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GlossaryRegistered Agent - A registered agent is an individual or business designated by a C, LLC, LP, or LLP as well as other entity types to receive service of process ("SOP") consisting of legal notices or pleadings served on the business entity in any legal proceeding against the business entity. A registered agent must also reside physically within the state in a "Registered Office" thus providing a physical location, presence and person where and upon whom SOP for the business entity may be presented. A registered agent also acts as a conduit for official communications between the business entity and state governmental agencies, including taxing authorities. In some states "registered agents" are also referred to as "statutory agents" or "resident agents". It is an absolute legal requirement in all but a few states to appoint, designate and maintain a registered agent on a ongoing basis as a condition to either forming a business entity or to conducting its ongoing business. Failure to maintain a registered agent may result in the administrative dissolution of the business entity or the forfeiture of its authority to conduct business. Conducting business without such authority may subject the business entity to significant fines and penalties.
Registered Office - A Registered Office is the official address of a company where official documents are sent and legal notices received. It is customary for the registered agent to also serve as the registered office.
Service of Process - Service of process is the procedure of giving legal notice to a defendant of a court or administrative body’s exercise of its jurisdiction over that person. This is done in order to allow the person to respond to the proceeding before the court, body or other tribunal. Notice is given by delivering a set of court documents (called “process”) to the person to be served.
Piercing the Corporate Veil - This term describes a legal decision to remove the corporate protection provided to individual shareholders and directors thus making them liable for the corporation’s debts and/or liabilities. By definition, a corporation is treated as a separate legal person, who is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. This principle of separate personhood is one of the key elements to the benefits of forming a corporation. To maintain the separate identity status and its protections, the corporation must adhere to the corporate governance procedures set forth in its by-laws and through required activities such as filing annual reports, paying applicable taxes, conducting board of director and shareholder meetings and documenting those in properly adopted resolutions and corporate minutes. Failure to perform these corporate duties could result in a court "piercing the corporate veil".
Good Standing - A business entity which is either registered with or incorporated by a government agency such as a Secretary of State is considered to be in good standing if it has filed all appropriate paperwork with the applicable government agency and has paid all fees which are due for its initial entity formation or its renewal. When an entity is in good standing with the governing agency, it may obtain a certificate of good standing which documents the business entity’s current status.
Being in good standing is important for many reasons. For example, a bank may require a new business to show a certificate of good standing from the governing agency if it wants to open an account or get a loan. Also, a corporation or other limited liability entity seeking to register in another jurisdiction as a foreign corporation (or foreign limited liability company, partnership, etc.) may have to provide a copy of a certificate of good standing from its domestic jurisdiction to be able to register in the new or foreign jurisdiction.
Entity Type Terms:
LLC - Limited Liability Company is a form of entity that has attributes similar to those of both a corporation and of a partnership. Much like a corporation, an LLC allows its owners to shield their personal assets from the debts, obligations and liabilities of the LLC. Like a partnership, the relative rights, roles and economic interests of the LLC owners or "members" are prescribed by a contract signed and agreed to by all the members. This contract is termed an LLC Operating Agreement. Also, an LLC may elect to be taxed as a partnership for purposes of federal income taxes whereby the income, losses and tax credits of the LLC flows through directly to the members avoiding a "double tax". In most states an LLC is usually formed and managed by two or more members. Unlike a corporation or a sole proprietorship an LLC is run by either business members or through appointed managers, similar to the board of directors in a corporation.
GP - General Partnership. A GP is formed by the creation and signing of a Partnership Agreement among all the partners. Unlike a corporation or LLC, a partner in a GP does not enjoy limited liability and cannot shield their personal assets from the debts, obligations and liabilities of the GP or from the actions of any other partner. The actions of any partner binds all partners equally. In this regard all partners are considered to be "jointly and severally" liable for all debts and actions of the partnership. To form a General Partnership requires only the execution of the Partnership Agreement and does not generally require any official filings with the state, except for registration of the partnership name. The legal definition of a partnership is "an association of two or more persons to carry on as co-owners of a business for profit" (Revised Uniform Partnership Act § 101 [1994]).
LP - Limited Partnership. A limited partnership is a form of partnership that has two classes of partner; General Partner(s) ("GPs") and Limited Partner(s) ("LPs"). An LP must have one or more general partners who participate in managing the business and who are personally liable for partnership debts. The GP does not enjoy limited liability. An LP must have one or more limited partners. Each limited partner is shielded from the debts, obligations and liabilities of the LP. Limited partners do not participate in the management of the LP. One partner can be both a limited and a general partner; there must be at least two different partners in a limited partnership. An LP is created by the filing of organization documents with the state in which it is formed.
LLP - Limited Liability Partnership. This is similar to 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. An LLP must register with the state and some states require that LLP partnerships have sufficient assets to satisfy potential claims. State laws usually limit LLP’s to certain occupations such as accountants, lawyers, and similar professional services. The partners share the profits and share the debts in the LLP, unless they are a limited partner. Each partner is only taxed depending on their share of the LLP.
LLLP - Limited Liability Limited Partnership. This form of entity is a new modified limited partnership, a form of business entity recognized under U.S. commercial law. Similar to a limited partnership, an LLLP is a limited partnership and as such consists of one or more general or limited partners. The general partners manage the LLLP, and the limited partners only have financial interest. The main difference between an LLLP and a traditional LP is that liability of a general partner is limited. In a traditional limited partnership the general partners are jointly and severally liable for the debts and obligations of the limited partnership; limited partners are only liable for up to their capital investment.
Corporation. The corporation is the most common form of business organization. The rights and obligations of a corporation are strictly defined by the various statutes governing the creation and activities of corporations enacted by each of the United States. Generally, a corporation is considered to be a legal "person" and an entity separate and apart from its owners. This form of business is generally characterized by affording limited liability (see below), the issuance of shares of easily transferable stock, and perpetual existence as a going concern. The hallmark characteristic of a corporation is the concept of limited liability, which gives the company separate legal standing from its owners and shields the owners, called shareholders, from being personally liable for the debts, obligations or liabilities of the corporation. The corporate form of business also provides business entities with a more flexible way to manage its ownership structure.
C Corporation - is a corporation that is taxed under Subchapter C of the Internal Revenue Code. Like all corporations organized under the various state laws, a "C" corporation is a legal "person" in and of itself and for purposes of federal taxation is treated as a distinct entity separate and apart from its owners or shareholders. A C corporation has its own Federal Tax Identification number. The hallmark of a C Corporation is that its earnings and other taxable events are taxed separately from those of its shareholders and prior to the distribution of any dividends or assets. As such, a C corporation creates a "double tax" for its owners, first at the corporation level itself and then secondly at the shareholder level when dividends or distributions are made. For purposes of federal tax law, any corporation that does not elect to be treated as an “S” corporation is considered to be a “C” corporation. Unlike an S corporation, a C corporation does not have any restrictions placed upon either the number or types of its shareholders.
S Corporation - is a corporation that elects to be taxed under Subchapter S of the Internal Revenue Code. To become an "S" corporation, the entity must file an election with the IRS either shortly after the corporation is formed, or thereafter on the effective date of any subsequent tax year. Like all corporations organized under the various state laws, an "S" corporation is a legal "person" in and of itself, separate and apart from its shareholders. For federal income tax purposes the income, deductions, and tax credits of an S corporation flow directly through and are reported on the individual tax returns of its shareholders, regardless of whether or when actual dividends or distributions are paid. This allows S corporations to effectively avoid the "double taxation" on the corporate income although they may still be directly responsible for tax on certain built-in gains and passive income. An S corporation has restrictions and limits on the number and type of its shareholders as well as its stock. An S corporation must have only one class of stock; must be a domestic corporation; must have no more than 100 shareholders; and must limit its shareholders to individuals and certain trusts and estates. It may not have shareholders that are partnerships, corporations or LLCs or non-resident aliens.
Not-For-Profit Corporation - NFP. This form of corporation is created to conduct business for the benefits of the general public and does not distribute surplus funds to private shareholders or owners. Typically they are formed for public or altruistic purposes such as charities or to promote the arts, etc. The incorporating procedures and requirements for non-profit corporations are similar to those for profit corporations. The non-profit corporation can pay a reasonable salary, but cannot award excessive compensation to any one person or pay dividends to investors or shareholders.
Professional Corporations (P.C.) - this special form of corporation is for use by specific sets of licensed professionals such as attorneys, architects, engineers and doctors. This type of corporation is identified by the use of the abbreviation P.C. after its corporate name. The rules applying to professional corporations typically differ in important ways from those applying to other corporations. On the one hand, professional corporations can have a single director. On the other hand, they do not usually afford the same degree of limitation of liability as ordinary business corporations. Professional corporations often exist as part of a larger, more complicated, legal entity. For example, a law firm or medical practice might be organized as a partnership of several or many professional corporations.
PLLC - Professional Limited Liability Corporation. This form of entity is essentially an LLC that has been formed by licensed professionals such as attorneys, architects, and doctors. See, PC and LLC above.
