

Cross Claim – A claim asserted by one Defendant against another.

Current Assets – Assets of a business that can be liquidated within a short period of time.

Current Liabilities – Debts that must be paid within a short period of time (within one year).

Current Ratio – A ratio of current assets over current liabilities.


Debt Financing – Financing a business through borrowed money.

Deposition – A session during which attorneys ask a witness or deponent questions and the deponent provides answers. 

Discovery – The process of obtaining information from a party about its claims, theories of recovery, defenses, the identity of key documents and related information. Some discovery types are Interrogatories, Requests for Admission, and Requests for Production.

Dissolution – The termination of a corporation or entity.

  • Involuntary Dissolution – Dissolution by a court in response to a petition by shareholders.
  • Voluntary Dissolution – Dissolution by the directors and with approval of shareholders.


Equity Financing – Financing a business through investments through which the investor becomes a part owner of the business.


False Advertising A crime or tort of publicly distributing an advertisement that contains an misleading or deceptive statement made knowingly or recklessly and with the intent to promote the sale of goods or services.

Fiscal Year – An accounting period of 12 months.

Fixed Costs – Costs that don’t vary with sales volume.

Forecasting – Analysis that describes with reasonable probability a business’ financial future.



An intangible asset that is the favor or prestige that a business has attained beyond the value of its good or services due to the personality, experience, reputation, skill, dependability, the business’s location, or any other aspect of the business that will draw and retain customers.

Excess purchase price of a business above the total value assigned to all other net assets for tax purposes.

Gross Profit – Net sales minus cost of goods sold.

Guaranty  – A promise to pay someone else’s debt or to perform that person’s duty if the person defaults or performs inadequately under an agreement. 


Hearsay – A rule of evidence that typically prohibits a jury from hearing statements made out of court for the truth of their content. The hearsay rule has many exceptions, but without an exception a witness is not permitted to testify about what someone else said outside of the court proceeding.


Incapacity – Incapacity is a lack of mental state or legal status that renders a person incapable of performing a certain act, such as entering into a contract or testifying in court.

Income Statement – A report of the income, expenses, and profit or loss of a business over a specified period of time.

Indemnity – Security against loss or damage. Also, an exemption from penalties or liabilities.

Interrogatories – A type of discovery that takes the form of written questions seeking written answers to be sworn to under oath. Responses usually have a deadline..

Inventory Financing – Borrowing money for a business by using inventory as collateral.


Joint Venture – A cooperative partnership between two or more parties, usually limited to a single enterprise, that shares resources, control, profits, and losses among the parties.

Jury  – A group of citizens from the county in which the dispute is pending who decide issues of fact based on court-provided instructions.

Jury Charge – Instructions read to the jury by a trial judge after all of the evidence has been presented and before jury deliberations begin. A written jury charge is often given to the jury to assist in deliberations and to provide any specific questions which require specific written answers.

Jury Deliberations –  A jury’s process of discussing and analyzing the evidence heard, the court’s instructions and deciding the issues submitted.

Jury Selection – The juror selection process during which suitable jurors are chosen from a pool of many people who were called for jury duty. Also called Voir Dire.

Jury Trial – A hearing held in a trial court during which each party presents evidence and arguments to the jury before a presiding judge.


Leverage – Using credit to extend one’s capital reach, or enhance one’s speculative capacity

Liquidation – In concluding the affairs of a business or estate, liquidation is the process of realizing (selling) assets and of discharging (paying off) liabilities. In investment activities, liquidation is the process of converting securities or commodities into cash.


Merger –  When one entity absorbs another. There are various methods of combining two or more organizations:

  • Cash Merger – Shareholders in the company to be absorbed receive cash for their shares rather than shares in the absorbing company.
  • De Facto Merger – The issuance of stock to the corporation to be absorbed rather than an outright purchase of assets for cash. The absorbed corporation enjoys continued participation by its shareholders, directors, and employees. The absorbing corporation assumes the liabilities of the absorbed corporation. 
  • Statutory Merger – Pursuant to statutory requirements, specific procedures must be followed for the notification and approval of shareholders.


Negotiable Instruments – A written document signed by the maker that includes an unconditional promise to pay a sum of money.

Net Profit After Taxes – A company’s net profit minus federal, state and local taxes.

Net Profit Before Taxes – Net sales of a business minus all expenses except taxes.

Net Sales – Total sales minus discounts, returns and pricing adjustments.

Net Worth – The excess of assets over liabilities.

Notice Of Intent To Dissolve – A notice that informs the state that a corporation will be dissolving.


Objection – When a party protests the admission of a certain piece of evidence or other matter.

Operating Expenses – Expenses that are not directly associated with producing a product or service, such as administrative, technical, marketing or selling expenses.


Partnership – Two or more persons or entities that conduct a business for profit as co-owners. Traditionally considered an association of individuals rather than as an entity with an independent existence. Partners are taxed as individuals and are personally liable for torts and contractual obligations.

  • Family Partnership – Partners are members of a family.
  • General Partnership – Each partner is liable for all partnership debts and obligations in full regardless of  the individual partner’s capital contribution.
  • Limited Liability Partnership – The partnership is liable as an entity for debts and obligations and the partners are not liable personally.
  • Limited Partnership – Managed by one or more general partners, with capital by limited partners who do not participate in management but who share in profits. The individual liability of the limited partners is limited to the amount of their respective capital contributions.
  • Partnership By Estoppel – A partnership created by operation of law when a defendant represents himself as a partner and the plaintiff relies on the representation to his detriment.

Partnership Agreement – A contract that sets the terms of a partnership.

Piercing The Corporate Veil – Imposing personal liability on corporate officers, directors and shareholders for a corporation’s fraudulent or wrongful acts.

Product Liability Lawsuit – A lawsuit brought against a company in the chain of distribution of a product (manufacturer, retailer, etc.) based on a theory that some defect or aspect of the product is responsible for a harm or loss to the plaintiff.

Property – Something that is owned or possessed.

  • Abandoned Property – Property that the owner has relinquished all rights to.
  • After-acquired Property:
    • Property acquired after the commencement of a bankruptcy case and that is usually considered part of the bankruptcy estate.
    • Property acquired after the perfection of a lien or security interest that is subject to the lien or becomes collateral for the security interest.
    • Property transferred to the estate of a decedent after execution of the will.
  • Common Property  – Property owned or used by more than one party, such as property leased by tenants in common.
  • Community Property – Property acquired by either spouse after marriage that belongs to each spouse as an undivided one-half interest. 
  • Intangible Property – Property (such as a stock certificate or professional license) that derives value from what it represents rather than any intrinsic value of its physical nature.
  • Intellectual Property – an invention, idea, process, program, trade secret, data, formula, patent, trademark or copyright.
  • Lost Property – Property left in an unknown location involuntarily and through no one’s fault.
  • Marital Property – Property acquired by either spouse during the course of a marriage that is subject to division upon divorce. 
  • Personal Property – Property belonging to a specific person.
  • Qualified Terminable Interest Property – Property passing to a surviving spouse (that qualifies for the marital deduction if the executor so elects) entitling the spouse to receive income in payments made at least annually for life. To qualify as QTIP, no one can have a power to appoint any part of the property to any person other than the surviving spouse.
  • Real Property – An interest, benefit, right, or privilege in such property that is permanently affixed to, or lies within, the earth (such as land or minerals). Also immovable property.
  • Separate Property – Property of a spouse that is not community property. It is usually acquired by a spouse before marriage or individually during marriage (such as by gift or inheritance).
  • Tangible Property – Property with a tangible existence and intrinsic economic value because of the tangible existence.

Public Offering – Offering corporate securities to the public or to potential purchasers whose knowledge about the securities is dependent upon the disclosures of the corporation.


Retained Earnings – Earnings after deducting losses, distributions to stockholders, and transfers to capital stock accounts.


Secretary Of State’s Office – The state office responsible for many types of formal business filings, such as formation of corporations, certification of assumed names and filing of UCC security agreements.

Secured Transaction – A transaction that creates a security interest in personal property or fixtures and that is governed by Article 9 of the Uniform Commercial Code.

Securities And Exchange Commission – National government regulatory agency charged with supervising the corporate sector, capital market participants, and securities and investment instruments, for the protection of the investing public.

Settlement  – Resolving a legal dispute before a final judgment is issued by a court, sometimes before a complaint is filed.

Shareholders – A person who owns stock in a corporation.

Small Business Administration – Ffederal governmental agency that guarantees loans made by banks to small businesses and funds technical assistance programs for small businesses.

Sole Proprietorship – A business owned by one person and is not a distinct entity for tax or legal purposes.

Statute – A law or rule created by an act of a legislative body and usually found within a published code or set of rules.

Statute Of Limitations – A law that requires certain cases or claims be filed in court within a specific time period after an event or act. After the specific time period has passed, such cases or claims are time barred (cannot be commenced).

Subpoena – A written document that requires a witness to appear at a proceeding, like a deposition or trial, with a specified date and location.

Subpoena Duces Tecum – Requires the production of documents or things to the person or body which issued the subpoena, usually with a specific date and location for compliance.


Third Party Action/Impleader – A procedure used by a party to bring a new party into the case, alleging that party is liable in whole or in part for damages alleged by one of the parties.


Unsecured Loan – A loan made without collateral.


Variable Cost – A cost that increases or decreases with sales (such as labor, raw materials and sales commissions).


Warranty –  A promise made in a deed that gives the grantee recourse against the grantor and the grantor’s heirs. A promise made in a contract stating that the subject of the contract is as represented and giving the warrantee recourse against the warrantor.

  • Express Warranty  – A warranty created in a contract by a statement of fact made about the object of the contract and that forms a basis for the agreement.
  • Implied Warranty – A warranty that is not expressly stated but is imposed by the law based on the transaction’s nature.
  • Warranty of Fitness – A warranty (usually implied) that the property being sold is fit for the purpose for which the buyer is purchasing it.
  • Warranty of Habitability – A warranty (usually implied) in a residential lease that the leased premises will be habitable.
  • Warranty Of Merchantability – A warranty (usually implied) that the property being sold is of a quality that is generally acceptable in that line of trade.

Winding Up – Liquidating a business.