2.9: Key Terms

agency theory

a principle that is used to explain and resolve issues in the relationship between business principals and their agents, most commonly between shareholders (principals) and company executives (agents)

agent

a person who acts on behalf of another person or group

annual meeting

a meeting of the general membership and shareholders of a corporation; also known as an annual general meeting (AGM)

annual report

a document describing a public corporation’s operations and financial condition that must be provided to shareholders once per year; also known as Securities and Exchange Commission (SEC) Form 10-K

articles of incorporation

a set of formal documents filed with a government body to legally document the creation of a corporation

board of directors (BOD)

a group of people who jointly supervise the activities of an organization

C corporation

a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity

close (closely held) corporation

a company that has only a limited number of shareholders

conference call

a meeting or presentation conducted via telephone or internet to relay company information to all interested parties, including institutional and individual investors, as well as buy-and-sell side analysts; also known as an earnings conference call

corporate governance

the system of rules, practices, and processes by which a firm is directed and controlled

corporation

a legal entity that is separate and distinct from its owners

domestic corporation (in state)

a corporation incorporated under the laws of the country or state in which it does business

Electronic Data Gathering, Analysis, and Retrieval system (EDGAR)

the primary system for collecting and indexing documents submitted by companies and others under the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, and the Investment Company Act of 1940

ESG

environmental, social, and governance (ESG) standards for a company’s operations that socially conscious investors use to screen potential investments

foreign corporation (out of state or out of country)

an existing corporation that conducts business in a state or jurisdiction other than where it was originally incorporated

Generally Accepted Accounting Principles (GAAP)

a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB)

global markets

economies or markets that are multinational in nature, spanning several different countries or jurisdictions

hybrid form of business

a limited liability company (LLC) or limited liability partnership (LLP) that combines the characteristics of a corporation with those of a sole proprietorship or partnership

International Financial Reporting Standards (IFRS)

accounting standards used by international corporations, issued by the IFRS Foundation and the International Accounting Standards Board

investor

a person or an entity, such as a firm or mutual fund, that invests capital with the expectation of receiving financial returns

investor relations (IR)

a strategic management responsibility that is capable of integrating finance, communication, marketing, and securities law compliance to enable the most effective two-way communication between a company and the financial community or other constituencies, which ultimately contributes to a company’s securities achieving fair valuation

limited liability corporation (LLC)

a US-specific form of a private limited company; a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation

limited liability partnership (LLP)

a partnership in which some or all partners have limited liabilities; can exhibit elements of both partnerships and corporations

non-stock corporation

a corporation that does not have owners represented by shares of stock but typically has members who are the functional equivalent of stockholders in a stock corporation (having the right to vote, etc.); describes the vast majority of not-for-profit corporations

nonprofit (not-for-profit) corporation

a legal entity that has been incorporated under the law of its jurisdiction for purposes other than making profits for its owners or shareholders

partnership

a formal arrangement by two or more parties to manage and operate a business and share its profits and liabilities equally

press release

an official statement delivered to members of the news media for the purpose of making an announcement or otherwise providing information

principal

the person with the highest authority or most important position in a company, organization, institution, or group

professional corporation

a form of corporate entity used by licensed professionals such as attorneys, architects, engineers, public accountants, and physicians, which is regulated by special provisions in many corporation statutes

public benefit corporation

a specific type of Delaware general corporation that is owned by shareholders who expect the company to make a profit and return some of that money to them in the form of dividends

quarterly report

a document describing a public corporation’s operations and financial condition that must be provided to shareholders four times per year; also known as Securities and Exchange Commission (SEC) Form 10-Q

S corporation

a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code, which does not require such corporations to pay income taxes and instead taxes owners as individuals

secretaries of state

the state officials who head the agencies responsible for, among other functions, the chartering of businesses (usually including partnerships and corporations) that wish to operate within their state and, in most states, for maintaining all records on business activities within the state; also known as secretaries of the commonwealth in Massachusetts, Pennsylvania, and Virginia

Securities and Exchange Commission (SEC)

a large, independent agency of the United States federal government whose primary purpose is to enforce laws against market manipulation; created following the stock market crash of 1929 to protect investors and the national banking system

shareholder (stockholder)

an individual or institution that legally owns one or more shares of the share capital of a public or private corporation; may be referred to as members of a corporation

sole proprietor (and sole proprietorship)

a form of business that is operated and run by a single individual, known as the sole trader, with no legal distinction between the owner and the business entity

stakeholder

a person with an interest or concern in a business

stock corporation

a for-profit organization that issues shares of stock to shareholders (also known as stockholders) to raise capital, with each share representing partial ownership of the corporation and granting shareholders certain ownership rights to shape company policies

subscriber

an initial shareholder of a company at the time of its incorporation whose name appears on the memorandum of association, a legal document prepared in the formation and registration process of a company to define its relationship with shareholders