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Glossary

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    Glossary Entries
    Word(s) Definition Image Caption Link Source
    acceptance Assent to the terms of the offer.        
    accord and satisfaction The settlement of a dispute by offering up less consideration than demanded in exchange for extinguishing the obligation. The original obligation remains viable until the accord is performed.        
    act-of-state doctrine A US judicial doctrine that avoids making any determination on the merits of the case if doing so would cause the court to sit in judgment of the legal validity of public acts by a foreign sovereign.        
    administrative agencies Governmental units, either state or federal, that have specialized expertise and authority over some area of the economy.        
    administrative law judge The primary hearing officer in an administrative agency, who provides the initial ruling of the agency (often called an order) in any contested proceeding.        
    Administrative Procedure Act (APA) The federal act that governs all agency procedures in both hearings and rulemaking.        
    Affirmative action Actions by an employer, either court-ordered or voluntary, that are designed to make up for past discrimination by hiring or promoting previously disadvantaged classes of workers.        
    age of majority When a person is old enough to make his or her contracts unavoidable on account of age.        
    agency coupled with an interest An agency in which the agent has an interest in the property regarding which he or she is acting on the principal’s behalf.        
    aggregate theory The theory that a business firm is not an entity but rather a collection of individual owners who bind themselves together to share profits.        
    anticipatory breach (or repudiation) A communication that informs a party that the obligations of the original contract will not be fulfilled when due; gives rise to an immediate right to sue.        
    apparent authority In agency, the situation in which a principal leads a third party to believe that an agent has authority to bind the principal, even where the agent lacks the actual authority to bind the principal.        
    appellate jurisdiction the jurisdiction of an appellate court to review whether the parties received a fair trial in accordance with applicable law. Appellate jurisdiction does not include hearing witnesses or receiving new evidence.        
    appraisal rights If a shareholder has the right to vote on a corporate plan to merge, consolidate, or sell all or substantially all of its assets, that shareholder has the right to dissent and demand compensation.        
    arbitration A process agreed to by disputing parties, involving an arbitrator or arbitral panel (usually three), in which a final and binding award is made, enforceable through the courts if necessary.        
    arson The intentional setting of a fire to any building, whether commercial or residential, and whether or not for the purpose of collecting insurance proceeds.        
    Article 2 That part of the Uniform Commercial Code dealing with the sale of goods.        
    assault An attempt to commit a battery, or the deliberate placing of another in fear of receiving an immediate battery.        
    assignor One who agrees to allow another to receive the benefit of a contract.        
    assignor’s warranties Promises, express or implied, made by an assignor to the assignee about the merits of the assignment.        
    assumption of risk A defense to a plaintiff’s action in tort where the plaintiff has knowingly and voluntarily entered into a risky activity that results in injury.        
    authorized shares The maximum number of shares of stock that a company can issue, although management will typically keep the amount higher than those actually issued.        
    bait and switch A sales pitch where the retailer “baits” the prospective customer by dangling a very attractive offer, which disappears or is disparaged once the customer arrives in the store.        
    battery The unlawful application of force to another person. The force need not be violent.        
    beyond a reasonable doubt The prosecutor must prove how each element of the offense charged is “beyond a reasonable doubt.”        
    bilateral contract A contract in which each party makes a promise to the other.        
    blue sky law A state law that regulates the offering and sale of securities to protect the public from fraud.        
    bona fide occupational qualifications (BFOQs) Employers may require that employees be of a certain religion, sex, or national origin where that requirement is made in good faith and goes to the essence of the business. Race and color cannot be BFOQs.        
    bond A debt security to raise corporate funds where the corporation pays periodic interest (the coupon rate) and the face value at maturity.        
    breach of the duty of due care Any act that fails to meet a standard of the person’s duty of due care toward others. The standard is usually described as the standard of behavior that is expected of a hypothetical “reasonable person” under the circumstances. Certain professionals, however, may be held to a higher standard than the ordinary person.        
    bribery A secret payment to another to get them to favor the payer of the bribe, or his business organization. A bribe could offered in a commercial transaction, which usually raises ethical issues, or could be offered to get a public official to act (or ignore a criminal act) in favor of the person or firm paying. Bribery of a state or federal public official is generally a criminal offense, both for the bribe payer and the official accepting the bribe.        
    burglary The crime of breaking and entering the dwelling place of another with intent to commit a felony therein.        
    business corporation In contrast to public (municipal), professional, or nonprofit corporations, business corporations are of two types: publicly held and closely held, referring to how the stock is held within the corporation.        
    business judgment rule Presumption given by the courts to corporate directors that their actions were informed and done with good faith and with an honest belief that the actions were in the best interests of the corporation.        
    buyback A process whereby a corporation reacquires or repurchases its shares (the shares then become treasury shares).        
    case law Law decided by judges as recorded in cases and published.        
    causes of action In a complaint, a legal basis on which a claim is predicated. The legal basis can be a Constitutional law, a statute, a regulation, or a prior judicial decision that creates a precedent to be followed.        
    certificate of limited partnership The document filed with the appropriate state authority that, when approved, marks the legal existence of the limited partnership.        
    charging order A court order directing a partnership to pay a partner’s judgment creditor the distribution that the partner would normally receive.        
    circumstantial evidence Evidence that is not “direct” but that provides judges and juries with facts that tend to show legal liability.        
    civil penalties A term used to describe when a state entity, government agency, or private party seeks monetary relief, fines, and/or restitution for wrongdoing by another.        
    closed shop A firm where potential employees must belong to a union before being hired and must remain a member during employment.        
    closely held corporation A corporation with few shareholders, so that separation of ownership and control may be less pronounced than in a publicly held corporation or even nonexistent.        
    Code of Federal Regulations (CFR) A compilation of all final agency rules. The CFR has the same legal effect as a bill passed by Congress and signed into law by the president.        
    collective bargaining agreement The contract between the union and the employer.        
    commerce clause Article I, Section 8, of the US Constitution is generally regarded as the legal authority by which the federal government can make law that governs commerce among the states and with foreign nations.        
    commercial impracticability Relief from contract obligations may be granted when performance has been rendered excessively difficult, expensive, or harmful by an unforeseen contingency.        
    Common law Judicial decisions that do not involve interpretation of statutes, regulations, treaties, or the Constitution.        
    Common stock A security that represents ownership in a corporation and allows the holder to elect a board of directors.        
    comparative negligence In most states, the negligence of the plaintiff is weighed against the negligence of the defendant, and where the defendant’s negligence outweighs the plaintiff’s, the plaintiff can recover against the defendant even though the plaintiff has caused some of his or her own injuries.        
    compensatory damages An award of money damages to make the plaintiff whole, as opposed to additional damages (punitive) that punish the defendant or make an example of defendant.        
    compensatory damages In contract, damages paid to compensate the nonbreaching party for the direct loss suffered.        
    compulsory unionism Employers must not discriminate where there is a closed shop, a union shop, maintenance-of-membership agreements, or preferential hiring agreements.        
    computer crime Any crime (usually theft of some sort, or sabotage) committed with the aid of a computer.        
    concentrated industry An industry in which a large percentage of market sales is controlled by either a single firm or a small number of firms.        
    concession theory Incorporation was a concession given by royal grant of a sovereign.        
    concurrent jurisdiction When both state and federal courts have subject matter jurisdiction of a case, there is concurrent jurisdiction. Only one court will hear the case between the parties and will hear all causes of action, whether based on state or federal law.        
    condition An uncertain future act or event whose occurrence or nonoccurrence determines the rights or obligations of a party under a legal instrument, especially a contract.        
    condition precedent A term in a contract that something has to happen before the obligation to perform the contract ripens.        
    condition subsequent An event that terminates an existing duty of performance.        
    conduit theory The theory that a business entity does not itself owe taxes on income; it only acts as a pass-through for its members to receive income.        
    conglomerate mergers A merger between companies whose businesses are not directly related.        
    conscious capitalism Companies that practice conscious capitalism embrace the idea that profit and prosperity can and must go hand in hand with social justice and environmental stewardship.        
    consent decrees A judicial order entered into by defendants in lieu of litigating, in which they admit their guilt but agree to not carry on certain activities complained of. Failure to comply with the terms will result in fines. Similar to an injunction or a cease and desist order.        
    consequential damages Those losses or injuries which are a result of a breach of contract but are not direct and immediate.        
    consideration The surrender of any legal right (a detriment) in return for the promise of some benefit in return.        
    consolidation A corporate expansion similar to a merger but resulting in an entity that is an entirely new corporation.        
    constituency statutes Statutes that permit corporate directors to take into account interests other than maximizing shareholder value.        
    constitutions The founding documents of any nation-state’s legal system.        
    consumer transactions A contract for household or domestic purposes, not commercial purposes.        
    contract A legally enforceable set of promises.        
    contract of adhesion A contract presented to the offeree to take or leave without bargaining.        
    Convention on Contracts for the International Sale of Goods (CISG) An international body of contract law.        
    conventions Multilateral treaties that are sponsored by an international agency or institution (e.g., the United Nations).        
    core values Values that are generally recognized as positive ethical characteristics of an individual or a business organization. People may have strong views about other kinds of ethical values, but core values are more widely accepted.        
    corporate charter The basic document of incorporation filed in the appropriate public office, also referred to as articles of incorporation.        
    corporate insider A corporate director, officer, or shareholder with more than 10 percent of a registered security who through influence of position obtains knowledge that may be used to gain an unfair advantage to the detriment of others. The definition has been broadened to include relatives and others.        
    corporation by estoppel Use of the equitable principle of estoppel by a court to treat a business as a corporation.        
    corporation is a “person” When corporations are granted the same rights as natural persons.        
    corrective advertising A rarely used power of the FTC to require a company to correct previously misleading advertising. It does so by requiring the company to pay for further advertising that admits to the deception and makes corrected statements that are not misleading.        
    counteroffer A response to an offer that changes its terms.        
    coupon payments The interest payment made by a corporation to the holder of a bond.        
    course of performance Systematic and uniform conduct in which parties engage after they enter into a contract.        
    covenant not to sue An agreement not to pursue legal action.        
    creditor beneficiary One whom the party paying for the other’s performance intends to benefit as payment for a debt or obligation.        
    creditors’ composition An agreement among creditors, each accepting less than full payment from a debtor so that each gets something.        
    criminal law That body of law in any nation-state that defines offenses against society as a whole, punishable by fines, forfeitures, or imprisonment.        
    criminal prosecution The process of bringing a legal action against a defendant for criminal behavior.        
    cumulative voting Shareholder voting method permitting the holder to distribute his total votes in any manner that he chooses—all for one candidate or several shares for different candidates.        
    de facto corporation A corporation that exists in fact, though it has not met all of the necessary legal requirements.        
    definiteness The requirement that contracts be certain enough to determine liabilities.        
    delectus personae The theory that a new partner can only be admitted to a firm with the unanimous consent of all.        
    delegatee One to whom the duty to perform a contract is delegated.        
    delegation doctrine As a matter of constitutional law, the delegation doctrine declares that an agency can only exercise that power delegated to it by a constitutional authority.        
    delegator One who delegates.        
    demand for reasonable assurances A demand to be reassured that contractual performance will be forthcoming when reasonable grounds for insecurity arise with respect to the performance of the other party; failure to get such is an anticipatory breach.        
    deontology A theory that judges the morality of choices not by results (or “goods”) but by adherence to moral norms. The duty to act in accord with these norms is one that bears no relation to the expected consequences of the action.        
    derivative action Lawsuit brought on behalf of the corporation by a shareholder when the directors refuse to act.        
    directed verdict At the close of one party’s evidence, the other party may move for a directed verdict, or renew that motion at the close of all parties’ evidence. A judge will direct a verdict if there is no real issue of fact for reasonable jurors to consider and if the law as applied to the facts in evidence clearly favors the party who requests the directed verdict.        
    disinterested director A director who has no interest in the disputed transaction.        
    disparate impact A form of employment discrimination resulting from employer practices that appear to be neutral but that have a discriminatory impact on protected classes.        
    disparate treatment A form of employment discrimination that results when an employer intentionally discriminates against employees who are members of protected classes.        
    dissociation Under RUPA, the withdrawal of a partner from the firm.        
    dissolution A legal severance or breaking up; under UPA the change in relations caused by a partner’s withdrawal from the firm.        
    divestiture A remedy, occasionally used, to break up a firm into smaller, independent units, where the firm has exercised its monopoly power in ways that harm competition. For example, the breakup of AT&T was a divestiture.        
    dividend A share of a corporation’s profits.        
    Dodd-Frank Wall Street Reform and Consumer Protection Act A federal law aimed at financial reform and designed to promote financial stability, it was established to enhance the power of regulatory agencies and add additional enforcement agencies.        
    donee beneficiary A person not a party to a contract who is intended, as a gift, to benefit from its performance.        
    dormant commerce clause Even when the federal government does not act to make rules to govern matters of interstate commerce, the states may (using their police powers), but they may not do so in ways that unduly burden or discriminate against interstate commerce.        
    duress A threat of improper action to induce a person to make a contract.        
    duty of care Fiduciary obligation upon directors and officers to act with the care an ordinarily prudent person in a like position would exercise under similar circumstances.        
    duty of good faith Fiduciary duty to act honestly and avoid violations of corporate norms and business practices.        
    duty of loyalty Fiduciary obligation requiring loyalty of directors and officers to the corporation and its shareholders.        
    economic strike Employees go on strike to force an employer to give in to workers’ demands.        
    election of remedies The situation of a plaintiff in a civil lawsuit having multiple causes of action from which to choose as to how the defendant’s wrong may be righted.        
    embezzlement A form of larceny in which a person entrusted with someone else’s property wrongfully takes sole possession or has the intent to take sole possession.        
    employment at will The common-law doctrine that allows employers to discharge an employee at any time and for any reason or for no reason. Courts have created exceptions for “bad reasons.”        
    employment discrimination Treating employees or job applicants unequally on the basis of race, color, national origin, religion, sex (gender), age, or disability; prohibited by federal statutes and many state statutes.        
    entity theory The concept of a business firm as a legal person, with existence and accountability separate from its owners.        
    entrapment When a police officer or other government agent entices people to commit crimes they were not disposed to commit without the government agent’s suggestions and inducements.        
    Equity Ownership interest, such as stock, in property or a business.        
    exclusionary rule Evidence obtained in violation of constitutional rights from the Fourth, Fifth, and Sixth Amendments are generally not admissible at trial.        
    exclusive dealing agreement A contract—as between buyer and seller—where the parties agree only to deal with each other.        
    exculpatory clauses A term in a contract by which one party relieves itself in advance of liability.        
    executed contract A contract that has been completed.        
    exhaustion of administrative remedies A requirement that anyone wishing to appeal an agency action must wait until the agency has taken final action.        
    express authority Contractually given authority to the agent from the principal, orally or in writing, communicated to the third party.        
    express contract A contract in words, orally or in writing.        
    express partnership A partnership intentionally created and recognized, orally or in writing.        
    express powers Powers granted to a corporation through statute and its articles of incorporation.        
    express warranty Any manifestation of the nature or quality of goods that becomes a basis of the bargain.        
    extortion The wrongful collection of money or something else of value by anyone by means of a threat.        
    factor A person who pays money to receive another’s executory contractual benefits.        
    failing state A nation-state where substantial parts of the geographic territory in that nation are no longer effectively controlled by the central government.        
    false pretenses A form of larceny in which the rightful owner is tricked into giving up title to his or her property.        
    family purpose doctrine A doctrine under which an owner of an automobile is liable for damages to others incurred while members of his family are driving the vehicle, under the theory that the vehicle is owned for family purposes.        
    federal question jurisdiction Federal court subject matter jurisdiction based on a complaint that uses a federal statutory, regulatory, or constitutional law as a cause of action.        
    Federal Register The Federal Register is where all proposed administrative regulations are first published, usually inviting comment from interested parties.        
    federalism The idea, built into the structure of the Constitution, that states and the federal government have concurrent powers. In effect, federalism is the concept of shared governance between the states and the federal government.        
    fiduciary A person to whom power is entrusted for the benefit of another.        
    fiduciary duty The duty of an agent to act always in the best interest of the principal, to avoid self-dealing.        
    firm offer A UCC option made in writing and signed by a merchant, promising to keep an offer open; needs no consideration.        
    foreign corporation A company incorporated outside the state in which it is doing business.        
    Foreign Corrupt Practices Act (FCPA) A US law, enacted 1977, that in part prohibits US firms from bribing foreign officials to obtain or retain business.        
    foreseeability In contract, the requirement that damages from a breach be proximately caused by the breach.        
    forgery False writing of a document of legal significance (or apparent legal significance) with intent to defraud.        
    fraud in the execution Causing a person to sign a legal document while that person believes he or she is signing some other type of document.        
    fraud in the inducement Deceit or trick to cause someone to contract to his or her disadvantage.        
    fraudulent misrepresentation Misrepresentation with the intention to deceive.        
    frustration of purpose A defense to contractual nonperformance that occurs when an unforeseen event undermines a party’s principal purpose for entering into a contract, and both parties knew of this principal purpose at the time the contract was made.        
    general agent Someone authorized to transact every kind of business for the principal.        
    good-faith duty The duty to act with honesty in fact in commercial transactions.        
    good-faith rule Directors’ judgment as to the value of consideration received for shares is deemed conclusive.        
    gratuitous agency An agency where the agent receives no compensation.        
    guarantor One who promises to pay or perform a contract obligation upon the default of another; a surety.        
    horizontal merger A merger between competitors—for example, between two bread manufacturers or two grocery chains competing in the same locale.        
    horizontal privity The relationship between the original supplier of a product and an ultimate user or a bystander affected by it.        
    illusory promise The promisor actually gives up no consideration, as in “I will paint your house in June if I feel like it.”        
    implied authority The authority of an agent to perform acts that are reasonably necessary to accomplish the purpose of the agency.        
    implied conditions A provision not explicitly stated in an agreement but considered an important item.        
    implied contract A contract that is not expressed but is inferred from the actions of the parties.        
    implied partnership A partnership that arises where parties’ behavior objectively manifests an intention to create a relationship that the law recognizes as a partnership.        
    implied powers Corporate powers that extend beyond those powers explicitly defined as express powers.        
    implied private right of action A ruling by the Supreme Court that allows individuals who have been defrauded to seek damages resulting from a violation of SEC rules.        
    implied warranty A warranty imposed by law that comes along with a product automatically.        
    implied warranty of fitness for particular purpose A seller’s implied warranty that the goods will be suitable for the buyer’s expressed need.        
    implied warranty of merchantability Merchant-seller’s implied warranty that goods are suitable for the goods’ normal uses.        
    impracticability An excuse for nonperformance of a duty where it has become unexpectedly difficult or expensive for the party who was to perform.        
    incidental beneficiary A person not a party to a contract who benefits from its performance but was not intended to specifically.        
    incidental damages Compensation for commercially reasonable expenses incurred as a result of the other party’s breach.        
    indemnification A method of protecting directors and officers whereby the corporation agrees to pay legal expenses incurred by the directors or officers.        
    independent contractor A person who is hired to accomplish a result but is not subject to specific control by the one hiring.        
    indictment A formal charge that a serious crime has been committed; where a grand jury is convened, an indictment may issue if probable cause is found.        
    indirect interlock A situation where directors of two different companies serve jointly on the board of a third company.        
    infants A person who has not reached the age of majority and who may (usually) avoid contracts on that account.        
    initial public offering The first time a corporation offers stock for sale to the public. (IPO)        
    innocent misrepresentation A misrepresentation made by one who believes it is true.        
    integrated contract A contract that encompasses the parties’ full understanding.        
    intended beneficiary A person not a party to a contract who was intended to benefit from it and who may sue to enforce its terms.        
    investment contract A commitment of money or capital to purchase financial instruments as a means to gain profitable returns in the form of income, interest, or the appreciation of the value of the instrument itself. It can be interpreted by the courts to be a security for purposes of the federal securities laws.        
    involuntary dissolution A state action to dissolve a corporation.        
    joint-stock companies Companies in which stock or company funds are held jointly.        
    judgment n.o.v. Judgment “notwithstanding the verdict” may be awarded after the jury returns a verdict that the judge believes no rational jury could have come to. Judgment n.o.v. reverses the verdict and awards judgment to the party against whom the jury’s verdict was made.        
    judicial review The power the Supreme Court has to say what the US Constitution means. Because the Constitution speaks in broad terms, the interpretations of the Supreme Court as to the meaning of its provisions define what the Constitution means. The Constitution can only be changed by amendment or by further interpretation by the Supreme Court.        
    justifiable homicide When the law permits one person to kill another.        
    larceny The wrongful taking and carrying away of the personal property of another with intent to steal the same.        
    legal benefit The receipt by one person of something legal he or she had no preexisting right to.        
    legal sufficiency Something of value enough to constitute consideration.        
    leveraged buyout The acquisition of another company using a significant amount of borrowed money to pay for the acquisition. Often, the assets of the company being acquired may be used as collateral for the loans. (LBO)        
    limited liability company An unincorporated organization of one or more persons or entities established in accordance with applicable state laws and whose members may actively participate in the organization without being personally liable for the debts, obligations, or liabilities of the organization.        
    limited liability limited partnership A limited partnership that has chosen to limit the liability of the general partnership under state law.        
    limited liability partnership A partnership in which some or all partners (depending on the jurisdiction) have limited liability.        
    limited partners A member of a limited partnership who is not involved in running the firm but rather stands as a passive investor.        
    limited partnership A partnership formed by two or more persons under state law and having one or more general partners and one or more limited partners.        
    limited warranty Under the Magnuson-Moss Act, a less-than-full warranty.        
    lingering authority Authority that arises where actual authority has been terminated, but third parties are led by the principal’s negligence to believe it still exists.        
    liquidated damages Damages agreed to in the contract that are payable in case of breach.        
    liquidated debt A money obligation the value of which is known.        
    liquidation The process of paying creditors and distributing the assets of a corporation.        
    lockout A management tactic designed to gain bargaining advantage for the company by refusing to allow union members to work (and thus depriving them of their pay).        
    lost volume Damages for loss of profits on an item of inventory.        
    mailbox rule Common-law rule that acceptance is effective when dropped in mail.        
    main purpose doctrine A promise to pay the debt of another need not be in writing to be enforceable if the promisor was motivated by a desire for advantage or benefit.        
    material information Information that would be likely to affect a stock’s price once it became known to the public.        
    mediation A process where disputing parties agree to bring their differences to an experienced mediator, knowledgeable about the type of dispute involved, and in which the mediator’s recommendations may be accepted or rejected by either or both parties.        
    merger Any type of corporate expansion by which one corporation acquires part or all of another corporation.        
    merger clause A contract term stating that the written agreement contains—merges—the parties’ full understanding and intent.        
    merit review laws Laws that regulate the disclosure and the substantive merits and fairness of the securities offerings to investors.        
    mirror image rule Common-law rule that the acceptance must be the same as the offer.        
    misdemeanors Crimes that are less serious than a felony, usually involving punishment of six months in prison or less.        
    Misrepresentation A false or misleading statement or impression given that induces a party to contract.        
    mitigation of damages The plaintiff’s duty to take reasonable steps to minimize his or her damages or losses and to attempt to prevent further damage.        
    mitigation of damages The plaintiff’s duty to take reasonable steps to minimize his or her damages or losses and to attempt to prevent further damage.        
    monopoly power The ability of a monopoly to dictate prices and other characteristics in a given market segment.        
    moral hazard The lack of incentive to guard against a risk when a person is protected against it, as by being afforded limited liability.        
    motions Written requests made to a presiding judge. These include motions to dismiss, motions for summary judgment, motions to direct an opposing party to divulge more in discovery, motions for a directed verdict, motions for judgment n.o.v., and many others.        
    municipal corporation A governmental entity; also called a public corporation.        
    mutual mistake Erroneous belief shared and relied on by both parties to a contract for which a court often grants relief.        
    nation-state The basic entities that comprise the international legal system. Countries, states, and nations are all roughly synonymous. State can also be used to designate the basic units of federally united states, such as in the United States of America, which is a nation-state.        
    nationality jurisdiction Under customary international law, nation-states may exercise jurisdiction over their citizens (nationals) even when the citizens’ actions in question take place beyond their borders.        
    natural law A jurisprudence that emphasizes a law that transcends positive laws (human laws) and points to a set of principles that are universal in application.        
    needs contract An agreement to buy all of one’s requirements (of goods or services) from a single source.        
    negligence A breach of the duty of due care.        
    negligence per se An act of the defendant that violates a statute regulation or ordinance can be used to establish a breach of the duty of due care.        
    negligent misrepresentation A false or misleading statement or impression made because of carelessness.        
    nominal damages Damages in name only, as where actual damages are nonexistent or cannot be proved.        
    noncompete agreements One party agrees not to pursue a similar profession or trade in competition against another party.        
    nonprofit corporation A corporation in which no part of the income is distributable to its members, directors, or officers.        
    novation A new contract substituting for an old one, or a new party to a contract replacing a former party.        
    objective standard Judging something as an outsider would understand it; not subjective.        
    objective territoriality Under customary international law, nation-states may exercise jurisdiction over noncitizens when the actions of those noncitizens have a direct and foreseeable impact on the nation-state claiming jurisdiction.        
    objectively impracticable Impossible.        
    offer The proposal upon which the contract is based.        
    option contract A promise to keep an offer open for some time; must be supported by consideration.        
    Par value The face value of a stock.        
    parol evidence rule Under this rule, where there is a written contract, extrinsic (parol) evidence cannot usually change the express terms laid down in that document.        
    part performance doctrine Equitable exception to Statute of Frauds dispensing with writing requirement when one party performed his or her part of the contract.        
    partnership Two or more persons carrying on a business as co-owners for profit.        
    partnership by estoppel Partnership arising when in fact none exists, where one allows himself or herself to be represented as a partner, thus incurring partnership liability.        
    past consideration A promise subsequent to a promisee’s act, not bargained for; it does not count as consideration.        
    perfect tender The precise performance of a contractual obligation.        
    perjury The crime of giving a false oath, either orally or in writing, in a judicial or other official proceeding.        
    personal jurisdiction Each court must have subject matter jurisdiction and personal jurisdiction over at least one named defendant. If the defendant is a nonresident where the lawsuit is filed, there may be constitutional issues of personal jurisdiction arising from the due process clause of the Fourteenth Amendment. One state should not claim personal jurisdiction over a nonresident unless various tests are met, such as minimum contacts and the “purposeful availment” test.        
    personal liability A failure to follow corporate formalities—for example, inadequate capitalization or commingling of assets—can subject stockholders to personal liability.        
    personal right The right or duty of a particular person to perform or receive contract duties or benefits; cannot be assigned.        
    physical duress The threat of physical harm that wrongfully induces a party to contract.        
    piercing the corporate veil The protection of the corporation (the veil) is set aside for litigation purposes, and liability can be imposed on individual shareholders or entities that exist behind the corporation.        
    plea bargaining A defendant’s plea of guilty, given in exchange for a recommendation from the prosecutor to the judge for a limited or lesser sentence for the defendant.        
    plowback Reinvesting corporate earnings in the corporation as a method of raising funds.        
    possibility test Exception to Statute of Frauds’ one-year rule: if at its making, a contract could have been performed in one year, no writing is required.        
    postnuptial (after marriage) agreements An agreement after marriage between spouses concerning division or ownership of their property.        
    power of avoidance A party’s right to terminate performance of a contract—to avoid it (e.g., a minor has power of avoidance).        
    preemption Based on the supremacy clause, the preemption doctrine holds that state and federal laws that conflict must yield to the superior law, which is federal law.        
    preemptive rights The rights of shareholders to protect dilution of their percentage of share ownership.        
    preferred stock A variety of stock that differs from common stock in provisions for dividends and/or preference upon liquidation.        
    preincorporation stock subscriptions Offers by would-be investors to purchase stock in a corporation that is not as yet formed.        
    prenuptial (premarital) contract A premartial contract by which spouses agree on property division.        
    price-fixing Agreements, usually among competitors, that directly set prices, exchange price information, control output, or regulate competitive benefits.        
    primary-line injury Price discrimination under the Robinson-Patman Act that directly injures a competitor, in violation of Section 2(a).        
    privity The relationship of the immediate parties to a contract, a “private” relationship, as between retailer and customer.        
    product disparagement Saying defamatory things about a competitor’s product. It is a tort of defamation under common law but is actionable under Section 5 of the FTC Act where any specific untrue statement is made about a competitor’s product.        
    professional corporation A corporation of lawyers, doctor, accountants, or other professionals who enjoy the same benefits in corporate form as do other corporations.        
    promissory estoppel To be prohibited from denying a promise when another subsequently has relied on it.        
    promoters An individual who takes the initial steps needed to form a corporation.        
    prospectus A document that provides details about an investment offering for sale to the public—the facts an investor needs to make an informed decision.        
    proximate cause Sometimes known as legal cause, proximate cause must be shown as well as actual cause, so that an act of the defendant will not result in liability if the consequences of the negligent act are too remote or unforeseeable.        
    proxy A method whereby a shareholder elects a representative, commonly another individual or a written document, through which the shareholder casts his vote at the annual meeting.        
    proxy solicitation An attempt by a group or delegation to obtain the authorization from other individuals to vote on their behalf.        
    Public Company Accounting Oversight Board A body created by Sarbanes-Oxley that oversees, inspects, and regulates accounting firms in their capacity as auditors of public companies.        
    public figures Based on the First Amendment of the US Constitution, a public figure cannot recover in a defamation case unless the plaintiff’s defamation was done with actual malice.        
    punitive damages Punitive damages are awarded in cases where the conduct of the defendant is deemed to be so outrageous that justice is only served by adding a penalty over and above compensatory damages.        
    Punitive damages Damages to punish the breaching party.        
    purchase of assets One corporation purchases the assets of another corporation in order to expand.        
    quasi-contract (implied in law) A contract imposed on a party when there was none, to avoid unjust enrichment.        
    reaffirmation To confirm again the validity of a promise that was discharged, as in bankruptcy.        
    receiving stolen property Depending on the value of the property, if you receive property from another person, knowing that it has been stolen, you have committed either a misdemeanor or a felony.        
    reformation The correction of a contract containing errors.        
    regular voting The principle of one share, one vote. Also called statutory voting.        
    regulatory license A license to practice a trade or profession that requires no competency test to obtain but only a registration.        
    rejection A manifestation of refusal to agree to the terms of an offer.        
    release A contractual discharge of obligation by one side to another.        
    relevant geographic market The market that is the territory or territories within which a company markets its products or services.        
    relevant product market The market that includes all products that have identical attributes or are reasonably interchangeable. If customers treat different products as acceptable substitutes for one another, the products are reasonably interchangeable.        
    removal The right of a defendant to remove a case from state to federal court.        
    removal The right of a defendant to remove a case from state to federal court.        
    renunciation of agency The agent’s unilateral termination of the agency relationship.        
    res ipsa loquitur Literally, “the thing speaks for itself.” In tort cases, res ipsa loquitur creates a presumption that the defendant was negligent because he or she was in exclusive control of the situation and that the plaintiff would not have suffered injury but for someone’s negligence. Res ipsa loquitur shifts the burden to the defendant to prove that he or she was not negligent.        
    res judicata “The matter has been adjudicated.” The same case or controversy cannot be heard and concluded in one court and relitigated in another. The same parties may have different issues and disputes, but a final judgment in a court that has jurisdiction over the case or controversy forever settles the matter.        
    resale price maintenance An agreement between a manufacturer and a retailer in which the manufacturer specifies what the retail prices of its products must be.        
    reservation of rights A statement that one is intentionally retaining all or some legal rights, so as to warn others of those rights.        
    Restatement of the Law of Contracts An organized codification of the common law of contracts.        
    restitution Restoration; returning goods or money to put the nonbreaching party in the condition as if the contract had not been made.        
    restitution interest The nonbreaching party’s interest in being returned to the position it would have been in had the promises never been made. Where this is not possible, then restitution disgorges any unjust enrichment.        
    revocation The withdrawal of an offer by the offeror.        
    robbery Larceny from a person by means of violence or intimidation.        
    Rule 10b-5 A rule by the SEC that applies to any person who purchases or sells any security and that prohibits fraud related to securities trading.        
    Rule 10b5-1 A provision that defines when a purchase or sale constitutes trading “on the basis of” material nonpublic information as any time a person trades while aware of material nonpublic information.        
    Rule 10b5-2 A provision that includes a nonexclusive definition of circumstances and that establishes a duty of trust or confidence for purposes of the misappropriation theory of insider trading.        
    rule of reason A judicial test balancing the positive effects of an agreement against its potentially anticompetitive effects.        
    S corporation A corporation whose owners elect to have it treated as a partnership for tax purposes.        
    scienter A legal term that refers to having intent or knowledge of wrongdoing.        
    secondary actors A ruling by the Supreme Court stating that “aiders and abettors” of fraud cannot be held secondarily liable under 10(b) for a private cause of action.        
    secondary boycotts Union picketing directed at one business, designed to induce that business to stop doing business with the union’s employer.        
    secondary market The market in which securities are bought and sold subsequent to original issuance and are typically held by one investor selling them to another investor.        
    secondary-line injury Price discrimination under the Robinson-Patman act that injures a competitor of a buyer, in violation of Section 2(a).        
    Section 16(b) 16(b) A section of the 1934 Securities Exchange Act that allows shareholders to sue corporate officers, directors, or owners of more than 10% of the company’s shares for any profits made by insider trading. 16(b) is not enforced by the SEC,but by private parties, and covers profits made within a “short swing” (six month) period.        
    Securities Act of 1933 The first law enacted by Congress to regulate the securities market. This act regulates the public offering of new securities and provides for securities registration requirements, and prevention of fraudulent conduct.        
    Securities and Exchange Commission An independent federal regulatory agency whose primary task is to investigate complaints or other possible violations of the law in securities transactions and to bring enforcement proceedings when it believes that violations have occurred.        
    Securities Exchange Act of 1934 A law that was enacted to provide governance of securities transactions on the secondary market and to regulate the exchanges and broker-dealers in order to protect the investing public. This act also established the SEC.        
    security Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a security.        
    separation of powers In the original design of the Constitution, the executive, legislative, and judicial branches were all given powers that could modify or limit the powers of the other branches of government. For example, the president wields a veto power over congressional legislation.        
    servant An employee.        
    sexual harassment Demands for sexual favors in return for job promotions or other benefits, or language or conduct so sexually offensive that it creates a hostile work environment, disadvantaging the employee on the basis of sex.        
    shareholder quorum Minimum number of shareholders needed to have a valid vote. Also, when a simple majority of the shares entitled to vote is sufficient to effectuate a meeting.        
    shares An ownership interest in a corporation (synonymous with stock).        
    shop rights doctrine The rights of a company to exploit inventions made by employees on company time and resources.        
    short-form merger If the one company acquires 90 percent or more of the stock of another company, it can initiate a merger without the consent of the shareholders.        
    short-swing profits Any profits made from the purchase and sale of company stock if both transactions occur within a six-month period; insiders are required to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period.        
    social contract The idea that people in a civil society have voluntarily given up some of their freedoms to have ordered liberty with the assistance of a government that will support that liberty. Hobbes and Locke are generally regarded as the preeminent social contract theorists.        
    sovereign The authority within any nation-state. Sovereignty is what sovereigns exercise. This usually means the power to make and enforce laws within the nation-state.        
    sovereign immunity A long-standing doctrine under customary international law that recognizes a nation-state’s immunity from legal claims. Although absolute sovereign immunity was widely held through the greater part of the twentieth century, a more restrictive doctrine began to take hold after World War II, one that denied sovereign immunity for a sovereign’s commercial or private acts.        
    special agent An agent hired by contract to carry out specifically stated activities.        
    stakeholder theory The view that all stakeholders to a corporate decision deserve some kind of moral consideration and that corporations that keep all stakeholders in mind will, over the long term, deliver superior results to shareholders.        
    stand in the shoes of An assignee takes no greater rights than his assignor had.        
    stare decisis Latin, for “let the decision stand.” By keeping within the rule of a prior judicial decision, a court follows “precedent” by letting the prior decision govern the result in the case at hand.        
    statement of denial A public filing that a partner has no authority to perform some act(s) on the firm’s behalf or that a person is not a partner.        
    statement of dissociation A public filing that a partner is withdrawing from the firm.        
    statement of partnership authority A public filing setting out or limiting partners’ authority.        
    Statute of Frauds A rule requiring that certain contracts be evidenced by a writing, signed by the party to be bound, to be enforceable.        
    statute of limitations Each state and the federal government has legislated certain time periods beyond which plaintiffs are not allowed to file civil lawsuits. (There are some statutes of limitations for some kinds of criminal offenses, as well.)        
    statute of repose A statute limiting the time that a product manufacturer can be liable for its defects.        
    statutes Legislative directives, having the form of general rules that are to be followed in the nation-state or its subdivisions. Statutes are controlling over judicial decisions or common law, but are inferior to (and controlled by) constitutional law.        
    stock split Increasing the number of a firm’s outstanding shares by issuing more shares to current shareholders, adjusting the price to keep the firm’s market capitalization the same.        
    strict liability Liability without fault. This may arise when the defendant engages in ultrahazardous activities or where defective product creates an unreasonable risk of injury to consumers or others.        
    strict products liability Liability imposed on a merchant-seller of defective goods without fault.        
    subagents The agent of an agent.        
    subject matter jurisdiction Legal authority to hear and decide a case or controversy.        
    substantial performance At common law, the idea that a promisee should not be denied all payment under a contract when his or her performance was imperfect if significant benefit has been conferred on the promisor, who must pay for the value received.        
    substantive due process A doctrine of the Supreme Court that negated numerous laws in the first third of the 20th century. Its use in the past 80 years is greatly diminished, but it survives in terms of protecting substantive liberties not otherwise enumerated in the Constitution.        
    substituted agreement A new agreement between original parties who have given up rights under the old agreement.        
    successor liability The liability of an acquiring company for the debts and/or lawsuits of the corporation whose assets it purchased.        
    summary judgment As in a directed verdict, when a judge grants summary judgment, she has concluded that there are no matters of law or fact on which reasonable people would disagree. Summary judgment is a final order, and it is appealable.        
    surplus The excess of net assets of a corporation over its stated capital.        
    takeover An appeal directly to the shareholders of a target corporation by offering money or other securities in exchange for the shareholders’ shares.        
    tenants in partnership Under UPA, how partnership property is held by the partners: jointly.        
    tender offer An invitation to the shareholders of a target corporation to tender their shares for a stipulated price. Often used when a target has many shareholders.        
    term partnership A partnership with a time period for its duration expressed.        
    termination The lawful right to end the contract other than for breach.        
    territorial allocation Horizontal allocations of territory are per se illegal under Section 1 of the Sherman Act. But producers may wish to assign dealers an exclusive area within which to sell their products. For these vertical allocations of territory, the rule of reason is followed.        
    territorial principle A nation-state has the power to make and enforce laws with regard to events taking place within its political/geographic territory.        
    time is of the essence A clause asserting that any tardy performance is a material breach, discharging the nonbreaching party.        
    tippees Someone who receives and acts on insider information.        
    tortfeasor A person or legal entity that commits a tort.        
    trade regulation rules Made by the FTC, these rules have the same force and effect as a federal statute. Each rule must pass through a long process, including publication of the proposed rule in the Federal Register, hearings or written comments, and final publication in the Code of Federal Regulations.        
    transacting business A minimum level of corporate activities required for a corporation to need a certificate of authority.        
    Transfer of interest Transferring an ownership interest through the sale of stock from one person to the next.        
    Treasury shares Stock that was issued and then later reacquired by a company (a buyback) or that was never sold to the public in the first place and simply retained by the company.        
    treaties Formal agreements concluded between nation-states.        
    treble damages For private lawsuits, successful plaintiffs may collect three times the amount of damages actually suffered.        
    treble damages For private lawsuits, successful plaintiffs may collect three times the amount of damages actually suffered.        
    tying contract A form of exclusive dealing, prohibited under Section 3 of the Clayton Act, forcing you to take an additional product in order to get the product you really want.        
    ultra vires doctrine A doctrine holding that certain legal consequences attach to an attempt by a corporation to carry out acts that are outside its lawful powers.        
    unconscionable contracts A contract so unfair as to be unenforceable.        
    undue influence Improper use of power or trust in a way that deprives a person of free will and substitutes another’s objective.        
    unenforceable contract A contract for which the nonbreaching party has no remedy for its breach.        
    unfair labor practices Acts that violate the National Labor Relations Act, such as failing to bargain in good faith. Unfair labor practices can be committed by employers and by unions.        
    Uniform Electronic Transactions Act (UETA) A US law generally making electronic contracting valid and the contracts enforceable.        
    Unilateral contracts A contract that is accepted by performance of the requested action, not by a promise.        
    unilateral mistake A mistake made by one party to a contract; relief is not usually granted.        
    Union shop This exists where the bargaining unit and the employer have agreed that the employer can hire either labor union members or nonmembers but that all nonunion employees must become union members within a specified period of time.        
    usury Charging interest in excess of the legal limit.        
    Utilitarianism The theory that the “right” moral act is the one that produces the greatest good for society.        
    venture capital Financial capital provided to early-stage, high-potential, high-risk start-up companies by investors who often expect a return on the investment by an eventual sale of the company or by taking the firm public.        
    vertical merger A merger between a supplier and a customer. If the customer acquires the supplier, it is backward vertical integration; if the supplier acquires the customer, it is forward vertical integration.        
    vertical privity Privity between parties (manufacturer and retailer) occupying adjoining levels in product distribution systems.        
    vertical restraint of trade Any restraint on trade created by agreements between firms at different levels in the manufacturing and distribution process.        
    vesting of rights The time at which the benefit of a contract is fixed in the beneficiary.        
    vicarious liability Liability incurred indirectly through the actions of another.        
    virtue theory Aristotle’s perspective on finding happiness through the application of reason in human affairs advises continual practice to develop habits of virtuous moral character. In a modern setting, deliberating on core values and their application to individual and corporate ethical dilemmas and adhering to the recommendations of core values analysis would provide similar practice.        
    void contract An agreement that never was a contract.        
    voidable contract A contract that is capable of being annulled.        
    voluntary dissolution Dissolution of a corporation by unanimous written consent of its shareholders.        
    voting agreement An agreement made in advance among shareholders to vote in a particular manner. Also called shareholder agreement.        
    voting trust A trust created among shareholders where the shareholders elect a trust agreement, the provisions of which are effectuated by a voting trustee.        
    waiver The surrender of a legal right.        
    waiver of defenses Surrender by a party of legal rights otherwise available to him or her.        
    watered stock When consideration is inflated such that the property given for consideration in exchange for shares is in fact less than par value.        
    White-collar crime Any number of crimes, usually involving a business context; any illegal act committed by nonviolent means to obtain a personal or business advantage.        
    Winding up Finishing the business at hand, settling accounts, and terminating a firm.        
    workers’ compensation Laws imposing strict employer liability for injuries sustained by employees in the scope of employment.        
    writ of certiorari The writ issued by a higher court that grants review of the decision of a lower court. In the United States, the Supreme Court’s writ of certiorari is highly sought by those who would have the court review a state supreme court judgment or that of a federal circuit court of appeals. Most of the cases heard by the Supreme Court are through the granting of a petitioner’s appeal to have the writ issued.        
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