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Glossary

Define and understand some of the most common terms you will encounter when it comes to entity management and compliance.

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The annual report that an entity files with the Secretary of State is a comprehensive document containing essential details, such as the company’s legal name, the principal office address in the state (if any), the names and business addresses of certain personnel (depending on the entity structure), and the registered agent’s name and office address. Filing requirements must be met for the formation state and every other state in which the entity is registered to conduct business. Some states have fixed calendar dates for filing, while others are based on the entity’s formation or qualification.

A C Corporation, sometimes abbreviated as C Corp, is a legal structure for a business that separates owners’ and shareholders’ assets and income from the entity itself. Owners and shareholders are taxed separately from the entity, and they are only liable for the total amount invested. It’s important to note that in a C Corporation, the taxing of profits is at both the corporate and personal levels.

A capitalization table, sometimes abbreviated as cap table, is a table that details the equity ownership for an entity. Typically used by private businesses, capitalization tables are essential when managing investor details, such as individual cost basis, individual current value, total cost basis, and total current value.

Entity compliance is an umbrella term that encapsulates everything involved in following laws and regulations that ensure an entity remains in good standing and can properly conduct business in specific jurisdictions. Compliance can refer to items such as having a registered agent in all the states that a business operates in or ensuring annual filings are submitted before the deadline.

Corporate services are an array of services that meet organizational needs as they relate to entity management and compliance. By leveraging corporate services, organizations can alleviate internal resources from performing these services themselves and reduce costs from outsourcing these services to law firms that charge high hourly rates. Some of the most common corporate services include registered agents, filing services, and Uniform Commercial Code (UCC) services.

The Corporate Transparency Act (CTA) requires domestic and foreign legal entities to register certain personal information about its “beneficial owners” and “company applicants” with FinCEN to prevent corrupt actors, terrorists, and criminals from laundering money in the United States. Only reporting companies are required to file a report, however, the Reporting Rule lists certain entities that are exempt and not required to file a report. The Corporate Transparency Acts will take effect on January 1, 2024, and any entity created on or before that date must file its report by March 21, 2025. Additionally, entities created in 2024 must file their report within 90 calendar days of creation/registration.

Last updated Feb 20, 2025

A corporation is a legal structure for a business that separates the personal responsibility of its owners or shareholders from the entity. Two of the most common corporations are C Corporations and S Corporations.

Dissolution, sometimes referred to as cancellation, is a process that legally terminates an entity. A dissolution could be the result of not filing an entity’s annual report or a decision made by the entity’s owners and investors. If the dissolution was the result of missed filings or similar actions, the entity may apply for reinstatement through the Secretary of State.

Due diligence is a methodical process of reviewing and/or auditing certain details of an entity. The exact details may include but are not limited to an entity’s financial health, debt obligations, and legal matters. Due diligence can be performed under varying circumstances, such as an individual performing due diligence before purchasing stock in a private company or an entity performing due diligence before acquiring another business.

Electronic filing (E-Filing) is the process in which entities submit tax returns over the internet rather than using physical documents.

An employer identification number (EIN) is a unique nine-digit number assigned to an entity and is formatted as XX-XXXXXXX. These unique identifiers are most commonly used by the Internal Revenue Service (IRS) to easily identify entities for tax reporting purposes.

An entity is a business created by an individual or group of people with the goal to conduct business/services or engage in a trade. The exact type of an entity dictates the organizational structure and how it is taxed.

An entity committee is a practical way to structure and manage the board of directors’ work, such as managing tasks on a board meeting’s agenda or providing counseling and advice. Entity committees may make sense for some organizations and not others, but it’s important to clearly define their areas of responsibility to ensure maximum effectiveness and productivity.

Entity management is the process of governing an entity’s information and maintaining compliance across its respective jurisdictions. Governing entity information requires proper documentation to not only ensure internal alignment, but to protect sensitive entity details, such as its investors and banking information. By effectively doing so, organizations can maintain oversight and ensure entities remain compliant, so they can continue operating.

Entity management software is a web-based solution that enables organizations to securely manage all the necessary information for their entities. These solutions alleviate back-office inefficiencies by centralizing information and eliminating the use of spreadsheets and other forms of unsecure documentation. Some entity management software solutions have integrated corporate services, enabling organizations to automate entity compliance using the information already in the platform.

The Financial Crimes Enforcement Network (FinCEN) is a branch of the United States Department of the Treasury that collects and analyzes financial information to safeguard the nation’s financial system and protect against financial crimes, such as money laundering and terrorist financing.

An investment fund is a pool of capital from multiple investors used to collectively purchase equity in an entity business. When participating in an investment fund, investors generally do not make decisions on how the entity operates.

A general partnership is a business structure between two or more individuals that share responsibilities across the entity and its assets. While income (profits and losses) flow directly to the individuals, they are also personally responsible for potentially unlimited liability, such as debts or legal matters. There are certain advantages to a general partnership, such as less expenses than a corporation or limited liability partnership (LLP), but there are also disadvantages depending on an individual’s risk tolerance as it relates to liabilities.

Good standing status refers to an entity having filed the necessary reports with the Secretary of State and not having any outstanding fees associated with the filings. Generally verified with a Certificate of Good Standing, this status indicates that an entity is authorized to conduct business in the designated state. An entity losing its good standing can have downstream impacts, such as a lender not releasing funds, and can be the result of failing to file timely annual reports or maintain a registered agent.

Although often called “incorporation”, formation is the proper term for setting up a business as its own legal entity by registering it with a state. Formation could mean you’re setting up one of several legal structures, like a limited liability company (LLC) or a corporation. When you form an entity, you’ll have to pay fees to set it up, comply with all regulatory and tax requirements, and file reports.
The individual current equity value for an entity’s stock (equity) is the present value of that individual’s or entity’s ownership. This is calculated by dividing the entity’s current equity value by the total number of available shares, and then multiplying that by the total number of shares owned by the individual or entity. For example, if the total current equity value is $1,000 with 100 shares in total and an individual or entity owns 25 shares, the individual current equity value is $250 (($1,000/100)*25).
The individual equity cost basis for an entity’s stock (equity) is the original price that was paid by an individual or entity to realize ownership. This is calculated by multiplying the total number of shares (purchased by the individual or entity) by the price per share. For example, if an individual or entity purchased 25 shares at a price per share of $5, the individual equity cost basis would equal $125.
Jurisdiction refers to the part or level of the government which has authority over a business entity. The federal government has jurisdiction over federal taxes, but the state where the entity is incorporated has jurisdiction over the corporate law of the business. The most important jurisdiction concepts for entities are the place of incorporation and the principal place of business.
A limited liability company (LLC) is a business structure that combines elements of a corporation and a partnership. An LLC allows business owners to take advantage of the taxation of a sole proprietorship and the liability of a corporation. Essentially, you won’t be held individually liable for company debts or other responsibilities but can still enjoy the ease of merging your business profits with your personal income for tax purposes.
A limited liability limited partnership (LLLP) is a sophisticated business entity designed primarily for investment purposes. It shares many of the characteristics of limited partnerships, except that the general partner gets additional limited liability protections. Any lawsuits brought against the company or misconduct by the other general partners are not brought against the general partner, as they are shielded from personal liability. This limited liability protection also extends to the general partner’s protection against the negligence or misconduct of other general partners.
A Limited Liability Partnership (LLP) is a business relationship in which one partner is not responsible for the negligent acts committed by another partner or by the employees not under that partner’s supervision. A Limited Liability Partnership is essentially a General Partnership, but each partner is not liable for certain acts of other partners. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the partnership’s employees or other agents. State laws vary regarding LLPs and only about half of the states recognize them. Each of the partners (there can be more than two) shares in the profits and shares in the debts of the LLP, including losses, unless the partner is a limited partner. An LLP is considered an association of co-owners for tax purposes, and each co-owner is taxed on his or her proportional share of the LLP profits.
Limited partnerships have a general partner (GP) and at least one limited partner (LP). A limited partner has no management authority and cannot generally bind the partnership. The GP retains all the management authority. Limited partners are usually financial backers who participate in the proceeds. The general partner has liability for conduct of the partnership, whereas each limited partner’s liability is capped at the investment in the partnership. Limited partnerships are popular for project-based businesses such as real estate development and investing. The GP is typically a corporation that seeks out LPs to raise financing for a project.
An organizational chart, commonly referred to as an org chart, is a visual representation of a firm’s organizational structure. An organizational chart is a diagram that visually conveys a company’s internal structure by detailing the roles, responsibilities, and relationships between individuals within an entity. The individuals and positions are often represented by boxes or other shapes, sometimes including photos, contact information, email and page links, icons and illustrations. Corporate org charts present simple and complex entities in a single view. For legal entity management, org charts make planning and defining complex structures easier.
Ownership structure concerns the internal organization of a business entity and the rights and duties of the individuals holding a legal or equitable interest in that business. As owner of the business entity, it is important to understand how the ownership structure of a particular business entity is organized and what that means for the owner’s rights. Companies with private structures can control who buys and sells shares. Companies with public ownership can have public investors buy and sell shares on the open market.
A parent company is a single company that has a controlling interest in another company or companies. Parent companies are formed when they spin off or carve out subsidiaries, or through an acquisition or merger. Parent companies often have controlling stakes in their subsidiaries, which gives them the power to make decisions about the subsidiary’s operations. Parent companies may also provide financial support to their subsidiaries. Parent companies usually have greater resources than their subsidiaries, which allows them to take on more risk. Subsidiaries are often less risky investments because the parent company backs them.

Child entities, then, are a type of entity defined with another specific entity called the parent. Child entities can have their independent existence, but they cannot exist without their parents. That’s because they inherit the attributes of their parent entities. For example, if ‘Vehicle’ is a parent entity and ‘Car’ and ‘Bike’ are child entities, the hierarchy would have ‘Vehicle’ at the top, with lines connecting it to ‘Car’ and ‘Bike’. The lines would converge in a circle or an ellipse, indicating that ‘Car’ and ‘Bike’ are specializations of ‘Vehicle’. In some cases, the child entities may also have their own child entities, creating a multi-level hierarchy. For instance, ‘Sports Car’ and ‘SUV’ could be child entities of ‘Car’, inheriting its attributes and further specializing them.
A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.
A Professional Limited Liability Company, or PLLC, is a special type of LLC that’s designed for licensed professionals, such as accountants, lawyers, and doctors. Licensed professionals can set up a professional LLC to protect their personal assets. This means that if someone sues the business, only business assets would be at risk rather than the individual assets of the professional. The same goes for the business’s other creditors. If the professional LLC owes a creditor, the creditor can only go after the business’s assets and not the individual assets of any member of the company.
A registered agent serves as a legal point of contact, ensuring that a firm receives important legal documents and notifications from government agencies and courts in a timely manner. A registered agent can help firms establish credibility and improve how they organize and structure their legal documents and data. Additionally, a registered agent offers privacy by shielding owners’ and executives’ personal addresses from being exposed in public records, enhancing security and minimizing unwanted solicitations. Lastly, a registered agent can aid firms in ensuring compliance with state regulations, staying up-to-date with filing requirements, and avoiding potential penalties or legal complications.
In an S corporation, shareholders elect to be treated as a partnership from a tax standpoint, which means they are only taxed once, and the business becomes a pass-through entity. Shareholders in an S corporation must be U.S. individual investors; certain estates and trusts are also permitted to be shareholders. They cannot be foreign persons or corporations. Shares in an S corporation are simpler to transfer than membership in an LLC. That means that if you are trying to attract outside investors, an S corporation may make it easier to accomplish that goal.
When you form a business, whether a sole proprietorship, partnership, LLC, or corporation, the Secretary of State’s office registers and authenticates business entities and trademarks. The Secretary of State’s office processes, files, and maintains records related to business entities.
The total current equity value for an entity’s stock (equity) is the present value of a specific stock class or all stock classes combined. There are numerous factors that can contribute to the increase or decrease in total current equity value. Note that the total current equity value is not dependent on the total quantity of shares held by individuals or entities.
Cost basis is the original value or purchase price of an asset or investment for tax purposes. It is used to calculate capital gains or losses, which is the difference between the selling and purchase prices. Calculating the total cost basis is critical to understanding whether an investment is profitable and if it has any possible tax consequences. Cost basis for an asset can change over time for many reasons. Consider an office building: Taking depreciation lowers the building’s cost basis, but the cost of a new roof is a capital improvement that adds to the cost basis.
The trustee is a person or entity (like a bank or a company) who manages property or assets that have been placed in a trust. The trustee’s role is to handle both the daily and long-term management of the assets and distribute them according to the terms of the trust. No matter the type of trust, a trustee has what is called a fiduciary responsibility. This means that the trustee must use the utmost care and loyalty when managing the trust and cannot use it for their own personal gain. The trustee is legally required to work in the best interests of the trust and its beneficiaries.
When purchasing commercial real estate across the United States, the laws, guidelines and ethics are generally all the same thanks to the Uniform Commercial Code (UCC). The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law but rather a uniformly adopted state law. Because the UCC is universal across the country, businesses can enter into contracts knowing that the terms will be enforced in every jurisdiction. For investors and companies who do business in multiple states, the Uniform Commercial Code is extremely important, as it ensures some standardization for their business.

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